Trade, Growth, and Equity: Four Essays

Abstract

The last few decades have witnessed a notable increase in the engagement of developing countries in global trade, coinciding with rapid economic growth and widespread poverty reduction. However, there is still much debate on the role of trade openness in growth and the channels through which trade impacts on poverty and inequality. This thesis aims to contribute to this debate by focusing on four selected themes.

Following the introductory chapter that provides the context within which the four chapters fit in the relevant literature, Chapter 2 examines the role of openness in the growth-poverty nexus. The standard trade theory postulates that trade openness contributes to poverty alleviation directly by changing factor proportions of production in line with a country's comparative advantage and indirectly through the trickle-down effect of growth. However, the findings of the available multi-country studies are supportive only of the indirect effect of openness on poverty reduction. This study is motivated by the concern that these studies have failed to detect the effectiveness of the factor proportion channel due to the limitations of the commonly used measure of trade openness, the trade-to-GDP ratio. Using a newly constructed index of price convergence, I find that trade openness has a direct impact on poverty reduction, and the impact is greater for countries with more open trade regimes.

Chapter 3 investigates the role of openness to trade in shaping the relationship between structural transformation and income inequality. While there is a vast literature on the relationship between growth and income distribution, the important issue of how global economic integration impacts on this relationship through structural changes in the economy has received only scant attention in the empirical growth literature. This study aims to fill this research gap through a multi-country panel data analysis covering 48 countries over the period 1960-2010. The results indicate that the movement of workers to manufacturing unambiguously reduces income inequality. In addition, the inequality-reducing impact of manufacturing-led structural transformation is larger for countries with more open trade regimes.

Chapter 4 examines whether the policy emphasis on the share of domestic value added ('value added ratio') of exports is consistent with the objective of achieving economic development through export-oriented development strategy through a case study of the manufacturing industry in Thailand. An input-output analysis is undertaken with emphasis on employment generation, poverty alleviation and achieving income equality over the period from 1990 to 2010, when joining global production networks was the prime mover of export-oriented industrialisation in the country. The findings do not support the widely shared view among policy makers in developing countries that industries with high value added ratio have greater potential to create export-induced employment.

Chapter 5 examines societal tolerance for inequality in the process of economic development. Political conflict and societal perception of inequality are used as alternative measures of tolerance for inequality. The results suggest that perception of inequality remains positive at the early stage of economic development, when inequality is increasing, and then tends to turn negative. The estimation using the incidence of political conflict as a dependent variable provides a consistent result.

The approach of the four chapters is empirical in nature and is based on panel data drawn from various sources covering a number of countries at varying stages of development and applying state-of-the-art econometric techniques. Model specification in each chapter is informed by the relevant theory, and the findings are discussed in comparison with that of the previous studies. Show more