This paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors.

Although it is commonly believed that trade liberalization results in higher GDP, little is known about its effects on poverty and inequality. This paper uses the sharp trade liberalization in India in 1991, spurred to a large extent by external factors, to measure the causal impact of trade liberalization on poverty and inequality in districts in India. Variation in preliberalization industrial composition across districts in India and the variation in the degree of liberalization across industries allow for a difference-in-difference approach, establishing whether certain areas benefited more from, or bore a disproportionate share of the burden of liberalization. In rural districts where industries more exposed to liberalization were concentrated, poverty incidence and depth decreased by less as a result of trade liberalization, a setback of about 15 percent of India’s progress in poverty reduction over the 1990s. The results are robust to pre-reform trends, convergence and time-varying effects of initial district-specific characteristics. Inequality was unaffected in the sample of all Indian states in both urban and rural areas. The findings are related to the extremely limited mobility of factors across regions and industries in India. Indeed, in Indian states where inflexible labor laws impeded factor reallocation, the adverse impact of liberalization on poverty was more pronounced. The findings, consistent with a specific factors model of trade, suggest that to minimize the social costs of inequality, additional policies may be needed to redistribute some of the gains of liberalization from winners to those who do not benefit as much. Creating a flexible institutional environment will likely minimize the need for additional interventions. 1

This paper draws on a new combination of employer-employee and plant-level data from Mexico to investigate the relationship between exports and wage premia, defined as wages above what workers would receive elsewhere in the labor market. We first use detailed information on individual workers ’ wage histories to decompose plant-level average wages into a component reflecting skill composition and a component reflecting wage premia. Our estimating procedure allows for changes in the return to ability and feedback from current idiosyncratic shocks to future mobility. We then use the peso devaluation of late 1994, which we argue generated an exogenous differential inducement to export within industries, to estimate the effect of export incentives on the two components. Comparing across plants within industries, we find that approximately two-thirds of the higher level of wages in larger, more productive plants is explained by higher levels of wage premia, and that nearly all of the differential within-industry wage change due to the export shock is explained by changes in wage premia. The findings argue against the hypothesis that sorting on individual ability is solely responsible for the well-documented correlation between exporting and wages.

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Abstract This article surveys the evidence on the linkages between globalization and poverty, drawing on a new NBER study that has been completed under the direction of one of the authors. We focus on two measures of globalization: trade and international capital flows. Past researchers have argued that global economic integration should help the poor since poor countries have a comparative advantage in producing goods that use unskilled labor. Our first conclusion is that such a simple interpretation of general equilibrium trade models is misleading. Second, the evidence suggests that the poor are more likely to share in the gains from globalization when there are complementary policies in place.Third, trade and foreign investment reforms have produced benefits for the poor in exporting sectors and sectors that receive foreign investment. Fourth, financial crises are very costly to the poor. Finally, the collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets. We conclude the article by identifying a number of unanswered research questions regarding the impact of globalization on poverty.

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This paper documents the changes in the income distribution in Argentina from the mid-1970s to the mid-2000s. Over the period inequality increased substantially. Two types of episodes have shaped this upward trend: deep macroeconomic crises and periods of sudden and intense economic liberalization. The sizeable rise in inequality in the 1990s seems to be associated to reallocations against unskilled-labor intensive sectors, and skilled-biased technological change within most sectors, both factors stimulated by the process of economic integration. The depth and speed of the reforms and the scarcity of public policies to ease the transition contributed to the particular severity of the income distribution changes. The macro crises and the subsequent recoveries contributed to the volatility of inequality along this upward trend. The large macroeconomic crisis of 2001/02 triggered a large jump in inequality, although income disparities returned to pre-crisis levels as the economy recovered fast, and large cash transfer programs were implemented.

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Read and download the full publication and individual chapters, as well as other material from the ICITE project, at www.oecd.org/trade/icite This document has been developed as a contribution to the International Collaborative Initiative on Trade and Employment (ICITE) coordinated by the OECD. The views expressed are those of the author and do not necessarily reflect those of the OECD, OECD member country governments or partners of the ICITE initiative. CHAPTER 1.TRADE AND EMPLOYMENT IN A FAST-CHANGING WORLD – 7