The Impact of Trade Openness on Regional Inequality: the Cases of India and Brazil

Regional inequalities are large in India and Brazil and represent a development challenge. This article aims to determine whether regional inequalities are linked to a country's trade openness. An annual indicator of regional inequalities is constructed for India for the period 1980–2004 and for Brazil from 1985–2004. Results from time series regressions show that Brazil's trade openness contributes to a reduction in regional inequalities. The opposite result is found for India. India's trade openness is an important factor aggravating income inequality among Indian states. In both countries, inflows of foreign direct investment are found to increase regional inequalities.