Many Americans are justifiably distressed about rising income inequality, but foreign competition gets far too much of the blame. In fact, the best and most comprehensive studies of the inequality question assign international trade only a bit part in the drama. The main protagonists are all domestic, including changes in technology, the decline of unions, failures of public policy and changing social attitudes toward inequality.
(Stop the World (and Avoid Reality), New York Times, January 6, 2008). Dani Rodrik says that this implies that most economists feel that trade is a minor factor. He says that, there are some very capable economists who think otherwise (Trade and wages, January 6):
...The negative association between trade and child labour holds even when considering only poor countries’ trade with high-income countries. It also holds up for trade in unskilled-labour intensive products. Quite simply, child labour is less prevalent in countries that trade more because countries that trade more are richer, and children work less in richer countries....
Our findings from India mirror the findings from a recent study of ours in Vietnam. For a number of years, Vietnam used an export quota to suppress rice exports out of a concern for domestic food security. In the 1990s, Vietnam liberalised its rice trade and allowed rice farmers to take advantage of higher international prices. The rice sector boomed and living standards of rice producing households improved substantively. Despite greater employment opportunities, children in households that benefited from higher rice prices became much less likely to work. Altogether, it appears that roughly 1 million fewer children worked as a result of rising rice prices in Vietnam despite potentially more lucrative employment opportunities....
Malaria is a killer. According to Jeffrey Sachs and Pia Malaney (see below) "there are 300 to 500 million clinical cases every year, and between one and three million deaths, mostly of children, are attributable to this disease. Every 40 seconds a child dies of malaria, resulting in a daily loss of more than 2,000 young lives worldwide."
According to Sachs and Malaney, bottom-up estimates of the costs of malaria cases, obtained by summing estimates of the costs of medical care and lost income for individual cases, are generally much smaller than the top-down estimates from looking at patterns in aggregate national data. They argue that the gap is created by behavioral responses to life in a malarious environment that are counter-productive for growth. These behavioral responses create costs beyond the care costs and income losses for individual cases. While the empirical evidence on how these behavioral responses work themselves out sounds relatively limited, they speculate that the following processes may be relevant:
The World Bank's International Finance Corporation (IFC), and the Financial Times (FT), are offering US$20,000 for the best 4,000 word (max) essay on "Private Sector Development: Creating Markets, Transforming Lives. (all entries are due by this September 30).
The empirical study of the impact of trade liberalization has not convinced the skeptics about the economic gains after trade reforms. Some have even argued that trade reforms have led to economic collapse and to deindustrialization. Using a sample that excludes countries that were subject to major exogenous disruptions, the authors note that post-reform economic growth was 1.2 percentage points higher than before the reforms. This is remarkable considering that pre-reform periods were characterized by highly expansionary state policies and large external borrowing, and the crisis years that preceded trade liberalization in the comparisons are eliminated. Growth acceleration occurred irrespective of income per capita level and was quite significant in Sub-Saharan Africa. As expected, small countries benefited most from the reforms.
This paper analyzes the impact of trade reforms on household welfare. In particular, it studies the importance of each of the links that together constitute the impact using data from the Vietnamese experience in the 1990s. The implementation of trade reforms in the 1990s, most noteworthy of which was the liberalization of rice, resulted in substantial improvement in welfare as evidenced by the drastic decline in poverty. Using analytical and empirical methods, the author examines the role of each channel (direct versus indirect) in this improvement for different groups of households. Results indicate that the growth has been broad based and pro-poor. Poorer households experienced more growth for each and every group analyzed. And contrary to the standard literature, net buyer households had more growth compared with net sellers, emphasizing the importance of indirect links. Decomposition of the growth shows that for rural households, both the direct effect and the multiplier effect drive growth while the multiplier effect was key in urban areas.
...Some help may be on the way, though. Last week,
Senators Dianne Feinstein (D-California) and Gordon Smith (R-Oregon)
introduced a proposal, known as the "Tariff Relief Assistance for
Developing Economies Act," to grant 15 low-income countries in Asia,
the Pacific, and the Muslim world exemptions from tariffs....
Rep. Joe Crowley is their House partner and founder of the Bangladesh caucus.
Also, follow the link suggested in the comment by Fundamentalist to: The Quest Continues by Lant Pritchett (March 2006). Pritchett looks at empirical growth theory in this popular article, and discusses, "he tension between the logics of academic interest and the needs of the policy practitioner..."