The Impact of Exports on Income Inequality in Developing Countries

Discussion Papers

No.650

by Yasushi HAZAMA

March 2017

ABSTRACT

Trade exhibits two contrasting effects on income inequality in developing countries (DCs). On the one hand, trade openness benefits unskilled labor in preference to skilled labor and capital (the Stolper–Samuelson effect). On the other hand, trade openness increases the demand for skilled (rather than unskilled) labor inputs (the skill premium effect). Recent studies that provide stronger support for the skill premium model have focused on wage inequality or have chosen higher-income DCs. We test the effect of export growth on income inequality for 70 lower income DCs  and  36  higher-income  DCs,  using  an  unbalanced  panel  dataset  for  the 1971–2012 period. The results show that the export/GDP ratio has a negative effect on income inequality for lower-income DCs, but no significant effect was found for higher-income DCs.

Keywords: exports, income inequality, skill premium, Stolper–Samuelson theorem
JEL classification: F16, J46, O15

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