Openness, Inequality and Poverty: Endowments Matter
Jaime De Melo
University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR); World Bank
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
UNCTAD - United Nations Conference on Trade and Development; Department of Economics - University of Geneva
January 1, 2008
Centro Studi Luca d'Agliano Development Studies Working Paper No. 239
Using tariffs as a measure of openness, this paper finds consistent evidence that the conditional effects of trade liberalization on inequality are correlated with relative factor endowments. Trade liberalization, measured by changes in tariff revenues, is associated with increases in inequality in countries well-endowed in highly skilled workers and capital or with workers that have very low education levels. Similar, though less robust, results are also obtained when decile data are used instead of the usual Gini coefficients. Taken together, the results are strongly supportive of the factor-proportions theory of trade and suggest that trade liberalization in poor countries where the share of the labor force with little education is high raises inequality. Simulation results also suggest that relatively small changes in inequality as measured by aggregate measures of inequality like the Gini coefficient are magnified when estimates are carried out using decile data.
Number of Pages in PDF File: 49
Keywords: International Trade, Income Distribution, Poverty
JEL Classification: F11, F16, D3working papers series
Date posted: June 29, 2009 ; Last revised: April 27, 2012
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