IDEAS home Printed from https://ideas.repec.org/p/ags/wisagr/92236.html
   My bibliography  Save this paper

Trade, Technology and Inequality in a Developing Country: Theory and Evidence from China

Author

Listed:
  • Li, Muqun
  • Coxhead, Ian A.

Abstract

Could globalization—specifically, increased international trade and openness to foreign investment—increase inequality in developing countries? Empirical studies in many such economies show that expanding trade and FDI are associated with higher inequality in wages and regional incomes. However, there is no agreement regarding the cause of such increases. We present a theoretical model showing how interactions between factor mobility restrictions and different rates of technical progress (due to trade and FDI) in a regionally heterogeneous economy can explain the evolution of inequality. As favored regions benefit more from trade, their growing demand for skills drains skilled workers from disadvantaged areas, and average incomes in favored regions grow faster than in less favored regions. Moreover, this unbalanced regional growth may be the source of rising inequality within each region, and even of falling per capita incomes in the less favored region. We test our predictions with data from China’s coastal and inland provinces. The results confirm that different regional growth rates have increased both interregional and intraregional inequality. In addition, growth of skills-based export industries in coastal regions, other things equal, is associated with lower incomes for the poor in inland provinces.

Suggested Citation

  • Li, Muqun & Coxhead, Ian A., 2009. "Trade, Technology and Inequality in a Developing Country: Theory and Evidence from China," Staff Papers 92236, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
  • Handle: RePEc:ags:wisagr:92236
    DOI: 10.22004/ag.econ.92236
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/92236/files/stpap539.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.92236?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Guanghua Wan & Zhangyue Zhou, 2005. "Income Inequality in Rural China: Regression‐based Decomposition Using Household Data," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 107-120, February.
    2. Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
    3. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
    4. Joseph E. Stiglitz, 1999. "More instruments and broader goals: moving toward the Post-Washington Consensus," Brazilian Journal of Political Economy, Center of Political Economy, vol. 19(1), pages 101-128.
    5. John Knight & Lina Song, 2003. "Increasing urban wage inequality in China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(4), pages 597-619, December.
    6. L. ALAN WINTERS & NEIL McCULLOCH & ANDREW McKAY, 2015. "Trade Liberalization and Poverty: The Evidence So Far," World Scientific Book Chapters, in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 14, pages 271-314, World Scientific Publishing Co. Pte. Ltd..
    7. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    8. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 557-586.
    9. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "International Trade with Endogenous Technological Change," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.), International Trade, Capital Flows and Economic Development, chapter 2, pages 33-70, World Scientific Publishing Co. Pte. Ltd..
    10. Chen, Shaohua & Ravallion, Martin, 2008. "China is poorer than we thought, but no less successful in the fight against poverty," Policy Research Working Paper Series 4621, The World Bank.
    11. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    12. Larry Westphal, 2002. "Technology Strategies For Economic Development In A Fast Changing Global Economy," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(4-5), pages 275-320.
    13. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
    14. Xiaobo Zhang & Kevin Honglin Zhang, 2002. "Regional Inequality," Chapters, in: Shang-Jin Wei & Guanzhong James Wen & Huizhong Zhou (ed.), The Globalization of the Chinese Economy, chapter 8, Edward Elgar Publishing.
    15. Ravi Kanbur, 2005. "Spatial Inequality and Development: Overview of UNU-WIDER Project," Working Papers id:215, eSocialSciences.
    16. Pinelopi K. Goldberg & Nina Pavcnik, 2004. "Trade, Inequality, and Poverty: What Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing Countries," NBER Working Papers 10593, National Bureau of Economic Research, Inc.
    17. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February.
    18. Monfort, Philippe & Nicolini, Rosella, 2000. "Regional Convergence and International Integration," Journal of Urban Economics, Elsevier, vol. 48(2), pages 286-306, September.
    19. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    20. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    21. Barro, R.J. & Sala-i-Martin, X., 1991. "Regional Growth and Migration: a Japan - U.S. Comparaison," Papers 650, Yale - Economic Growth Center.
    22. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    23. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    24. Susanto Basu & David N. Weil, 1998. "Appropriate Technology and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1025-1054.
    25. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    26. Foster, Andrew D & Rosenzweig, Mark R, 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1176-1209, December.
