Openness, Inequality, and Poverty: Endowments Matter

51 Pages Posted: 20 Apr 2016

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2006

Abstract

Using tariffs as a measure of openness, the authors find consistent evidence that the conditional effects of tradeliberalization 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. Trade liberalization 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 very low education levels (likely employed in nontradable activities) is high raises inequality. In the sample, countries with low education levels also have relatively scarce endowments of capital. Quantitatively capital scarcity is the dominating effect so that trade liberalization is accompanied by reduced income inequality in low-income countries. Within-country inequality is also positively correlated with measures of macroeconomic instability. Simulation results 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: Free Trade, Economic Theory & Research, Inequality, Trade Law, Pro-Poor Growth and Inequality

Suggested Citation

Gourdon, Julien and Maystre, Nicolas and de Melo, Jaime, Openness, Inequality, and Poverty: Endowments Matter (August 1, 2006). World Bank Policy Research Working Paper No. 3981, Available at SSRN: https://ssrn.com/abstract=923288

Julien Gourdon (Contact Author)

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
Room: E 10028
Geneva, 1211
Switzerland
+41229171848 (Phone)

Department of Economics - University of Geneva ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland

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

Jaime De Melo

University of Geneva - Department of Political Economics ( email )

40, boulevard du Pont-d'Arve
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 )

1818 H Street, N.W.
Washington, DC 20433
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
150
Abstract Views
982
rank
155,765
PlumX Metrics