Openness, Inequality, and Poverty: Endowments Matter

52 Pages Posted: 18 Jul 2006 Last revised: 27 Apr 2012

See all articles by Julien Gourdon

Julien Gourdon

OECD

Nicolas Maystre

UNCTAD - United Nations Conference on Trade and Development; Department of Economics - University of Geneva

Jaime de Melo

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR); World Bank

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Date Written: May 1, 2006

Abstract

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 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, and in countries relatively well-endowed in mining and fuels while it is associated with decreases in inequality in countries that are well-endowed with primary-educated labor. Similar results are also apparent when decile data are used instead of the usual Gini coefficient. 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, although in our sample relative endowments in capital turn out to be the overriding determinant so that trade liberalization is accompanied by reduced income inequality in low-income countries. 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: D3, F11

Suggested Citation

Gourdon, Julien and Maystre, Nicolas and de Melo, Jaime, Openness, Inequality, and Poverty: Endowments Matter (May 1, 2006). CEPR Working Paper No. 5738, Available at SSRN: https://ssrn.com/abstract=913782 or http://dx.doi.org/10.2139/ssrn.913782

Julien Gourdon

OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Nicolas Maystre

UNCTAD - United Nations Conference on Trade and Development ( email )

Palais des Nations
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Geneva, 1211
Switzerland
+41229171848 (Phone)

Department of Economics - University of Geneva ( email )

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HOME PAGE: http://www.unige.ch/ses/dsec/staff/faculty/Maystre-Nicolas.html

Jaime De Melo (Contact Author)

University of Geneva - Department of Political Economics ( email )

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Geneva 4, CH-1211
Switzerland
+41 22 705 8273 (Phone)
+41 22 705 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/demelo/Jaime.html

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

World Bank ( email )

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Washington, DC 20433
United States

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