    27. Ravi Kanbur & Xiaobo Zhang, 2005. "Fifty Years of Regional Inequality in China: a Journey Through Central Planning, Reform, and Openness," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 87-106, February.
    28. Blalock, Garrick & Gertler, Paul J., 2004. "Learning from exporting revisited in a less developed setting," Journal of Development Economics, Elsevier, vol. 75(2), pages 397-416, December.
    29. Thisse, Jacques-François & Ottaviano, Gianmarco & Gaigné, Carl & Behrens, Kristian, 2003. "Inter-regional and International Trade: Seventy Years After Ohlin," CEPR Discussion Papers 4065, C.E.P.R. Discussion Papers.
    30. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    31. Guanghua Wan & Ming Lu & Zhao Chen, 2004. "Globalization and Regional Income Inequality: Evidence from within China," WIDER Working Paper Series DP2004-10, World Institute for Development Economic Research (UNU-WIDER).
    32. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 203-224.
    33. Diego Puga, 2002. "European regional policies in light of recent location theories," Journal of Economic Geography, Oxford University Press, vol. 2(4), pages 373-406, October.
    34. Kanbur, Ravi & Zhang, Xiaobo, 1999. "Which Regional Inequality? The Evolution of Rural-Urban and Inland-Coastal Inequality in China from 1983 to 1995," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 686-701, December.
    35. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 857-880.
    36. Kanbur, Ravi & Venables, Anthony J. (ed.), 2005. "Spatial Inequality and Development," OUP Catalogue, Oxford University Press, number 9780199278633.
    37. T. N. Srinivasan & Jagdish Bhagwati, 2001. "Outward-Orientation and Development: Are Revisionists Right?," Palgrave Macmillan Books, in: Deepak Lal & Richard H. Snape (ed.), Trade, Development and Political Economy, chapter 1, pages 3-26, Palgrave Macmillan.
    38. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    39. Adrian Wood, 1997. "How Trade Hurt Unskilled Workers," Palgrave Macmillan Books, in: Jitendralal Borkakoti & Chris Milner (ed.), International Trade and Labour Markets, chapter 7, pages 140-168, Palgrave Macmillan.
    40. Elisenda Paluzie, 2001. "articles: Trade policy and regional inequalities," Papers in Regional Science, Springer;Regional Science Association International, vol. 80(1), pages 67-85.
    41. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    42. Xiaobo Zhang & Kevin Zhang, 2003. "How Does Globalisation Affect Regional Inequality within A Developing Country? Evidence from China," Journal of Development Studies, Taylor & Francis Journals, vol. 39(4), pages 47-67.
    43. Shaohua Chen & Martin Ravallion, 2010. "The Developing World is Poorer than We Thought, But No Less Successful in the Fight Against Poverty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1577-1625.
    44. Barro, Robert T. & Sala-I-Martin, Xavier, 1992. "Regional growth and migration: A Japan-United States comparison," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 312-346, December.
    45. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 190-207.
    46. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    47. repec:hhs:iuiwop:430 is not listed on IDEAS
    48. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    49. World Bank, 2005. "China : Integration of National Product and Factor Markets, Economic Benefits and Policy Recommendations," World Bank Publications - Reports 8690, The World Bank Group.
    50. M. V. Posner, 1961. "International Trade And Technical Change," Oxford Economic Papers, Oxford University Press, vol. 13(3), pages 323-341.
    51. van Ypersele, Tanguy & Monfort, Philippe, 2003. "Integration, Regional Agglomeration and International Trade," CEPR Discussion Papers 3752, C.E.P.R. Discussion Papers.
    52. Peter H. Lindert & Jeffrey G. Williamson, 2003. "Does Globalization Make the World More Unequal?," NBER Chapters, in: Globalization in Historical Perspective, pages 227-276, National Bureau of Economic Research, Inc.
    53. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    54. Dan Ben-David, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 653-679.
    55. Kanbur, Ravi, 2004. "Growth, Inequality And Poverty: Some Hard Questions," Working Papers 127133, Cornell University, Department of Applied Economics and Management.
    56. Daron Acemoglu, 2003. "Patterns of Skill Premia," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 199-230.
    57. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    58. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    59. Donald J. Robbins, 1996. "Evidence on Trade and Wages in the Developing World," OECD Development Centre Working Papers 119, OECD Publishing.
    60. Christopher Candelaria & Mary C. Daly & Galina Hale, 2009. "Beyond Kuznets: persistent regional inequality in China," Working Paper Series 2009-07, Federal Reserve Bank of San Francisco.
    61. Hanson, G.H. & Harrison, A., 1995. "Trade, Technology and Wage Inequality," Papers 95-20, Columbia - Graduate School of Business.
    62. Welch, Finis, 1975. "Human Capital Theory: Education, Discrimination, and Life Cycles," American Economic Review, American Economic Association, vol. 65(2), pages 63-73, May.
    63. Winters, L Alan, 2000. "Trade, Trade Policy and Poverty: What Are The Links?," CEPR Discussion Papers 2382, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oberdabernig, Doris A., 2013. "Revisiting the Effects of IMF Programs on Poverty and Inequality," World Development, Elsevier, vol. 46(C), pages 113-142.
