Inequality and Trade Policy: The Pro‐Poor Bias of Contemporary Trade Restrictions

30 Pages Posted: 6 Jun 2020

Date Written: November 2019

Abstract

This paper studies the pro‐poor bias of trade policy in India by estimating the household welfare effects of removing the current protection structure. The elimination of a pro‐poor trade policy is expected to have a negative differential welfare effect at the low end of the distribution. The paper first constructs trade restrictiveness indexes for household consumption items and industries using both tariffs and non‐tariff barriers. The results indicate that Indian trade policy is regressive through the expenditure channel as it disproportionately raises the cost of consumption for poorer households, while it is progressive through the earnings channel. Based on the net welfare effects, the elimination of the current trade protection structure is estimated to reduce inequality. These results indicate that a trade policy that is progressive through the earnings channel may induce a price effect that is regressive through the expenditure channel.

Keywords: consumption inequality, poverty, trade protection

Suggested Citation

Ural Marchand, Beyza P., Inequality and Trade Policy: The Pro‐Poor Bias of Contemporary Trade Restrictions (November 2019). Review of Income and Wealth, Vol. 65, pp. S123-S152, 2019, Available at SSRN: https://ssrn.com/abstract=3619364 or http://dx.doi.org/10.1111/roiw.12433

Beyza P. Ural Marchand (Contact Author)

University of Alberta - Faculty of Arts ( email )

Edmonton, Alberta
Canada

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