Morrissey, Oliver, Moyo, Jennifer and Milner, Chris (2002) Inequality, trade liberalisation and growth. Working Paper. University of Warwick. Centre for the Study of Globalisation and Regionalisation, Coventry.

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Abstract

There has been a recent resurgence of interest in the relationship between income inequality and growth. We use the WIDER/UNDP World Income Inequality Database to investigate the effects of inequality and trade liberalisation on growth in a sample of exclusively developing countries. Cross-section (long-run) and panel (short run) techniques are used to test for the effect of inequality on growth controlling for other variables (initial GDP, endowments, investment, human capital and natural barriers to trade). We find consistent evidence for a negative effect of inequality on growth in the long run but no significant effect in the short run. Trade liberalisation appears to have a consistent and significant positive association with growth. These results are quite robust to the inclusion of alternative control variables, and we find no evidence of any interaction affect between inequality and trade liberalisation. We also find consistent evidence that countries relatively endowed with land (and thus dependent on primary commodity exports) and/or that face high natural barriers to trade experience lower growth rates. There is also evidence that, controlling for most other variables, sub-Saharan African countries experience below average growth performance; however, accounting for trade restrictions and natural barriers seems to eliminate this effect. The evidence suggests that inequality is an important factor in explaining low growth in developing countries over the long run.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
Library of Congress Subject Headings (LCSH):	Wage differentials, Economic development, Trade regulation, Liberalism, Equality
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 2002
Number:	No.102
Number of Pages:	24
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/2016

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