Year of Publication
Michael R. Reed
The concomitance of prosperity and poverty come as an enigma in today's world.As some people in this world benefit greatly from advanced technologies andglobalization, others are still suffering heavily from poverty. One noticeable fact is thatalmost all developing countries have their own distinguished "poor area". Such poorareas seem to persist regardless of robust economic growth enjoyed by the overalleconomy.By decomposing the developing country into two regions, one rich coastal regionand one poor inland region, this research establishes a new classical general equilibrium3X2 Ricardian model to investigate how trade liberalization will affect the participationin the division of labor by poor individuals in the inland region in a developing countryand their associated welfare change under different trading conditions.Our model of division of labor on poverty delineates the interdependentrelationship between individuals in the poor inland region, the rich coastal region and thedeveloped country. Market integration plays a very important role in suchinterdependency. Low transaction efficiency is the bottle-neck constraint on the poorinland region's integration into international division of labor through international trade.Thus, it is critical for the poor inland region to improve the market transaction efficiencyin order to enjoy gains from trade.Our marginal and inframarginal analysis show that as an important part of tradeliberalization policy, tariff reduction may not always be a good policy choice for thedeveloping country to alleviate the poverty. Whether tariff reduction makes the inlandregion better off depends on the initial general equilibrium market structure and thedeveloping country's power of influencing its terms of trade. If the developing country islarge enough to determine the terms of trade in international trade with the developedcountry, the developing country may increase the welfare level of the poor inland regionby increasing its tariff rate. But the developed country will oppose it because the tariffrate increase in the developing country will hurt its welfare. Trade negotiation is thennecessary to determine the final tariff rate and the share of gains of trade to each countryand region.
Peng, Xuehua, "TRADE LIBERALIZATION AND DIVISION OF LABOR: IMPLICATIONS FOR POVERTY IN CHINA" (2006). University of Kentucky Doctoral Dissertations. 231.