DISTRIBUTIONAL EFFECTS OF INTERNATIONAL TRADE: A COMPARATIVE ANALYSIS

Abstract

This paper investigates the distributional effects of international trade using a panel data set from sixty-five developing economies from 1970 to 2015. The study contributes into the literature on trade and inequality by highlighting the heterogeneity of developing economies in shaping the distributional effects of international trade. The empirical analysis shows that the inequality effect of trade differs between developing economies at different stages of economic development. The high-income developing economies benefit from the trade in terms of inequality-narrowing effect of the trade while low income economies suffer from increasing trade due to inequality-widening effect of the trade. In sum, international trade accentuates, not ameliorates, inequality in low income developing economies. Furthermore, the Kuznets Curve does not hold in poor economies. Our findings are shown to be robust to different specifications, alternative econometrics techniques, control variables and sub-samples.