Openness, Inequality and Poverty: Endowments Matter
Centro Studi Luca d'Agliano Development Studies Working Paper No. 239
49 Pages Posted: 29 Jun 2009 Last revised: 27 Apr 2012
Date Written: January 1, 2008
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.
Keywords: International Trade, Income Distribution, Poverty
JEL Classification: F11, F16, D3
Suggested Citation: Suggested Citation