Changes in Low-Income Countries' Wages as a Result of China's Trade Liberalization

Abstract

The fast expansion of China's economy and the following liberalization of its commerce have had far-reaching consequences for the world's LICs. Focusing on the implications on labor markets and income distribution, this research analyzes how China's trade liberalization has affected salaries in LICs. This research intends to provide light on how China's trade policies have affected wage dynamics and societal shifts by reviewing the relevant literature.

China's exports have increased as the country has liberalized its trade policies and opened up to international markets. Wages in LICs have been affected, both positively and negatively, by the flood of Chinese imports. Wages in businesses that rely heavily on human labor have been hit especially hard by cheap Chinese imports. Because of this, low-skilled employees in LICs face more competition and less bargaining leverage, both of which contribute to wage stagnation or decline.

The rise of China's exports, however, has opened up new doorways for economic development and increased employment in LICs. Increased demand from China has fueled employment growth and pay inflation in LICs' comparative advantage sectors including natural resources and specialized manufacturing. Chinese investment in low- and middle-income countries (LICs) has boosted local economies by creating jobs and raising salaries in the manufacturing and infrastructure sectors.

The overall effect of China's trade liberalization on LICs' salaries is nuanced and sector-specific. Economic diversification, trade patterns, and the structure of LIC economies all have a role in shaping the size and direction of these impacts

Introduction

China's economic growth and trade liberalization policies in the past few decades have had a substantial impact on the global economic landscape. China's trade policies have had significant implications for low-income countries (LICs), which heavily depend on trade for their economic development. China's trade policies, as the world's largest exporter and second-largest economy, play a significant role in shaping global trade dynamics. A specific focus area pertains to the effects of China's trade liberalization on wages in low-income countries (LICs) and the consequent transformations in labour markets and income distribution within these nations.

In China, the term "trade liberalization" refers to the systematic reduction of trade barriers, the facilitation of market access, and the promotion of greater economic integration with the global community. The process experienced an increase in speed following China's membership in the World Trade Organization (WTO) in 2001, which served as a noteworthy achievement in its dedication to market-oriented reforms and global trade. China's export expansion resulted in a significant increase in the global availability of Chinese goods.

The increase in imports from China to low-income countries (LICs) has resulted in a multifaceted array of consequences for wage dynamics within these nations. One perspective suggests that the increase in affordable imports from China has had a negative impact on wages in industries that heavily rely on labour. The presence of heightened import competition from China has resulted in the suppression of wages within sectors where low-income countries (LICs) possess a comparative advantage, specifically in the domains of textiles and apparel [1]. The proliferation of affordable Chinese products has heightened market competition, leading to a diminished capacity for low-skilled labourers to negotiate favourable terms and consequently yielding stagnant or diminishing wage levels.

Conversely, the process of trade liberalization in China has yielded additional employment prospects and increased wages in low-income countries (LICs), particularly in industries where LICs possess a comparative advantage. There is evidence to suggest that the demand from China for natural resources and specific manufactured goods has had a positive impact on job creation and wage growth in low-income countries (LICs) that possess abundant natural resources or specialized manufacturing capabilities [2]. Chinese investment in infrastructure projects and manufacturing facilities has positively impacted nations like Zambia and Ethiopia, leading to an increase in employment rates and wages for indigenous laborers [3].

