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| Inequality and Openness |
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July-September 2004 |
Inequalities and their link to economic openness are among the major controversies provoked by the globalisation process. A first issue to be addressed, however, is related to the measurement of inequalities: according to some authors, inequalities are decreasing, while others state that they are increasing. How is this possible? Much depends on the concept of inequality which is used.
In "L'Economie mondiale 2005" (2004), Isabelle Bensidoun sets out the different concepts of inequalities: between countries, between populations of countries and between individuals. This explains partly why results in the measurement of inequalities can appear so contradictory. She surveys the empirical and theoretical elements which may relate openness to inequalities.
Loïc Cadiou and Pierre Villa (1998) compare results using the Gini coefficient and the Theil index. These indicators all more or less show that there has been a decrease in international inequality when weighted by population, but an increase in inequality when one country provides a single observation, whatever the size of its population.
Isabelle Bensidoun, Agnès Chevallier and Guillaume Gaulier (2001) highlight the distribution of GDP per capita and its evolution between 1960 and 2000 throughout the world. If in 1960, many countries were concentrated around the average GDP per capita, by 2000 countries could be split into three different groups: some middle-income countries had converged towards the upper income group while others had fallen behind. Meanwhile, the gap between average incomes in the richest countries and average incomes in the poorest countries had grown (from 100: 6.9 in 1960, to 100: 5.3 in 2000).
Is economic openness or isolation the main explanation for these trends?
Proponents of liberalisation depict international trade as a strong factor favouring growth and thus economic catching-up by developing countries. Integration in international markets is seen as a way to get access to modern technology facilitating the modernisation of lagging economies, and so ultimately accelerating the convergence process. These countries could thus be the main beneficiaries of economic integration. But, as pointed out in the theoretical literature, countries lacking a minimum industrial base could actually suffer from economic integration and be caught in poverty traps as a result.
In a seminal study, Dan Ben-David (1996) observed that trade-based groups of countries (groups comprising major trade partners) are more likely to exhibit convergence than groups of randomly selected countries. The robustness of this result is assessed in Guillaume Gaulier (2003). Ben-David’s finding of absolute (beta-) convergence within trade-based groups is confirmed but it is not sufficient to imply a significant reduction in standard of living differences (sigma convergence). Second, Guillaume Gaulier argues that the extent of convergence within trade-based groups depends on the concept of trade intensity which is used to build these groups. Little evidence of either beta- or sigma- convergence is found when the size of countries in trade groups is controlled for. Finally, the evidence for trade as a channel for convergence remains limited.
Furthermore, as suggested by the modern trade theory, trade specialisation matters (Isabelle Bensidoun, Guillaume Gaulier and Deniz Ünal-Kesenci, 2001): exporting goods facing weak demand (generally primary products like minerals or food & agriculture), and having a low technology content will hardly lead to positive, long-term growth performance. According to these results, policies supporting specialisation in growth-engine sectors, in which a country lacks comparative advantage, might have a positive impact on long-term growth.
The widespread increase in "within countries" inequalities in the developed countries has been well documented, while developing countries have experienced different outcomes, broadly characterised by increased inequalities in Latin America, and decreased inequalities in East Asia. Understanding the link of such evolutions with foreign trade is the subject of on-going research at the CEPII (Isabelle Bensidoun, Sébastien Jean and Aude Sztulman). |
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