Trade Liberalization and Inequality

The distributional implications of trade liberalization have long been of central interest to economists.  That may be why the Stolper-Samuelson Theorem is probably trade theory’s best known result.  For those new to trade it demonstrates that, as a result of an increase in the relative price of a good, factors used intensively in its production enjoy a real increase in their return whereas those not used intensively suffer a real decline.  Since the 1980s, trade liberalization between the developed world and developing Asia and Latin America, coupled with an increase in inequality in the developed world over the same timeframe, have revived interest in the role that trade plays in driving inequality.

The first wave of the literature focused on developed countries and the increase in inequality between high-skilled and low skilled labor.  Such an increase is in line with the Stolper-Samuelson Theorem if there is trade liberalization and developed countries are relatively well endowed with high skilled labor.  The consensus was that, while trade liberalization was partially responsible for the increase in inequality, technological change played a greater role.  Some argued that trade liberalization was itself responsible for labor-saving technological change, providing a greater indirect role for trade liberalization in driving inequality.

The second wave switched focus to developing countries.  Here the results have been less clear-cut.  First, there has been an increase in inequality which runs counter to the prediction of the Stolpher-Samuelson Theorem if the developing world is abundant in low-skilled labor.  Moreover labor market regulations are reckoned to be more stringent in the developing than the developed world, limiting labor mobility between sectors which violates a central assumption in the Stolper-Samuelson Theorem.  There appears to be some evidence that trade liberalization and technological change may have had opposite effects on inequality, with the positive technological change effects being dominant.  The consensus appears to be that, although skilled-biased technological change may have played a greater role in increasing the skill premium, technological change was itself an endogenous response to more openness so that globalization was indirectly responsible for the increase in the skill premium. Following the current trend in economics, the way forward seems to lie in more detailed models and datasets that facilitate careful examinations of the precise impulses that hit workers and how they responded.

Dix-Carneiro, R., (2014); “Trade Liberalization and Labor Market Dynamics.Econometrica, 82(3): 825-885. [Working paper version]

Feenstra, R.C. and G.H. Hanson, (2003); “Global Production Sharing and Rising Inequality: A Survey of Trade and Wages.” Published in Handbook of International Trade, vol. 1, ed. E. K. Choi and J. Harrigan. Malden, Mass: Blackwell, 146–85.

Goldberg, P.K., and N. Pavcnik (2007); “Distributional Effects of Globalization in Developing Countries.Journal of Economic Literature 45: 39-82. [Working paper version]

Harrison, A.E., and G.H. Hanson, (1999); “Who Gains from Trade Reform? Some Remaining Puzzles.” Journal of Development Economics, 59(1): 125–54.

Krugman, P.R., (2000); “Technology, Trade and Factor Prices.” Journal of International Economics, 50(1): 51-71.

Leamer, E.E., (2000);“What’s the use of factor contents?Journal of International Economics, 50(1): 17-49.

McCaig, B., (2011); “Exporting Out of Poverty: Provincial Poverty in Vietnam and US Market Access.” Journal of International Economics, 85(1): 102-113. [Working paper version]

Pavcnik, N., (2003); “What Explains Skill Upgrading in Less Developed Countries?Journal of Development Economics, 71(2): 311–28. [Working paper version]

Porto G.G., (2006); “Using Survey Data to Assess the Distributional Effects of Trade Policy.” Journal of International Economics, 70(1): 140–60. [Working paper version]

Robertson, Raymond. 2004. “Relative Prices and Wage Inequality: Evidence from Mexico.” Journal of International Economics, 64(2): 387–409. [Working paper version]

Wood, A., (1995); “How Trade Hurt Unskilled Workers.” Journal of Economic Perspectives, 9(3): 57–80.

Call for papers: 6th International conference “Economics of Global Interactions”

The University of Bari “Aldo Moro” and the NHH Norwegian School of Economics (Bergen, Norway) are jointly organizing the 6th edition of the conference on the “Economics of Global Interactions”. UNIDO, United Nation Industrial Development Organization, is partner of the conference.

