Working Paper: CEPR ID: DP5738
Authors: Julien Gourdon; Nicolas Maystre; Jaime de Melo
Abstract: 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 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 while it is associated with decreases in inequality in countries that are wellendowed 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 little education is high raises inequality, although in our sample relative endowments in capital turn out to be the overriding determinant so that trade liberalization is accompanied by reduced income inequality in low-income countries. 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.
Keywords: Income Distribution; International Trade; Poverty
JEL Codes: D3; F11; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | inequality (D63) |
| trade liberalization (F13) | demand for skilled labor (J24) |
| demand for skilled labor (J24) | wage disparities (J31) |
| trade liberalization (F13) | inequality in capital-abundant countries (P17) |
| trade liberalization (F13) | inequality in countries abundant in unskilled labor (F66) |
| trade liberalization (F13) | inequality when analyzed using decile data (D31) |
| trade liberalization (F13) | inequality in low-income countries (F63) |