Meschi, Elena and Vivarelli, Marco, 1963- (2007) Trade openness and income inequality in developing countries. Working Paper. University of Warwick. Centre for the Study of Globalisation and Regionalisation, Coventry.

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Abstract

This paper discusses the distributive consequences of trade flows in developing countries (DCs). On the theoretical side, we argue that the interplays between international openness and technology adoption may constitute an important mechanism leading to a possible increase of income differentials in the liberalizing DCs, trough skill enhancing trade. We use a dynamic specification to estimate the impact of trade on within-country income inequality in a sample of 70 DCs over the 1980-1999 period. Our results suggest that total aggregate trade flows are weakly related with income inequality. However, once we disaggregate total trade flows according to their areas of origin/destination, we find that trade with high income countries worsen income distribution in DCs, both through imports and exports. This finding provides a preliminary support to the hypothesis that technological differentials between trading partners are important in shaping the distributive effects of trade openness. Moreover, after testing for the differential impact of trade in middle income countries vs low income ones, we observe that the previous result only holds for middle income countries (MICs). We interpret this evidence by considering the greater potential for technological upgrading in MICs both in terms of their higher “absorptive capacity” and in terms of their superior ability in serving the differentiated and high-quality markets of the developed world.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HF Commerce J Political Science > JZ International relations
Divisions:	Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
Library of Congress Subject Headings (LCSH):	Globalization -- Economic aspects, International trade, Technology transfer, Wage differentials -- Developing countries, Developing countries -- Economic conditions
Series Name:	Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)
Publisher:	University of Warwick. Centre for the Study of Globalisation and Regionalisation
Place of Publication:	Coventry
Date:	July 2007
Number:	No.232
Number of Pages:	35
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/1876

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