# **_4. Trade, Growth, and Poverty_**

_Globalization has dramatically increased inequality_<sup>_between and within nations._</sup> _-- Jay Mazur, "Labor's New Internationalism, " Foreign_<sup>_Affairs,January/February 2000_</sup> One of the most common populist views of growing<sup>intemationaleconomic integrationis thatit</sup> leads to growing inequality between nations<sup>--</sup> that<sup>is, that globalizationcausesdivergencebetweenrich</sup> and poor countries -- and within nations - that<sup>is, thatit benefits richerhouseholdsproportionallymore</sup> than it benefits poorer ones. In the second section of<sup>this paper wehaveargued thatthe experienceof</sup> globalizers shows how greater openness to international<sup>trade hasin fact contributedto narrowingthe gap</sup> between rich and poor countries, as the globalizers<sup>have grown faster than the richcountries asa group.</sup> In this section of the paper we turn to the effects of globalization<sup>on inequalitywithincountries,drawing</sup> on results from our recent paper, Dollar and Kraay<sup>(2000).In that paperweshowthat a widerangeof</sup> measures of intemational integration are not significantly<sup>associatedwith theshareof incomethat goesto</sup> the poorest quintile. In other words, there is no systematic<sup>tendency for tradeto beassociated with rising</sup> inequality that might undermine its benefits for growth<sup>and povertyreduction.This evidencemirrorsthe</sup> anecdotal evidence in Table 4 which documented<sup>the absenceof significantpattersin changesin</sup> inequality among our globalizers.

We gather data on the income distribution from<sup>avarietyof existing sources,as documentedin</sup> more detail in the other paper. Our data consist of<sup>Gini coefficientsfrom137countries from the1960s to</sup> the present, and five points on the Lorenz curve<sup>for a most of thesecountry-yearobservations.Thereare</sup> substantial difficulties in comparing income<sup>distribution data across countries.Countriesdifferin the</sup> concept measured (income versus consumption),<sup>the measureof income(grossversusnet),the unitof</sup> observation (individuals versus households), and<sup>the coverageof the survey(national versussubnational).</sup> We restrict attention to distribution data based<sup>on nationally representativesurveys,and performsome</sup> simple adjustments to crudely control for some of<sup>the remainingdifferencesinthe types of surveys.</sup> A further difficulty with the data on income distribution<sup>is that it forms a highlyunbalancedand</sup> irregularly spaced panel of observations. For some<sup>richcountriesandafew developingcountriesa</sup> continuous time series of annual observations<sup>on incomedistribution isavailableforlong periods.For</sup> most countries only one or a handful of observations<sup>are available.Since weare interestedingrowth over</sup> the medium to long run we do not want to rely<sup>on potentiallyadjacentannualobservations in our</sup> estimation. For 45 countries, we only have one<sup>observation onincomedistribution.Forthe remaining92</sup> countries, we discard all observations not separated<sup>in time by at least fiveyears.This leaves us with 418</sup> 22