Trade and wage inequality: Are they related?

The objective of this paper is to investigate the relationship between net exports and wage inequality in the U.S. The short- and long-run analyses of the U.S. trade and wage data are undertaken. Cointegration test results indicate that net exports and wage inequality are related in the long run. The main contribution of this paper lies in its focus on the short-run investigation of the relationship between net exports and wage inequality. This investigation was conducted using the vector error correction (VEC) testing framework. Contrary to the prevailing view, the VEC test results indicate that trade has no statistically significant impact on wage inequality in the U.S. Instead, the empirical evidence shows a negative causal impact of wage inequality on net exports.