The effects of sectoral trade composition on inequality: evidence from emerging economies

Abstract

This study identifies the effect of sectoral composition of trade on inequality in the emerging economies. We separate export and import into four broad sectors such as agriculture; labor-intensive manufacturing; capital-intensive manufacturing and service, and measure revealed comparative advantage (RCA) of each sector. We then identify the effect of growing export; import; and comparative advantage of these sectors on inequality. The study applies dynamic panel data model to a panel dataset of 31 emerging economies over 1994-2014. We take both relative and absolute measures of inequality to solve the debate regarding measurement issues of inequality. The study results suggest that trade in different sectors have differential effect on inequality measured by Gini and ratio of average income of highest and lowest quintiles, but it significantly increases income differences between the two extreme quintiles of income group. Technology has a mixed effect on relative inequality, but it substantially raises absolute income differences between the highest and lowest quintiles. Contribution/ OriginalityThis study contributes to the existing literature by examining the effects of sectoral composition of trade on inequality in the emerging economies focusing on two research questions: firstly whether export and import of different sectors have a differential effect on inequality in the emerging economies; and secondly, how revealed comparative advantage of various sectors affects inequality.

Development finance, institutional quality and human development in the MENA region

“…(2002), Asghar et al. (2012) and Niño-Zarazúa (2017), exports of goods and services (EXPORT), which is adopted by Narayan and Smyth (2004), Islam et al. (2017), and Hamid and Amin (2013), net foreign direct investment (FDI), which is adopted by Kheng et al.…”

“…The authors outline the three channels through which exports can directly impact human capital: (1) technology spillover that targets primarily skilled labour and prompts investment in human capital; (2) the "learning by doing" approach when it comes to upgrading trade patterns; (3) the diffusion of marketing and management expertise, which catalyses the productivity of factors of production. Similarly, Islam et al (2017) using a GMM approach on 31 emerging economies suggest that all sectors of exports aid in reducing poverty and raising income for all quintiles. Hamid and Amin (2013) applied an ARDL test for 38 countries members in Organisation of Islamic Council (OIC) and found a significant positive interplay between trade and Human Development Index.…”

“…Regarding development finance, this study adopts as explanatory variables six resources, which represent specifically financial injections in the economies. These resources are: domestic credit to private sector (CREDIT), which is adopted by Amoo et al (2017) and Arif and Khan (2019), total government expenditures (GOVEXP), which is adopted by Gupta et al (2002), Asghar et al (2012) and Niño-Zaraz ua (2017), exports of goods and services (EXPORT), which is adopted by Narayan and Smyth (2004), Islam et al (2017), and Hamid and Amin (2013), net foreign direct investment (FDI), which is adopted by Kheng et al (2016), Miyamoto (2003) and Basu and Guariglia (2007), official development assistant (ODA), which is adopted by Kosack (2003), Shirazi et al (2009) and Tadesse et al (2019), and workers' remittances (REMIT) [2], which is adopted by Hildebrandt and McKenzie (2005), Ustubici and Irdam (2012) and Awdeh (2018b). For comparability purpose, all these variables are deflated by the countries' Gross Domestic Product.…”