Kuznets Curve - Applying The Kuznets Curve To Trade Liberalization

Applying The Kuznets Curve To Trade Liberalization

Dobson and Ramlogan’s research looked to identify the relationship between inequality and trade liberalization. There have been mixed findings with this idea – some developing countries have experienced greater inequality, less inequality, or no difference at all, due to trade liberalization. Because of this, Dobson and Ramlogan suggest that perhaps trade openness can be related to inequality through a Kuznets curve framework. A trade liberalization-versus-inequality graph has a measures trade openness along the x-axis and inequality along the y-axis. Dobson and Ramlogan determine trade openness by the ratio of exports and imports (the total trade) and the average tariff rate; inequality is determined by gross primary school enrolment rates, the share of agriculture in total output, the rate of inflation, and cumulative privatization. By studying data from several Latin American countries that have implemented trade liberalization policies in the past 30 years, the Kuznets curve seems to apply to the relationship between trade liberalization and inequality (measured by the GINI coefficient). However, many of these nations saw a shift from low-skill labour production to natural resource intensive activities. This shift would not benefit low-skill workers as much. So although their evidence seems to support the Kuznets theory in relation to trade liberalization, Dobson and Ramlogan assert that policies for redistribution must be simultaneously implemented in order to mitigate the initial increase in inequality felt.