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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."

Suggested Citation

  • Donald Robbins, 2003. "The impact of trade liberalization upon inequality in developing countries - A review of theory and evidence-," DOCUMENTOS DE ECONOMÍA 003601, UNIVERSIDAD JAVERIANA - BOGOTÁ.
  • Handle: RePEc:col:000108:003601
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    References listed on IDEAS

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    Cited by:

    1. Francesco Quatraro & Marco Vivarelli, 2015. "Drivers of Entrepreneurship and Post-entry Performance of Newborn Firms in Developing Countries," World Bank Research Observer, World Bank Group, vol. 30(2), pages 277-305.
    2. repec:lje:journl:v:22:y:2017:i:2:p:65-88 is not listed on IDEAS
    3. 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.
    4. Mauro Caselli, 2014. "Trade, skill-biased technical change and wages in Mexican manufacturing," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 336-348, January.
    5. repec:oup:indcch:v:26:y:2017:i:4:p:555-570. is not listed on IDEAS
    6. 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.
    7. Nursel Aydiner-Avsar, 2014. "Revisiting the Trade-Wage Structure Nexus: A Micro Analysis for Turkey," Journal of Development Studies, Taylor & Francis Journals, vol. 50(8), pages 1156-1171, August.
    8. 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).
    9. Majeed, Dr. Muhammad Tariq, 2013. "Inequality, Trade and Development: Evidence from Developing Countries," MPRA Paper 50337, University Library of Munich, Germany.
    10. 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).
    11. Marco Vivarelli, 2013. "Technology, Employment and Skills: An Interpretative Framework," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 3(1), pages 66-89, June.
    12. 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).
    13. Alberto Behar, 2013. "The Endogenous Skill Bias of Technical Change and Inequality in Developing Countries," IMF Working Papers 13/50, International Monetary Fund.
    14. repec:eee:wdevel:v:96:y:2017:i:c:p:1-18 is not listed on IDEAS
    15. Silvia Adriana Peluffo Geronazzo, 2016. "Increased trade openness, productivity, employment and wages: a difference-in-differences approach," Estudios Regionales en Economía, Población y Desarrollo. Cuadernos de Trabajo de la Universidad Autónoma de Ciudad Juárez. 32, Cuerpo Académico 41 de la Universidad Autónoma de Ciudad Juárez, revised 01 Apr 2016.
    16. Meschi, Elena & Vivarelli, Marco, 2009. "Trade and Income Inequality in Developing Countries," World Development, Elsevier, vol. 37(2), pages 287-302, February.
    17. 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.
    18. Marco Vivarelli, 2015. "Structural Change and Innovation in Developing Economies: A Way Out of the Middle Income Trap ?," LEM Papers Series 2015/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    19. Getinet Haile & Ilina Srour & Marco Vivarelli, 2017. "Imported technology and manufacturing employment in Ethiopia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(1), pages 1-23, April.
    20. Elena Meschi & Erol Taymaz & Marco Vivarelli, 2016. "Globalization, technological change and labor demand: a firm-level analysis for Turkey," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(4), pages 655-680, November.
    21. repec:taf:jitecd:v:26:y:2017:i:1:p:45-64 is not listed on IDEAS
    22. Haile, Getinet & Srour, Ilina & Vivarelli, Marco, 2017. "Globalization, Technological Change and Skills: Evidence from Ethiopia," GLO Discussion Paper Series 16, Global Labor Organization (GLO).
    23. Getinet Haile & Ilina Srour & Marco Vivarelli, 2014. "Globalization and Technology Transfer in Ethiopia: Their Impact on Domestic Employment and Skills," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1498, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    24. 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.
    25. 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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