Trade-Induced Changes in Economic Inequality: Assessment Issues and Policy Implications for Developing Countries

The starting point of this paper is given by country situations where trade liberalization is expected to be poverty and inequality alleviating in the long run while inducing a short run increase in poverty or in inequality. The question we ask is what are the distributive aspects of trade which are worth documenting to better help governments integrate trade policies within a global policy framework so as to enhance growth and reduce poverty and inequality. The method followed is a literature review, organized according to salient issues given by the three acceptations of fairness implied by the inclusion of the “Development” objective in the world trade liberalization agenda. A “pro-development” trade liberalization agenda should correct past unfairness in trade regime, which raises the broad issue of country level ex post assessment. It should equally reduce poverty, which point toward household level ex ante assessment. Last, because development is basically a dynamic process, the distributive-dynamic effects of trade liberalization are also considered. A synthesis of our ten main results concludes the paper.