The Impact of Trade Openness on Regional Inequality: The Cases of India and Brazil

Abstract

Regional inequalities are large in India and Brazil and represent a development challenge. This paper aims to determine whether regional disparities are linked to countries' trade openness. An annual indicator of regional inequalities is constructed for India over the period 1980-2003 and for Brazil over 1985-2003. Results from time series regressions show that Brazil's trade openness contributes to the reduction in regional inequalities in Brazil. The opposite result is found for India. India's trade openness is an important factor aggravating income inequality among Indian states. In both countries, the inflows of foreign direct investment are found to increase regional disparities.

Does Trade Liberalization Promote Regional Disparities? Evidence from a Multiregional CGE Model of India

“…As such skilled workers are placed in position where they gain at the expense of unskilled workers who are typically concentrated in poor regions. This argument has been supported by other researchers who concluded that trade openness tends to promote regional inequality (see Daumal, 2010;Milanovic, 2005). In contrast, Williamson (1965) postulated that regional disparities are likely to worsen during early stages of development and tend to decrease overtime.…”

Income Inequality, Trade and Financial Openness

“…For example, regional inequality is important, especially for very large economies such as India and Brazil. Daumal (2010) found with time-series estimation that Brazil's trade openness contributed to a reduction in regional inequality while the opposite was true for India. 2 The data, with the exception of the foreign aid and foreign direct investment ratios are described in Solt (2009) and used in recent papers by Delis, Hasan, and Myonidis (2013) and Delis, Hasan, and Kazakis (2013) to examine, respectively, the relationship between foreign bank ownership with income inequality, and banking-sector de-regulations with inequality.…”

Trade Liberalisation and its Impact on Regional Development: Theoretical and Experimental Studies

“…Thus, export expansion contributed to the growth of Brazilian agricultural regions and, thus, regional convergence. The opposite situation were observed in India -an increase in the export of manufactured goods were followed by spatial divergence - [10].…”