Openness, Inequality, and Poverty : Endowments Matter

Using tariffs as a measure of openness, the authors find consistent evidence that the conditional effects of trade liberalization on inequality are correlated with relative factor endowments. Trade liberalization is associated with increases in inequality in countries well-endowed in highly skilled...

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Bibliographic Details
Main Authors:	Gourdon, Julien, Maystre, Nicolas, de Melo, Jaime
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ADVERSE EFFECT AGRICULTURE AVERAGE GROWTH AVERAGE INCOME AVERAGE TARIFF AVERAGE TARIFFS BASIC EDUCATION BLACK MARKET BLACK MARKET PREMIUM BORDER MEASURES CAPITAL MARKETS CHANGES IN TRADE CIVIL LIBERTIES COUNTRY DUMMIES COUNTRY INEQUALITY CROSS-COUNTRY STUDIES CUSTOMS DATA SET DATA SETS DEVELOPED COUNTRIES DEVELOPING COUNTRIES DISTRIBUTIONAL IMPLICATIONS EDUCATED PEOPLE EDUCATION LEVEL EXPLANATORY VARIABLE FACTOR ENDOWMENTS FACTOR PRICE FACTORS OF PRODUCTION FINANCIAL DEPTH FIXED EFFECTS FOREIGN EXCHANGE GDP GDP PER CAPITA GINI COEFFICIENT GINI INDEX GROWTH LITERATURE GROWTH SPELLS HETEROSKEDASTICITY HIGH TARIFFS HOUSEHOLD INCOMES HOUSEHOLD SURVEYS HUMAN CAPITAL IDIOSYNCRATIC FACTORS IMPACT OF TRADE IMPACT OF TRADE LIBERALIZATION INCOME INCOME DISTRIBUTION INCOME GROWTH INCOME INEQUALITY INCOME INEQUALITY DATA INCOME LEVELS INCOME MEASURES INCREASE INCOME INEQUALITY INCREASING INEQUALITY INCREASING WAGE INEQUALITY DATA INEQUALITY MEASURE INEQUALITY MEASURES INEQUALITY WILL INTERNATIONAL TRADE LABOR FORCE LABOR MARKET LOW TARIFFS LOW-INCOME COUNTRIES MACROECONOMIC INSTABILITY MACROECONOMIC VARIABLES MARKET INTEGRATION MEAN INCOME MEAN INCOMES MEASURE OF TRADE MEASUREMENT ERROR MEASUREMENT ERRORS MIDDLE EAST NATIONAL ACCOUNTS NATIONAL INCOME NATURAL RESOURCES NET EXPORTS NORTH AFRICA OPEN ECONOMIES OPENNESS POLICY CHANGES POLICY RESEARCH POOR COUNTRIES POSITIVE CORRELATION PRICE CHANGES PURCHASING POWER REDUCTION IN TARIFFS REGIONAL AVERAGES REGIONAL GROUPINGS REGIONAL LEVEL RELATIVE IMPORTANCE RELATIVE PRICES RICH COUNTRIES RISING INEQUALITY SIGNIFICANT RELATIONSHIP SKILL PREMIUM STABILIZATION POLICIES SUB-SAHARAN AFRICA TARIFF PROTECTION TARIFF RATES TARIFF REDUCTION TARIFF REDUCTIONS TARIFF REVENUES TARIFF STRUCTURES TERMS OF TRADE TRADE BARRIERS TRADE LIBERALIZATION TRADE LIBERALIZATION INCREASES TRADE LIBERALIZATIONS TRADE OPENNESS TRADE POLICIES TRADE POLICY TRADE REFORMS TRADE REGIME TRADED SECTOR TRANSACTION COSTS TRANSITION ECONOMIES UNSKILLED LABOR UNSKILLED WORKERS VOLUME OF TRADE WAGE GAP WAGE INEQUALITY WAGES WORLD INCOME DISTRIBUTION WORLD MARKETS
Online Access:	http://documents.worldbank.org/curated/en/2006/08/6962183/openness-inequality-poverty-endowments-matter http://hdl.handle.net/10986/8372

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Summary:	Using tariffs as a measure of openness, the authors find consistent evidence that the conditional effects of trade liberalization on inequality are correlated with relative factor endowments. Trade liberalization 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 and in countries relatively well-endowed in mining and fuels. Trade liberalization is associated with decreases in inequality in countries that are well-endowed with primary-educated labor. Similar results are also apparent when decile data are used instead of the usual Gini coefficient. 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 very low education levels (likely employed in nontradable activities) is high raises inequality. In the sample, countries with low education levels also have relatively scarce endowments of capital. Quantitatively capital scarcity is the dominating effect so that trade liberalization is accompanied by reduced income inequality in low-income countries. Within-country inequality is also positively correlated with measures of macroeconomic instability. Simulation results 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.

Openness, Inequality, and Poverty : Endowments Matter

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