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The impact of trade liberalization upon inequality in developing countries - A review of theory and evidence-

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  • Donald Robbins

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    Abstract

    The examination of the impact of trade reform and globalization is ultimately concerned with two fundamental goals: improving the average level of income per capita and achieving greater equality in the distribution of income. Trade liberalization is a key aspect of the broader topic of globalization", but is more clearly defined and more clearly linked to economic theory and policy. This study examines the evidence for developing countries over the last two decades concerning the impact of trade reform upon the distribution of wages. 2 Recent studies of the impact of trade upon distribution emerged as an attempt to understand the rapid growth in the relative wages of more versus less educated workers in the United States beginning in the 1970´s that could not be explained by changes in the relative supply of skill. This spawned an large, still expanding empirical and theoretic literature focusing on developing countries that subsequently led to examination of the same issues in developing countries. The principal theoretic reference point for the recent literature on trade and distribution is the Hecksher-Ohlin-Samuelson (or Hecksher-Ohlin-Viner, henceforth "HOS/HOV") model and related Stolper-Samuelson and Rybczinski theorems. The Stolper-Samuelson theorem as applied to production with skilled and unskilled labor leads to opposite predictions for the impact of trade liberalization on distribution for "Northern" countries with a comparative advantage in skilled labor versus "Southern" countries with a compative advantage in unskilled labor. In the North the Stolper-Samuelson theorem predicts that trade liberalization leads to a rise in relative wages, while leading to a fall in relative wages in the South. Consequently, for unchanging distributions of human capital within countries over time, trade liberalization would worsen the distribution of wages in the North while improving the distribution of wages in the South. This prediction of the Stolper-Samuelson theorem has been invoked by institutions such as the World Bank and International Monetary Fund to justify trade liberalization in the South, arguing that trade liberalization leads to both greater economic growth and better distribution of wages in the South. The remainder of this paper is organized into six sections: Sections II and III examine what the impact of trade liberalization and globalization has been. Section II presents the theoretic and methodological basis for studies concerning what the impact of liberalization upon distribution has been, while Section III summarizes and evaluates the empirical evidence. Sections IV and V examine the reasons for the empirical findings in Section III, or why trade liberalization has had the documented impacts upon distribution. Section IV summarizes the theoretic and methodological bases for these studies, while Section V summarizes and evaluates the relevant empirical literature. Section VI concludes."

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    Bibliographic Info

    Paper provided by UNIVERSIDAD JAVERIANA - BOGOTÁ in its series DOCUMENTOS DE ECONOMÍA with number 003601.

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    Length: 63
    Date of creation: 01 Mar 2003
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    Handle: RePEc:col:000108:003601

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    1. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
    2. Stephen Machin & John Van Reenen, 1998. "Technology and changes in skill structure: evidence from seven OECD countries," IFS Working Papers W98/04, Institute for Fiscal Studies.
    3. Acemoglu, Daron, 1996. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," CEPR Discussion Papers 1459, C.E.P.R. Discussion Papers.
    4. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2005. "Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms," Journal of International Economics, Elsevier, vol. 66(1), pages 75-105, May.
    5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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    7. Susanto Basu & David N. Weil, 1996. "Appropriate Technology and Growth," NBER Working Papers 5865, National Bureau of Economic Research, Inc.
    8. Linda Goldberg & Joseph Tracy, 2000. "Exchange Rates and Local Labor Markets," NBER Chapters, in: The Impact of International Trade on Wages, pages 269-307 National Bureau of Economic Research, Inc.
    9. J. Peter Neary, 2000. "Competition, Trade and Wages," Working Papers 200020, School Of Economics, University College Dublin.
    10. Oded Galor & Omer Moav, 2000. "Ability-Biased Technological Transition, Wage Inequality, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 469-497, May.
    11. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    12. Currie, Janet & Harrison, Ann E, 1997. "Sharing the Costs: The Impact of Trade Reform on Capital and Labor in Morocco," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S44-71, July.
    13. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
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    Cited by:
    1. Pellegrino, Gabriele & Piva, Mariacristina & Vivarelli, Marco, 2012. "Young firms and innovation: A microeconometric analysis," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 329-340.
    2. Haile, Getinet Astatike & Srour, Ilina & Vivarelli, Marco, 2013. "The Impact of Globalization and Technology Transfer on Manufacturing Employment and Skills in Ethiopia," IZA Discussion Papers 7820, Institute for the Study of Labor (IZA).
    3. Vivarelli, Marco, 2014. "Structural Change and Innovation as Exit Strategies from the Middle Income Trap," IZA Discussion Papers 8148, Institute for the Study of Labor (IZA).
    4. Meschi, Elena & Vivarelli, Marco, 2009. "Trade and Income Inequality in Developing Countries," World Development, Elsevier, vol. 37(2), pages 287-302, February.
    5. Quatraro, Francesco & Vivarelli, Marco, 2013. "Entrepreneurship In A Developing Country Context," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201314, University of Turin.
    6. Araújo, Bruno Cesar & Bogliacino, Francesco & Vivarelli, Marco, 2009. "The Role of "Skill Enhancing Trade" in Brazil: Some Evidence from Microdata," IZA Discussion Papers 4213, Institute for the Study of Labor (IZA).
    7. repec:idb:brikps:61058 is not listed on IDEAS
    8. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press, vol. 22(6), pages 1453-1495, December.
    9. Majeed, Dr. Muhammad Tariq, 2013. "Inequality, Trade and Development: Evidence from Developing Countries," MPRA Paper 50337, University Library of Munich, Germany.
    10. Alberto Behar, 2013. "The Endogenous Skill Bias of Technical Change and Inequality in Developing Countries," IMF Working Papers 13/50, International Monetary Fund.
    11. Gianluca Grimalda & Marco Vivarelli, 2010. "Is inequality the price to pay for higher growth in middle-income countries?," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 265-306, April.
    12. Quatraro, Francesco & Vivarelli, Marco, 2013. "Drivers of Entrepreneurship and Post-Entry Performance of Newborn Firms in Developing Countries," IZA Discussion Papers 7436, Institute for the Study of Labor (IZA).
    13. Francesco Quatraro & Marco Vivarelli, 2013. "Entry and Post-Entry Dynamics in Developing Countries," GREDEG Working Papers 2013-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.

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