Global inequality and international trade

The paper analyses the effect of widespread trade liberalisation on global income inequality. The analysis of the trend in global inequality during 1981--97, presented in the first part of the paper, shows that the apparent growth of income inequality among countries conceals a process of convergence. Some developing countries achieved significantly faster economic growth than the advanced industrialised countries and, though small in number, they actually account for a majority of the population of the developing world. Thus international inequality (i.e., the inequality of distribution of per capita incomes among the world's population) in fact declined even though the inter-country income inequality increased. The analysis in the second part of the paper shows (i) that while improved trade performance did have a stimulating effect on growth performance of countries, trade liberalisation had extremely varied effects on trade performance across countries, and (ii) that the distribution of benefits and costs of trade liberalisation across countries has been such as to reduce international inequality without affecting inter-country inequality. Copyright 2004, Oxford University Press.