Trade and Income Distribution in Developing Countries

Abstract

This study examines the relationship between trade policy and income distribution on a cross-section of developing countries. The evidence suggests that the impact of openness on income distribution depends on the endowments of human capital. Basic education was found to be the key human capital variable determining export composition. Countries relatively well endowed with basic education tend to have higher shares of manufacturing exports and experience lower income inequality than countries with high shares of primary exports. These findings suggest that trade policies promoting manufactures should be based on expanding basic education to have the necessary poverty and inequality reducing effects.