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Opennes, Inequality, and Poverty: Endowments Matter

  • Julien Gourdon

    ()

    (The World Bank, University of Auvergne and CERDI)

  • Nicolas Maystre

    ()

    (University of Geneva)

  • Jaime de Melo

    ()

    (University of Geneva, CERDI and CEPR)

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, measured by changes in tariff revenues, 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. Similar, though less robust, results are also obtained when decile data are used instead of the usual Gini coefficients. Taken together, 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. 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.

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File URL: http://www.dagliano.unimi.it/media/WP2008_239.pdf
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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 239.

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Length: 49
Date of creation: 07 Jan 2008
Date of revision:
Handle: RePEc:csl:devewp:239
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