Trade, Technology and Inequality in a Developing Country: Theory and Evidence from China
Muqun Li and
No 92236, Staff Papers from University of Wisconsin-Madison, Department of Agricultural and Applied Economics
Could globalization—specifically, increased international trade and openness to foreign investment—increase inequality in developing countries? Empirical studies in many such economies show that expanding trade and FDI are associated with higher inequality in wages and regional incomes. However, there is no agreement regarding the cause of such increases. We present a theoretical model showing how interactions between factor mobility restrictions and different rates of technical progress (due to trade and FDI) in a regionally heterogeneous economy can explain the evolution of inequality. As favored regions benefit more from trade, their growing demand for skills drains skilled workers from disadvantaged areas, and average incomes in favored regions grow faster than in less favored regions. Moreover, this unbalanced regional growth may be the source of rising inequality within each region, and even of falling per capita incomes in the less favored region. We test our predictions with data from China’s coastal and inland provinces. The results confirm that different regional growth rates have increased both interregional and intraregional inequality. In addition, growth of skills-based export industries in coastal regions, other things equal, is associated with lower incomes for the poor in inland provinces.
Keywords: International; Development (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Working Paper: Trade, Technology and Inequality in a Developing Country: Theory and Evidence from China (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ags:wisagr:92236
Access Statistics for this paper
More papers in Staff Papers from University of Wisconsin-Madison, Department of Agricultural and Applied Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().