Abstract not found

The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of

Abstract not found

The effects of globalization on income distribution within rich and poor countries are a matter of controversy. While international trade theory in its most abstract formulation implies that increased trade and foreign investment should make income distribution more equal in poor countries and less equal in rich countries, finding these effects has proved elusive. The paper presents another attempt to discern the effects of globalization by using the data from household budget surveys and looking at the impact of openness and direct foreign investment on relative income shares of low and high deciles. We find some evidence that at very low average income level, it is the rich who benefit from openness. As income level rises, that is around the income level of Colombia, Chile or Czech republic, the situation changes and it is the relative income of the poor and the middle class that rises compared to the rich. It seems that openness makes income distribution worse before making it better---or differently that the effect of openness on country's income distribution depends on country's initial income level. Keywords: income distribution, inequality, globalization JEL classification: D31, F15, I3. World Bank Policy Research Working Paper 2876, April 2002 The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Dire...

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

A key issue today is the effect of globalization on inequality and poverty. We first identify a group of developing countries that are participating more in globalization. Since China, India, and several other large countries are part of this group, well over half of the population of the developing world lives in these globalizing economies. The post-1980 globalizers have seen large increases in trade, and significant declines in tariffs over the past 20 years. Their growth rates have accelerated from the 1970s to the 1980s to the 1990s, even as growth in the rich countries and the rest of the developing world has declined. The post-1980 globalizers are catching up to the rich countries while the rest of the developing world is falling farther behind. We next ask how general these patterns are, through regressions that exploit the within-country variation in trade and growth. We find a strong positive effect of trade on growth after controlling for changes in other policies and addressing endogeneity with internal intruments. Finally we examine the effects of trade on the poor. Since there is little systematic evidence of a relationship between changes in trade volumes (or any other globalization measure we consider) and changes in income share of the poorest, the increase in growth rates that accompanies expanded trade leads to proportionate increases in incomes of the poor. The evidence from individual cases and from cross-country analysis supports the view that globalization leads to faster growth and poverty reduction in poor countries. Views expressed are those of the authors and do not necessarily reflect official views of the World Bank or its members countries. We thank Sergio Kurlat and Dennis Tao for excellent research assistance. An earlier draft of this p...

Brazil’s trade liberalization between 1990 and 1993, and its partial reversal in 1995, are used to study how trade affects productivity. The production function of Brazilian manufacturers is estimated at the SIC two-digit level under an extension of Olley and Pakes ’ (1996) procedure. Firm-level productivity is inferred and then related to trade in a causal analysis. Findings suggest that (1) the use of foreign inputs plays a minor role for productivity change, whereas (2) foreign competition pressures firms to raise productivity markedly. (3) The shutdown probability of inefficient firms rises with competition from abroad, thus contributing positively to aggregate productivity. Counterfactual simulations indicate that the competitive push (2) is a salient source of immediate productivity change, while the elimination of inefficient firms (3) unfolds its impact slowly. JEL F14, F43 I am indebted to my advisors Maury Obstfeld, David Romer, Dan McFadden and Pranab

We wish to thank Hector Mejia at DANE and Andreas Blom at the World Bank for providing us with the data. We are also grateful to Cristina Gamboa, Adriana Kugler, and Ximena Pena for answering our numerous questions about the data and the Colombian reforms, and Steve Bronars, Eric Edmonds, Sebastian Edwards, Doug Marcouiller, Dani Rodrik and participants at the NBER Inter-American Seminar on Economics in Monterrey, Mexico for useful comments and suggestions. The authors gratefully acknowledge financial support from the

This paper surveys the recent literature on trade liberalisation and economic growth. While there are serious methodological challenges and disagreements about the strength of the evidence, the most plausible conclusion is that liberalisation generally induces a temporary (but possibly long-lived) increase in growth. A major component of this is an increase in productivity. Part 2 stresses the importance of other factors in achieving growth, such as other policies, investment and institutions, but argues that many of these respond positively to trade liberalisation. It also considers the implementation of liberalisation and notes the benefits of simple and transparent trade regimes. Trade liberalisation has been a prominent component of policy advice to devel-oping countries for the last two decades. Among the benefits claimed to spring from it, economic growth is probably the most important. And yet economists continue to argue about, and conduct research on, the connection between them. This paper samples the resulting literature with a view to assessing the current state of the evidence that trade liberalisation enhances growth and identifying the key steps in actually reaping such benefits.

Using industry-level data disaggregated by states, this paper finds a positive impact of trade liberalization on labor-demand elasticities in the Indian manufacturing sector. These elasticities turn out to be negatively related to protection levels that vary across industries and over time. Furthermore, we find that these elasticities are not only higher for Indian states with more flexible labor regulations, they are also impacted there to a larger degree by trade reforms. Finally, we find that after the reforms, volatility in productivity and output gets translated into larger wage and employment volatility, theoretically a possible consequence of larger labor-demand elasticities.