Distributional Consequences of Trade: A Disaggregated Analysis for Income Levels

Abstract

This study examines the impact of trade on cross-country inequality using a panel data set from 65 developing counties from 1970 to 2008. The study differs from the existing literature on inequality impact of trade by explicitly noting the importance of different development stages in shaping the link. The analysis shows that the inequality-effect of trade differs depending upon the level of economic development of a country. Those economies that have a high level of economic development seem to acquire a favorable effect of the trade while the poor of underdeveloped economies suffer from increased trade. In sum, trade accentuates not ameliorates inequality in countries with a low level of economic development. Our findings are shown to be robust to different specifications, alternative econometrics techniques and sub-samples.