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How does trade affect regional inequalities?

  • Andres Rodriguez-Pose

    ()

  • Nicholas Gill

    ()

As part of the ongoing globalisation of the world economy, the past twenty-five years have witnessed a steep rise in the amount of trade between nations, as well as changes in the composition of trade. This has been linked to economic growth, with most literature on the subject highlighting the benefits of greater openness. Concurrently, however, regional spatial inequalities within nations have also tended to increase steadily. In this paper we explore to what extent there is a link between the phenomena of increased trade flows and regional inequalities. We present a preliminary empirical evaluation based on eight major world economies, and ground these results in the theoretical literature. It emerges that the link between trade and regional inequalities is evidenced most strongly when sectoral shifts in the composition of trade are accounted for. Specifically, we find that as trade in primary sector goods loses importance in the composition of total trade, regional inequalities are likely to increase. Such an impact of changes in the composition of trade on regional inequalities is likely to have a greater negative impact on developing than on developed countries for two reasons. First, because the dimension of intra-national disparities tends to be greater in the developing than in the developed world. Second, because the share of agricultural trade in developing countries has traditionally been higher and has been declining at a much faster rate in recent decades.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa04p478.

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Date of creation: Aug 2004
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Handle: RePEc:wiw:wiwrsa:ersa04p478
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  1. Hanson, Gordon H, 1998. "North American Economic Integration and Industry Location," Oxford Review of Economic Policy, Oxford University Press, vol. 14(2), pages 30-44, Summer.
  2. Andr�s Rodr�guez-Pose & Nicholas Gill, 2003. "The global trend towards devolution and its implications," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 21(3), pages 333-351, June.
  3. Hanson, Gordon H., 1996. "Economic integration, intraindustry trade, and frontier regions," European Economic Review, Elsevier, vol. 40(3-5), pages 941-949, April.
  4. Hatton, Timothy J. & Williamson, Jeffrey G., 1991. "Integrated and Segmented Labor Markets: Thinking in Two Sectors," The Journal of Economic History, Cambridge University Press, vol. 51(02), pages 413-425, June.
  5. Javier Sánchez-Reaza, 2002. "The Impact of Trade Liberalization on Regional Disparities in Mexico," Growth and Change, Wiley Blackwell, vol. 33(1), pages 72-90.
  6. Julie Silva & Robin Leichenko, 2003. "Regional Income Inequality and International Trade," Working Papers 03-15, Center for Economic Studies, U.S. Census Bureau.
  7. Michael Storper & Yun-chung Chen, 2002. "Trade and the location of industries in the OECD and European Union," Journal of Economic Geography, Oxford University Press, vol. 2(1), pages 73-107, January.
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