Trading Off the Income Gains and the Inequality Costs of Trade Policy
This paper characterizes the trade-off between the income gains and the inequality costs of trade using survey data for 54 developing countries. Tariff data on agricultural and manufacturing goods are combined with household survey data on detailed...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/652031555935857693/Trading-off-the-Income-Gains-and-the-Inequality-Costs-of-Trade-Policy http://hdl.handle.net/10986/31580 |
| Summary: | This paper characterizes the trade-off
between the income gains and the inequality costs of trade
using survey data for 54 developing countries. Tariff data
on agricultural and manufacturing goods are combined with
household survey data on detailed income and expenditure
patterns to estimate the first-order effects of the
elimination of import tariffs on household welfare. The
paper assesses how these welfare effects vary across the
distribution by estimating impacts on the consumption of
traded goods, wage income, farm and non-farm family
enterprise income, and government transfers. For each
country, the income gains and the inequality costs of trade
liberalization are quantified and the trade-offs between
them are assessed using an Atkinson social welfare index.
The analysis finds average income gains from import tariff
liberalization in 45 countries and average income losses in
nine countries. Across countries in the sample, the gains
from trade are 1.9 percent of real household expenditure on
average. We find overwhelming evidence of a trade-off
between the income gains (losses) and the inequality costs
(gains), which arise because trade tends to exacerbate
income inequality: 45 countries face a trade-off, while only
nine do not. The income gains typically more than offset the
increase in inequality. In the majority of developing
countries, the prevailing tariff structure thus induces
sizable welfare losses. |
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