Regional Income Inequality and International Trade
July 2003
Working Paper Number:
CES-03-15
Abstract
International trade is frequently cited as a cause of rising income inequality between individuals and across countries. Less attention has been paid to the effects of trade on inequality across regions within countries. Trade may enhance regional inequalities due to differences in regional trade involvement and in the prices of export and import-competing goods produced in different regions. This study investigates the effects of trade on income inequality across regions in the United States. Using both structural and price-based measures of regional trade involvement, we evaluate the effects of trade on inequality within and across states, the metro and nonmetro portions of the states, and the major Census regions. Across all states and across metro and nonmetro areas, we find that trade affects inequality primarily via import and export prices. In contrast to our expectations, however, a weaker dollar '''more expensive imports and cheaper exports ''' is associated with a worsening of a state'''s position relative to other states, and greater inequality within a state. Across the Census regions, both our price and measures had significant effects, but the direction of these effects varied by region. Whereas most regions benefited from cheaper imports, states located in regions that are traditionally home to low-wage sectors, including the Southeast and South Central regions, were made relatively worse off by lower import prices and by greater orientation toward import-competing goods. Our findings reinforce notions about the uneven impacts of globalization and suggest that policy measures are needed to ensure that both the benefits and costs of international trade involvement are shared across regions.
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