Nevertheless, the effects of China's trade liberalization on the wages of low-income countries (LICs) are not consistent and are contingent upon various factors. The configuration of economies in low-income countries (LICs), their patterns of trade, and the extent of economic diversification all have a significant influence on the wage dynamics that arise as a result of China's trade policies. Countries classified as low-income countries (LICs) that have a significant dependence on the export of primary commodities may encounter challenges in achieving substantial wage improvements. We primarily attribute this to their susceptibility to fluctuations in commodity prices and their limited ability to add value to these commodities. Furthermore, governments in low-income countries (LICs) implement policy responses that influence the wage effects of China's trade liberalization. Policymakers in low-income countries (LICs) have implemented a range of strategies aimed at mitigating the negative impacts on wages and maximizing the advantages. The literature has identified investment in education and skill development as a strategy to enhance worker productivity and competitiveness [4]. Furthermore, it is worth noting that certain nations have adopted industrial policies with the goal of fostering domestic industry growth and decreasing reliance on imported commodities [5]. The ramifications of wage fluctuations arising from China's trade liberalization extend beyond the realm of labor market dynamics. The wage dynamics have significant implications for the distribution of income and levels of poverty in low-income countries (LICs). Income inequality tends to exacerbate and potentially increase poverty rates when there is a lack of growth or a decrease in wages. On the other hand, the presence of favorable wage effects can play a significant role in diminishing poverty levels and enhancing the overall quality of life for individuals with low incomes.

The process of trade liberalization in China has had significant implications for the wages of low-income countries (LICs), encompassing both advantageous and detrimental outcomes. The presence of Chinese imports in the market has led to a decline in wages in specific industries due to heightened competition. However, it is important to note that China's demand for goods and services from low-income countries (LICs) has also resulted in a rise in wages and the creation of employment opportunities in various sectors. The wage effects, in terms of both magnitude and direction, exhibit variation across different countries and are subject to influence from factors such as economic structure, policy responses, and sectoral diversification. This paper will now proceed to examine in greater detail the precise wage dynamics that have emerged because of China's trade liberalization and will undertake a comprehensive analysis of the socioeconomic implications that have ensued.

Literature Review

Trade liberalization has emerged as a pivotal element in the economic development strategies of numerous nations, particularly those with low-income economies. The trade liberalization policies implemented by China have exerted a substantial influence on the global economy, encompassing low-income nations. This literature review aims to analyze the impact of China's trade liberalization on wages in low-income countries, providing insights into the different aspects and consequences associated with this occurrence.

The rise of China as the global manufacturing hub after the implementation of trade liberalization has sparked apprehensions regarding the potential displacement of manufacturing employment in economically disadvantaged nations. The escalation of import competition from China resulted in a decrease in both manufacturing employment and wages in various countries, such as Mexico and Indonesia [6]. The findings indicate that low-income nations, possessing a relative advantage in labor-intensive manufacturing industries, have encountered a decline in wages because of China's trade liberalization.

The subject of significant discussion revolves around the effects of China's trade liberalization on wage inequality in low-income nations. The skill premium, which refers to the disparity in wages between skilled and unskilled workers, has experienced a notable rise in numerous low-income countries as a result of their trade interactions with China [7]. China's specialization in labor-intensive commodities has led to heightened competition for unskilled laborers in poor nations, resulting in a relative decrease in their remuneration.

Trade liberalization with China can potentially impact wages in low-income countries through indirect mechanisms such as spillover effects and sectoral adjustments. Chinese import competition has a significant impact on both the directly competing sectors and the associated industries within low-income countries [8]. The aforementioned phenomenon has the potential to result in a reduction of employment opportunities and a decrease in wages within sectors that are indirectly associated with the industries experiencing the impact, thereby intensifying the wage consequences of trade liberalization.

In low-income countries, there has been comparatively little focus on examining the effects of China's trade liberalization on agricultural wages and rural employment. Investigate the impact of Chinese agricultural imports on labor markets in rural areas of Africa [9]. Their findings show that the rise in import competition has resulted in a decrease in agricultural wages and a reduction in employment prospects for rural workers. The aforementioned findings shed light on the difficulties encountered by low-income nations that rely heavily on agriculture as they confront heightened competition from China.

The negative effects of China's trade liberalization on the wages of low-income countries highlight the importance of implementing efficient trade adjustment assistance and social protection policies. Offering retraining initiatives, job placement assistance, and income support to displaced workers is crucial in mitigating the adverse wage consequences resulting from trade liberalization [10]. Implementing robust social protection systems can effectively mitigate the adverse effects experienced by workers who are particularly vulnerable, while also facilitating a more seamless transition into alternative employment prospects.

