The effect of outward processing trade on wage inequality: the Hong Kong case

This study uses time series analysis to investigate the impact of Hong Kong's increased outward processing trade with the Chinese Mainland on wage inequality. We found a significant positive association between outward processing trade and the wage premium of university graduates over primary school graduates and that over secondary school graduates. Moreover, a standard test showed one-way causality from outward processing trade to the widening of skill wage gap. Furthermore, the increase of outward processing trade is found to both increase the pay for well-educated people and decrease the pay for less well-educated people, thereby widening the wage gap.