Trade Liberalisation and The Poverty of Nations

Trade Liberalisation and The Poverty of Nations

A. P. Thirlwall and Penélope Pacheco-López

This book argues that orthodox theory is based on many unreal assumptions, and that there are sound economic arguments for selective protection of industrial activities in the early stages of economic development. The historical evidence of the now-developed countries also illustrates this fact.

Chapter 4: Trade Liberalisation, Poverty and Domestic Inequality

A. P. Thirlwall and Penélope Pacheco-López

Subjects: development studies, development economics, economics and finance, development economics, international economics

Extract

While inequality has many different dimensions, all existing measures for inequality in developing countries seem to point to an increase in inequality which in some cases . . . is severe. (Goldberg and Pavcnik, 2007) Introduction There may be static efficiency gains from trade liberalisation and a greater volume of trade, but there will also be welfare losses if domestic firms cannot compete as trade barriers fall and those thrown out of work cannot find alternative employment. Just as the distribution of gains from trade may not be equally spread between trading nations, so, too, the gains from trade to a country may not be equally distributed between people within a country, and some may lose absolutely. If more trade leads to faster economic growth, this should lift more people out of poverty and reduce the poverty rate, depending on the elasticity of the poverty ratio with respect to growth. However, as we saw in the previous chapter, trade liberalisation is no guarantee of more rapid economic growth, and even if the poverty ratio declines the income distribution may still become more 145 146 Trade liberalisation and the poverty of nations unequal, if the richest in a country gain relatively to the poorest. These are the issues that we shall consider in this chapter: what has been the impact of trade liberalisation on poverty, on wage inequality and on the personal distribution of income within countries? These are important issues because poverty and inequality matter for the humane and efficient functioning...

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