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Trade and regional inequality

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  • Rodríguez-Pose, Andrés
Abstract
This paper examines the relationship between openness and within-country regional inequality across 28 countries over the period 1975-2005. In particular, it tests a) whether increases in trade lead to rising inequalities, b) whether these inequalities recede in time, and c) whether increases in global trade affect the developed and developing worlds differently. Using static and dynamic panel data analysis, it is found that while increases in trade per se do not lead to greater territorial polarisation, in combination with certain country-specific conditions, trade has a positive and significant association with regional inequality. States with higher inter-regional differences in sectoral endowments, a lower share of government expenditure, and a combination of high internal transaction costs with a higher degree of coincidence between the regional income distribution and regional foreign market access positions have experienced the greatest rise in territorial inequality when exposed to greater trade flows. Hence, changes in trade regimes have a more polarising and enduring effect in low- and middle-income countries, whose structural features tend to enhance the trade-inequality effect and whose levels of internal spatial inequality are, on average, significantly higher than in high-income countries.

Suggested Citation

  • Rodríguez-Pose, Andrés, 2011. "Trade and regional inequality," CEPR Discussion Papers 8616, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8616
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    More about this item

    Keywords

    Developed countries; Developing countries; Regional inequality; Trade;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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