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References
That is, we do not have to assume an institutionally fixed formal wage as in most earlier models on the interactions between the formal and informal sector in developing countries. See, for instance, Hemmer and Mannel (1989).
For a more detailed discussion refer to Garino and Martin (2000).
See, for example, Haskel and Sanchis (1995).
Our results differ significantly from Moensted (2000), which can be attributed to her using a simpler sector classification. Her estimates on the formal employment share rise from 45.5 percent in 1989 to 77.8 percent in 1995. However, we put more faith in our sector classification, since it allows us to closely track the official figures on the formal employment share. Compare UDAPE (var. issues).
See Johnston and DiNardo (1997: 450) and Deaton (1997) on this issue. Moensted (2000) and Carneiro and Henley (2002) claim to have found such identifying variables. However, a closer inspection of their selection equations casts considerable doubt on the validity of this claim.
Our results differ from Moensted (2000) in that (a) her analysis extends only to 1995 and (b) her returns to education are highly volatile and negative for up to higher secondary education (12 years of schooling). We attribute her surprising results on the returns to education to a misspecification of her sector-specific earnings functions.
At least for industrialized countries, there is empirical evidence which supports this hypothesis. Falk and Koebel (1997) and Koebel (1997) find that unskilled workers are more substitutable to intermediate inputs than skilled workers in the German manufacturing and construction sectors.
The model of Feenstra and Hanson (1996, 1997) captures a different transmission mechanism, but yields basically the same results as our textbook model. Their argument is that there exists a continuum of intermediate inputs used to produce a manufactured good, which can be rank-ordered in terms of their human-capital intensities. Industrialized countries specialize in those activities with human-capital intensities above a critical level; developing countries in those with human-capital intensities below the critical level. If the capital and technology stock of developing countries grows relative to that of industrialized countries (which may occur as a result of FDI), then at the margin activities will shift from industrialized to developing countries. This shift benefits skilled workers in developing countries since the new activities are more human-capital-intensive than the existing ones.
See, for example, Buchinsky (1994) for the United States, Fitzenberger (1999) for Germany, Machado and Mata (2001) for Portugal, and Arabsheibani et al. (2003) for Brazil.
Quantile regressions were developed by Koenker and Basset (1978) as a robust alternative to OLS regressions for estimating the coefficients of a linear model. For a more detailed description of the methodology see Koenker and Hallock (2001).
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(2006). The Impact of Structural Reforms on the Formal-Informal Divide and the Skilled-Unskilled Divide. In: Poverty and Inequality in the Era of Structural Reforms: The Case of Bolivia. Kieler Studien - Kiel Studies, vol 336. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-37649-6_3
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