How does trade affect regional disparities?

SummaryAlthough the relationships between rising trade, economic growth, and international disparities have been well studied, those between trade and intranational disparities remain under-explored. In this paper, we present a theoretical formulation and empirical evaluation based on eight major world economies, finding that the link between trade and regional disparities is evidenced most strongly when sectoral shifts in trade composition are considered. As primary sector goods trade loses importance in the composition of total trade, regional disparities are likely to increase. This effect may have a greater negative impact on developing countries because the initial magnitude of intranational disparities tends to be greater in the developing world and its share of agricultural trade has historically been higher.