Openness and inequality in developing countries: a review of theory and recent evidence

Increased openness affects income inequalities within developing countries by affecting factor price ratios, asset inequalities, spatial inequalities, gender inequalities, and the amount of income redistribution. Most time-series studies find that greater openness has increased the relative demand for skilled labor, but most cross-country studies find that greater openness has had little impact on overall income inequality. One possible explanation is that countries selected for time-series analysis are not representative of all developing countries. Another is that the effects of openness on income inequality via the relative demand for skilled labor have been offset by its effects via other channels.