DP4699 | Socially Responsible Trade Integration: A Political Economy Perspective

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23/10/2004

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Abstract

Economists tend to agree that international trade liberalization brings significant gains from trade to countries engaging in such a process. At the same time however, public opinion is much less optimistic and there is a widespread concern that the current sharing of the gains from trade is ?unfair? and unevenly distributed across and within countries. This Paper emphasizes that in order to understand the position of globalization skeptics and respond adequately to their complaints, one should move beyond the existence of the gains from trade (static and/or dynamic) and one should pay more attention to the ?pains from trade? and, more generally, the distributive dimensions of trade integration. In particular, a critical dimension that needs to be addressed is the issue of the redistribution (or non-redistribution) of the gains from trade and the interactions between trade openness and domestic redistributive policy. After reviewing briefly what we know about the distributive impacts of trade openness, the paper considers the political economy feedbacks of trade integration on domestic redistribution and identifies the economic and political feasibility constraints of a ?trade regime with redistribution?. Taking then a normative perspective, it explores the conditions for the existence of a ?socially responsible? open trade regime and discusses some of the policy tradeoffs associated with its implementation.