The event will provide scholars with the opportunity to discuss their recent contributions in the following areas:
–        Theoretical and empirical aspects of International Trade;
–        Determinants and effects of International Migration and FDI;
–        Institutions and Economic Development;
–        Globalization, sustainability and the environment;
–        Industrialization in developing countries
Both theoretical and empirical papers are welcome. A discussant will be assigned to each paper presented at the conference.
The guest lectures will be delivered by Prof. Hillel Rapoport (Paris School of Economics, France) and Prof. Ragnar Torvik (Norwegian University of Science and Technology, Norway).
Submission guidelines and timetable
Submissions of papers or extended abstracts are expected by June 7th, 2015, to the following address: 
Decisions will be communicated by June 30th, 2015. The full paper is expected by the end of July.

For more information, please visit

Exploratory research grants

The Centre for Economic Policy Research and the Department for International Development, through their private enterprise development in low-income countries initiative, invite applications for their exploratory research grants. These enable researchers to explore new approaches to the study of firms in low-income countries and develop new or existing sources of data on these firms. Research may relate to private enterprises of all sizes and should produce results that will be useful for policy-making. Proposals should address the following themes:

•modelling market frictions in low-income countries using newly available data;

•understanding how constraints interact using micro-founded macro models;

•the dynamics of SMEs – informality and entrepreneurship;

•the role of export-oriented industries in driving growth.

Proposals that address fragile and conflict-affected states, gender, and climate, environment and social compliance are particularly encouraged.

Only individuals, or teams with an individual representative, may apply.

Grants are worth between £10,000 and £35,000 over one year.

Closing date 30 Jul 15 (Forecast)

Visit funder’s web page for this opportunity

Policy-oriented research on Korea grants

The Korea Foundation invites applications for its policy-oriented research on Korea grants. These support in-depth analyses and policy recommendations on Korea, including political, social and economic issues. Projects are required to hold at least one related event, such as a workshop or conference for dissemination of the research results. Public policy-oriented research institutes are eligible to apply. Priority is given to proposals with Korea-based collaborative partners.

Personnel expenses and other costs directly related to the research activities are subsidised.

The foundation will support indirect costs amounting to 10 per cent or less of the total grant amount. While the foundation’s grant period is normally one year, projects lasting up to three years may be considered.

Closing date 12 Jun 15

Visit funder’s web page

Travel grants – Herrenhausen symposium

The Volkswagen Foundation invites applications for its travel grants to the Herrenhausen symposium. These support researchers to attend the symposium to be held from 20 to 21 November 2015 in Hannover, Germany. The symposium will address topics like long-term processes of socio-economic developments.

Applicants are required to present their project in a three minute “Lightning Talk” as well as on a poster.

30 grants are available to cover symposium attendance, accommodation and travel expenses.

Closing date 10 Aug 15

Visit funder’s web page for this opportunity

DFID-ESRC Growth Research Programme (DEGRP) – call 3

ESRC and DFID are pleased to announce a third funding call under the Growth Research Programme, focusing on Financial Sector Development and Growth.

Deadline for proposals: 16.00 BST 2 July 2015

This £20.9 million programme is focused on economic growth and related issues in Low Income Countries (LICs); in this context, economic growth is defined as sustained increase in the quantity and quality of goods and services produced per person, providing the basis for increased national income and living standards. Since its inception in 2011, DEGRP has facilitated cutting-edge social science research, with large potential for impact on policy and practice.

The 2015 call is focused on the theme of financial sector development and growth. We are pleased to invite proposals to establish a single programme that will produce excellent research on financial sector development and growth in LICs. The funding aims to create a core of research excellence, strengthen evidence-based policymaking and build research capacity.

We expect to fund one research programme under this call with a total of up to £2 million available for proposals to this call. Proposals are invited for projects with a full economic cost (fEC) value of between £1.5 million and £2 million. Proposals outside this value range will not be accepted. This budget limit refers to the total cost of the project, not the contribution paid by the ESRC and DFID. Projects may be for a maximum of four years in duration.

Proposals are sought from across the social sciences and may be for fundamental or more applied research topics, as long as the policy relevance is clearly stated. There are no geographic restrictions on who may apply for this funding opportunity. Researchers from developing and developed countries can work together in any configuration of their choosing, and principal investigators can be from anywhere in the world.

Click here for further details from the funder’s website