Inequality and trade: Simulation evidence for 54 developing nations

a column by Erhan Artuc, Guido Porto and Bob Rijkers for VOX: CEPR’s Policy Portal

Questions about who benefits from free trade – and at what cost – have resurfaced as part of the backlash against globalisation.

This column uses data from 54 low- and middle-income countries to show that in a majority of cases, trade liberalisation increases both incomes and inequality. Most of these trade-offs resolve in favour of liberalisation; despite exacerbating income disparities, trade liberalisation creates overall social welfare gains.

Continue reading

Authors’ note: In an accompanying paper (Artuc et al. 2019b), we introduce a simulation toolkit to calculate changes in income distribution of households following specific tariff shocks that can be entered with a user-friendly web interface. The toolkit and underlying data are available at https://www.worldbank.org/en/research/brief/hit

Labels:
free_trade, trade_liberalisation, protectionism,

---