I am trying to model the effects of trade liberalization/ openness, income inequality on poverty reduction.
Land economics is key. American economist, Henry George, wrote a book called "Progress and Poverty" that linked these three elements.
Dear Adeyemi, there is a vast literature related to this crucial discussion. Please take a look at Barro´s classic article (https://www.nber.org/digest/aug99/inequality-and-growth) on inequality and growth (and related variables) and this survey by UNCTAD focusing trade (https://unctad.org/system/files/official-document/osgdp20121_en.pdf). Tracking this references in recent papers, you could have a good picture of new insights and evidence.
Best.
Some things for you to consider: In the neoclassical Hecksher-Ohlin model opening to trade has predictable impacts on the factor distribution of income and, given initial distribution of factor ownership, predictable impacts on personal distribution of income (hence inequality). In H-O models opening to trade increases demand for resources that go into export industries and reduces demand or those that are most used in import competing industries.
In a country whose comparative advantage lies in producing capital intensive goods (a country in which capital is relatively cheap) the demand for capital rises relative to other resources and the return to capital rises. Import competing goods are relatively labor intensive, demand for labor falls and so do wages. If, as usual, ownership of capital is relatively concentrated the personal income distribution becomes more unequal.
in a country which begins to specialize in labor intensive goods the reverse is predicted in every respect. Matters in an H-O type model become more complex when you begin to take into account more resources--natural resources, human skill levels, and variations in technology. However, this type of model offers predictions and points to specific things to look for in trying to analyze and model the effects of opening to trade.
If you want to use a Marxist based analysis then you would want to look at the way openness changes the balance of power between capitalists and workers and between local capitalists and global capitalists. These changes would be expected to change the rate of exploitation of labor. If the opening to trade allowed relatively mobile capital to gain power over relatively immobile labor the balance would be expected to move in favor of capitalists in all countries and therefore increase inequality in all countries. Here again this points to the kinds of variables you would want to consider in analyzing and modeling openning to trade.
Neil H Garston, thanks for your contribution Prof. Highly impactful and well appreciated.
Have you checked Mundell-Fleming and Impposible Trinity approachs with Trade Creation effects of integration and international economics theories ? Hybrid one?
There is no one-size-fits-all economic policy that can be applied to every country, every economic situation, etc. A specific economic policy is developed for a specific country, located from a specific economic situation, phase of the business cycle, structure of the dominant growth drivers, etc. In addition to this, in the situation of elaborating an economic policy composed of specific normative instruments, interventionist economic measures, applied specific instruments of fiscal, budgetary, sectoral, social and monetary policy shaped by the central bank it is also necessary to take into account conditions such as: sectoral and branch structure of the economy, the level of economic development, the level of democratisation, the scale of income stratification in society, the level of monopolisation of markets, the level of privatisation of production factors in individual branches of the economy, the impact of international trade on the economic development of the country, relations with international financial institutions, etc. However, with regard to your question, I would like to say that, given other factors and conditions within the optimum range, trade liberalisation usually promotes a country's economic development and, in a system free of corruption, a business that observes the principles of ethics and corporate social responsibility, a developed system of social assistance and income redistribution, high standards of competition on the markets and democracy in politics, then the level of poverty in society will be low. Besides, in a situation of international trade between highly developed countries and countries with low incomes, it is rare that such trade is carried out on equal terms for each country. Therefore, in order to ensure that poorer countries are not at a significant disadvantage in terms of international trade, it is necessary to establish conditions for trade cooperation such that all countries participating in such cooperation benefit economically, allowing for the development and improvement of the living conditions of their citizens, increased welfare, etc. If the above determinants are met, then increasing trade liberalisation will generate positive economic and social effects, including a reduction in poverty levels.
Regards,
Dariusz