It is imperative to acknowledge that the effects of China's trade liberalization on the wages of low-income countries are not consistent across various regions and industries. We must consider the diversity in labour markets and industrial structures in low-income countries [11]. The authors posit that trade liberalization can yield advantages for certain regions and sectors while simultaneously presenting notable obstacles for others. Therefore, it is imperative to develop a comprehensive comprehension of the specific circumstances within a given locality to devise policy responses that are truly effective.

The existing body of literature suggests that the process of trade liberalization in China has yielded diverse outcomes in terms of wage dynamics within low-income countries. Further investigation is needed to determine the extent of spillover effects on other sectors, such as agriculture, as well as the negative impact on manufacturing wages and wage inequality. Policymakers in low-income countries are required to implement comprehensive strategies that encompass trade adjustment assistance and social protection measures to alleviate the negative wage consequences associated with trade liberalization. In addition, it is imperative to acknowledge the presence of regional disparities and diversity within nations to develop precise interventions that can optimize the advantages and mitigate the adverse effects of engaging in trade with China (see figure 1 below).

Figure 1: The minimum wage in China exhibited no change, maintaining a value of 2590 CNY per month in both 2022 and 2023

Figure 1.

Source: China Minimum Monthly Wages, 2019 [12]

Methodology

This section provides an overview of the methodology utilized to examine the impact of China's trade liberalization on the wages of low-income countries. This section of the literature review examines the research design, data collection methods, and analysis techniques employed in the studies under review. We gain valuable insights into the various approaches employed to investigate this intricate phenomenon by discussing these aspects.

The existing body of scholarly literature pertaining to the impact of China's trade liberalization on wages in low-income countries encompasses a range of research methodologies, encompassing both quantitative and qualitative approaches. Quantitative research employs econometric methodologies to examine extensive datasets, whereas qualitative studies concentrate on case studies, interviews, and qualitative analysis of primary and secondary data sources. Several factors, such as the nature of the research inquiry, the accessible data, and the circumstances under examination, influence the selection of a research design.

The collection of data plays a critical role in the investigation of wage fluctuations. Numerous scholarly investigations rely on primary and secondary data sources to examine the effects of China's trade liberalization on the wages of low-income countries. The primary methods employed for data collection encompass surveys, interviews, and fieldwork. Secondary data sources commonly encompass a range of resources, such as national and international databases, trade statistics, and labor market surveys. Academic researchers strive to obtain dependable and inclusive data that enables a thorough examination of wage dynamics in low-income countries.

Quantitative research utilizes econometric methodologies to assess the correlation between China's trade liberalization and fluctuations in wages within low-income nations. These studies frequently employ panel data models to examine variations across different countries and their effects over time. We utilize econometric methodologies, such as fixed effects models or instrumental variable regressions, to mitigate indigeneity issues and establish causal relationships. These analyses provide valuable insights into the scale and significance of trade liberalization's influence on wages.

Qualitative research frequently uses case studies as a methodological approach to investigate the unique experiences of low-income countries within the framework of China's trade liberalization. Case studies encompass a comprehensive examination of specific nations or sectors, with a particular emphasis on the intricate interplay between wages, employment, and conditions within the labour market. Academic researchers utilize various methods, such as interviews, focus groups, and document analysis, to collect comprehensive and contextually relevant information. The insights gained from conducting case studies improve our understanding of the underlying mechanisms and processes that drive wage fluctuations.

Comparative analysis is a common practice in assessing the varying effects of China's trade liberalization on wages in low-income countries. Through the analysis of various countries or regions, scholars have the ability to discern shared patterns and discrepancies. Comparative analysis enables the identification of various factors that influence wage effects, including disparities in industrial structure, labour market institutions, and levels of trade integration. This methodology improves the ability to apply the results to a wider range of contexts and strengthens the reliability of the findings.

