Laccord agricole de Marrakech

1
Trade-Induced Changes in Economic Inequalities
Assessment Issues and Policy Implications for
Developing Countries
S. Chabe-Ferret, J. Gourdon, M.A. Marouani, T.
Voituriez ABCDE World Bank Conference, Tokyo
May 29 Session 1-2
2
Question

• What are the distributive aspects of trade
  liberalisation which are worth documenting and
  further exploring to better help governments and
  donors integrate trade policies in development
  strategies?

3
Three emerging consensus

• Increasing openness has been reflected in a
  growing wage gap between skilled and unskilled
  workers
• wage-induced inequalities among developing
  countries relatively well-endowed with workers
  lacking basic education
• losers (in relative terms) from trade openness
  likely be the poorest.

4
To begin with, 3 emerging consensus

• Global trade liberalisation scenarios provide
  estimates of average gains for developing
  countries, though some of the poorest countries
  seem to be net losers in short term.
• losers (in relative terms) from trade openness
  likely to be the poorest, still.

5
To begin with, 3 emerging consensus

• All these distributive and detrimental effects of
  trade liberalisation are expected to vanish in
  long term, thanks to innovation, productivity and
  growth.
• the basic issue raised by trade-induced
  inequalities is a political economy issue, not a
  development matter as such.

6
Implications

• Lets assume that trade liberalisation is
  expected to be poverty and inequality alleviating
  in the long run while inducing a short run
  increase in poverty or in inequality for some
  d.ing countries
• What do governments and donors need to know that
  research has not provided yet ?

7
The method

• Literature review
• Outcome knowledge gaps
• Particularity literature is re-organised
  according to the different acceptations of
  fairness implied by the inclusion of the
  Development objective in the world trade
  liberalisation agenda.

8
What does a (pro-)development trade
liberalisation agenda mean?

• It should correct past unfairness in trade
  regime,
• which raises the broad issue of country level ex
  post assessment.
• It should equally reduce poverty
• which points toward household level ex ante
  assessment.
• Last, because development is basically a dynamic
  process, the distributive-dynamic effects of
  trade liberalisation shall also be considered.

9
Summary of findings
10
Ex post country-level assessment

• Consistent evidence that trade liberalisation is
  associated with increases in inequality.
• trade liberalisation increases inequality in
  countries relatively well-endowed with capital
  and with highly skilled workers
• trade liberalisation increases inequality in
  countries relatively well-endowed with non
  (primary) educated workers.
• Education and capital endowment as overriding
  determinants so that trade liberalization is
  accompanied by reduced income inequality in
  low-income countries.

11
Ex post country-level assessment

• Issue mostly political
• Inequalities increase very likely in some d.ing
  countries the beautiful story told by the
  factors proportion theory of trade does not seem
  to hold.
• How cope with short term inequalities before
  investment in education bears fruits?
• Unforeseen effects of South-South trade
  liberalisation?

12
Ex ante hh level assessment

• Welfare direct effects (induced by product price
  changes) and income indirect effects (induced by
  factor price changes, part. wages) entangled.
• Determining which of these two effects dominates
  is an empirical matter.
• Preliminary result unilateral liberalisation in
  d.ing countries would be poverty increasing,
  while developed countries liberalisation would be
  poverty decreasing.
• Issue here mostly empirical more empirical
  evidence needed.

13
Dynamic assessment

• The Development goal stresses the shortcomings of
  available models and tools.
• Shortcomings are known no market failure, no
  dynamics in most trade models.
• Because development is dynamics with market
  failures, correcting for such shortcomings should
  be gaining momentum.
• A few exception does exist, with dynamic
  unemployement, imperfect information, incomplete
  risk markets. They challenge systematic long-term
  trade lib. gains for all countries.

14
Dynamic assessment

• Main issue here is conceptual modelising
  adjustment costs in a second best economy, e.g.
  where such costs turn out to be perennial features

15
Conclusion

• Political, empirical and methodological issues
  are very challenging
• Ignoring them bears several risks
• Entertain false expectations over trade
  liberalisation
• Indirectly support conservative stance on
  protectionism in OECD countries
• Restrict trade-induced inequalities to a mere
  political economy problem. Problem is indeed
  broader. Development issue as such.
• Adressing such issues implies to take risk, e.g.
  broaden the scope of policy options and replicate
  successfull strategies whatever their orthodoxy