TRADE, INCOME DISTRIBUTION AND POVERTY IN DEVELOPING COUNTRIES: A SURVEY

The paper surveys the theoretical and empirical research on how trade and trade liberalization affect poverty and income distribution. The impact of globalization on poverty reduction has been uneven but the findings in the literature are sensitive to modelling choices. Trade liberalization improves aggregate welfare but the gains are small and unequally distributed. The welfare effects are measured basically through price changes, focusing on the effect on the relative demand for domestic factors of production and, in particular, the demand for skilled relative to unskilled labour. The literature shows that poverty constraints originate from various sources including infrastructure, skills, incomplete markets, and policy.