Trade and Inclusive Growth

IMF Working Papers, March 12, 2021

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This paper surveys the literature on the relationship between international trade and inclusive growth.
It examines claims that the rise in inequality in many countries can be attributed to the concurrent rise in trade competition, especially from EMEs like China, spurring trade tensions and protectionist measures.
It investigates the conflicting literature showing:
- the aggregate benefits of trade; and
- the adverse and persistent impact of trade, especially import competition, on specific industries and local communities.
The paper reviews the evidence for using trade policies and other complementary policies for adjustment and compensation to those groups adversely affected by trade.

Trade can yield aggregate benefits while simultaneously producing adverse, persistent local effects, particularly from import competition.
The rise in trade competition from EMEs like China is examined as a potential contributor to increased inequality and to trade tensions and protectionist responses.
The literature contains conflicting evidence on trade’s distributional effects versus its overall welfare gains.
The paper focuses on the role of adjustment and compensation policies to address the harms arising in specific industries and local communities.

Use of trade policies to manage adjustment for adversely affected sectors is evaluated.
Complementary domestic policies for adjustment and compensation of groups harmed by trade are reviewed as potential responses to mitigate inequality and local persistent losses.

Subject: Economic sectors, Exports, Financial crises, Imports, International trade, Labor, Tariffs, Taxes, Trade policy, Wages
Keywords: adjustment policy, export-led growth, Exports, firm productivity difference, gender, Global, globalization, growth, Imports, inclusive growth, inequality, labor, liberalization episode, poverty, productivity difference, size firm, superstar firm, Tariffs, trade, trade cost, trade facilitation, trade openness, Trade policy, trade theory, wage inequality, Wages