It is imperative to recognize and address the methodological constraints and difficulties associated with examining the impact of China's trade liberalization on wage dynamics in low-income countries. The challenges of data availability and quality are particularly pronounced in low-income settings that have limited statistical infrastructure. Indigeneity and selection bias may influence the estimated wage effects. Moreover, the intricate nature of the phenomenon necessitates meticulous analysis of findings and contemplation of alternative hypotheses.

The investigation of the impact of China's trade liberalization on wages in low-income countries involves a diverse array of research methodologies, data collection methods, and analytical approaches. The integration of quantitative and qualitative methodologies, such as econometric analysis, case studies, and comparative analysis, facilitates a holistic comprehension of the multifaceted aspects of wage dynamics. Recognizing the inherent constraints and difficulties inherent in the chosen research approach serves to bolster the credibility and dependability of the results, thereby facilitating well-informed deliberations and interventions within poor nations.

Findings of studies

The manufacturing sector has experienced a decline in employment and wages in low-income countries due to the rise in import competition from China. This phenomenon has become particularly apparent in industries that directly face competition from Chinese imports, resulting in reduced employment opportunities and a negative influence on wage levels.

Researchers have found that China's trade liberalization process significantly contributes to the rise in wage inequality in low-income nations. Due to China's concentrated focus on labor-intensive industries, the wage disparity between skilled and unskilled workers, also known as the skill premium, has expanded due to increased competition. As a result, there has been a noticeable decrease in the compensation of individuals lacking specialized skills.

Spillover effects refer to the broader consequences that arise from China's trade liberalization, encompassing impacts that extend beyond the sectors directly involved. Low-income countries have observed wage reductions in related industries due to the indirect impacts of competition from Chinese imports. This observation underscores the interdependence among different sectors within the economy.

China's trade liberalization policies have also had an impact on the agricultural sector in low-income countries. The rise in imports of agricultural commodities from China has had a detrimental impact on agricultural wages and employment prospects for rural laborers, thereby presenting significant challenges for nations that heavily depend on agriculture.

The aforementioned literature's policy implications emphasize the importance of implementing efficient and effective trade adjustment assistance and social protection policies. Providing assistance to displaced workers through retraining initiatives, job placement services, and income support can effectively alleviate the negative wage consequences associated with trade liberalization while also facilitating a more seamless transition to alternative employment prospects.

The results emphasize the intricate dynamics of the correlation between China's trade liberalization and wages in poor nations, emphasizing the necessity for customized policy measures to effectively tackle the distinct obstacles encountered by various industries and geographical areas.

Discussion

The discourse pertaining to the impact of China's trade liberalization on wages in low-income countries is intricate and diverse. The reviewed literature offers a variety of viewpoints on the subject, explaining both positive and negative outcomes. This section examines several critical aspects and provides valuable perspectives on the broader implications and policy decisions.

A notable discovery pertains to the adverse effects of China's trade liberalization on the wages of manufacturing workers in low-income countries. The presence of heightened import competition from China has resulted in a decrease in both employment rates and wages in industries that heavily rely on it [13]. The observed phenomenon raises concerns about the potential ramifications of job displacement and income disparity within these nations, particularly among individuals employed in industries that are directly affected by Chinese imports. Policymakers must deliberate and devise strategies that not only facilitate the provision of assistance to adversely affected workers but also foster the creation of alternative employment prospects in different sectors.

Furthermore, the significant issue of wage inequality has emerged as a consequence of China's trade liberalization. This specific framework incorporates a skill premium. China's focus on labor-intensive sectors contributes to heightened competition for unskilled workers in low-income nations, resulting in a decrease in relative wages for this particular demographic [14]. To effectively tackle this disparity, it is imperative to implement policies that prioritize the cultivation of skills, education, and training opportunities. These measures aim to bolster the competitiveness of individuals within industries that require advanced skill sets.

