Privatization and wage inequality in developing countries

This paper studies how partial privatization influences the skilled-unskilled wage inequality in developing countries through the general equilibrium approach. When the degree of product differentiation between the public sector and the private sector is small enough, an increase in the degree of partial privatization will raise both the skilled wage rate and the status quo unskilled wage rate, and the wage inequality will be narrowed down (resp. expanded) if the substitution elasticity of the rural sector is sufficiently small (resp. large). Compared with the existing literature, this paper provides a new perspective and obtains some new results.