    2. Marco Vivarelli, 2015. "Structural Change and Innovation in Developing Economies: A Way Out of the Middle Income Trap ?," LEM Papers Series 2015/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Valentin F. Lang & Ms. Marina Mendes Tavares, 2018. "The Distribution of Gains from Globalization," IMF Working Papers 2018/054, International Monetary Fund.
    4. Muqun Li & Ian Coxhead, 2011. "Trade and Inequality with Limited Labor Mobility: Theory and Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 15(1), pages 48-65, February.
    5. García Muñoz, Teresa María & Milgram Baleix, Juliette & Odeh, Omar Odeh, 2020. "Inequality in Latin America: The role of the nature of trade and partners," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-35.
    6. Ahmad, Mahyudin, 2016. "Middle income trap and income inequality: Empirical evidence on the distributional effect of economic liberalization and political regime," MPRA Paper 76437, University Library of Munich, Germany.
    7. Kazuhiro Kumo & Alexandra Koval & Irina Korgun & Olga Trofimenko, 2018. "Foreign Trade and Regional Inequality:The Case of the Russian Federation," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(3), pages 884-895.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muqun Li & Ian Coxhead, 2011. "Trade and Inequality with Limited Labor Mobility: Theory and Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 15(1), pages 48-65, February.
    2. Guanghua Wan & Ming Lu & Zhao Chen, 2007. "Globalization And Regional Income Inequality: Empirical Evidence From Within China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(1), pages 35-59, March.
    3. Georg Hirte & Christian Lessmann, 2014. "Trade, Integration, and Interregional Inequality," CESifo Working Paper Series 4799, CESifo.
    4. Ardeshiri, Mansour & Moghaddasi, Reza & Yazdani, Saeed & Mohamadinejad, Amir, 2019. "Trade Openness and Spatial Distribution of Manufacturing Industries: Iranian Provincial Evidence," Asian Journal of Applied Economics/ Applied Economics Journal, Kasetsart University, Faculty of Economics, Center for Applied Economic Research, vol. 26(1), pages 21-44, June.
    5. Paolo Epifani & Gino Gancia, 2008. "The Skill Bias of World Trade," Economic Journal, Royal Economic Society, vol. 118(530), pages 927-960, July.
    6. Cem Ertur & Antonio Musolesi, 2017. "Weak and Strong Cross‐Sectional Dependence: A Panel Data Analysis of International Technology Diffusion," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 477-503, April.
    7. Brakman, Steven & Garretsen, Harry & Schramm, Marc, 2006. "Putting new economic geography to the test: Free-ness of trade and agglomeration in the EU regions," Regional Science and Urban Economics, Elsevier, vol. 36(5), pages 613-635, September.
    8. Dilip Saikia, 2011. "Does Economic Integration Affect Spatial Concentration of Industries? Theory and a Case Study for India," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(42), pages 89-114, December.
    9. Xi Yang & Nobuaki Hamaguchi, 2013. "Trade infrastructure and firm location under Cournot competition," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(1), pages 153-167, February.
    10. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    11. Andrés Rodríguez-Pose, 2012. "Trade and Regional Inequality," Economic Geography, Taylor & Francis Journals, vol. 88(2), pages 109-136, April.
    12. Mastromarco, Camilla & Ghosh, Sucharita, 2009. "Foreign Capital, Human Capital, and Efficiency: A Stochastic Frontier Analysis for Developing Countries," World Development, Elsevier, vol. 37(2), pages 489-502, February.
    13. Guanghua Wan & Ming Lu & Zhao Chen, 2004. "Globalization and Regional Income Inequality: Evidence from within China," WIDER Working Paper Series DP2004-10, World Institute for Development Economic Research (UNU-WIDER).
    14. Hrushikesh Mallick & Mantu Kumar Mahalik & Hemachandra Padhan, 2020. "Does globalization exacerbate income inequality in two largest emerging economies? The role of FDI and remittances inflows," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(4), pages 443-480, December.
    15. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    16. Giordano, Paolo & Li, Kun, 2012. "An Updated Assessment of the Trade and Poverty Nexus in Latin America," IDB Publications (Working Papers) 4209, Inter-American Development Bank.
    17. Zeng, Dao-Zhi & Zhao, Laixun, 2010. "Globalization, interregional and international inequalities," Journal of Urban Economics, Elsevier, vol. 67(3), pages 352-361, May.
    18. Prajukta Tripathy & Pragyanrani Behera & Bikash Ranjan Mishra, 2023. "Study of linkages between productivity, export, and outward foreign direct investment: An empirical perspective of Indian manufacturing industries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1527-1548, April.
    19. World Bank, 2007. "Bangladesh : Strategy for Sustained Growth, Volume 1. Summary Report," World Bank Publications - Reports 7765, The World Bank Group.
    20. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779, Elsevier.

    More about this item

    Keywords

    International Development;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:wisagr:92236. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/dauwius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.