Furthermore, it is imperative to take into account the repercussions on the agricultural industry and rural workforce. This study provides evidence to support the claim that the increase in agricultural imports from China has had a detrimental impact on the wages and employment prospects of rural workers in economically disadvantaged nations [15]. This presents difficulties for nations that rely heavily on agriculture as a means of sustenance and economic advancement. The implementation of strategies aimed at augmenting agricultural productivity, enhancing value chains, and fostering rural diversification has the potential to mitigate the adverse effects on rural wages.

When considering the impact of China's trade liberalization on wages, it is important to recognize that policy interventions should not exclusively prioritize protectionism or trade restrictions. To achieve a comprehensive strategy, it is imperative to adopt a well-rounded approach that highlights the significance of investing in human capital, encouraging innovation, cultivating economic diversification, and fortifying social protection systems [16]. Low-income countries have the potential to maximize the benefits of trade liberalization and minimize its negative effects by providing adequate assistance to impacted workers and sectors.

The discourse underscores the intricacy of wage fluctuations in low-income nations due to the implementation of trade liberalization policies in China. This statement emphasizes the significance of comprehending the unique circumstances of individual countries, considering variations in sectors and regions, and implementing customized strategies to promote inclusive economic expansion and minimize negative impacts on wages.

Conclusion

The existing body of literature on the impact of China's trade liberalization on wages in low-income countries contributes significantly to understanding the intricate dynamics and consequences associated with this phenomenon. The present review has elucidated various significant findings and discussions pertaining to the subject matter. The multifaceted nature of the wage effects resulting from trade liberalization with China is apparent, as it presents a combination of challenges and opportunities for low-income countries.

The research findings indicate that there has been a discernible correlation between heightened import competition from China and the subsequent decrease in employment rates and wages within labor-intensive industries, with a particular emphasis on the manufacturing sector. This necessitates the implementation of policy interventions aimed at providing support to affected workers and fostering the development of alternative employment prospects. Furthermore, it is crucial to acknowledge that the expansion of wage disparity, which arises from the process of trade liberalization, highlights the significance of fostering skill acquisition and educational opportunities. These measures are essential for bolstering the competitiveness of individuals employed in sectors that require advanced skills and expertise.

The implications of wage changes in indirectly impacted sectors due to Chinese import competition underscore the necessity of implementing comprehensive policies that effectively tackle the interdependencies among various industries within the economy. The mitigation of negative wage effects and the promotion of resilience can be achieved through the promotion of economic diversification and the fostering of competitiveness in non-traditional sectors.

Moreover, it is imperative to implement specific strategies aimed at enhancing agricultural productivity, optimizing value chains, and fostering rural diversification in order to address the effects on the agricultural sector and rural employment. The importance of this matter cannot be overstated for nations that heavily rely on agriculture as a means of sustenance and a driver of economic advancement.

It is imperative to adopt a nuanced approach to comprehending and tackling the shifts in wages within low-income countries that have arisen due to China's trade liberalization. Policymakers are required to take into account the variations across sectors and regions, allocate resources towards the development of human capital, encourage the advancement of innovative practices, facilitate economic diversification, and enhance the resilience of social protection systems. Achieving inclusive growth and reducing income inequality necessitates a careful equilibrium between the advantages of trade liberalization and the imperative to address negative wage consequences.

Further investigation is warranted to examine the precise mechanisms by which trade liberalization influences wages in low-income nations, as well as to delve into the varying effects experienced across different industries, regions, and demographic cohorts. This study aims to enhance the breadth and depth of knowledge regarding the fundamental mechanisms at play, thereby facilitating the development of policy interventions grounded in empirical evidence. These interventions seek to optimize the advantages and mitigate the adverse effects associated with opening up trade with China in economically disadvantaged nations.

Conflict of Interest

The authors declare that they have no conflict of interests.

Acknowledgement

The authors are thankful to the institutional authority for completion of the work.