Trade Liberalization, Poverty and Inequality

:The question of how trade liberalization affects poverty and inequality remains largely an empirical one. Work has attempted to
address the question, focusing mostly on the effect of trade liberalization on within-country income inequality. Work has attempted to
address the question, focusing mostly on the effect of trade liberalization on within-country income inequality. Studies using cross-country
variation typically find little relationship between trade liberalization and levels or rates of change of inequality. India presents a
particularly relevant setting in which to seek the answers to these questions. First, India is the home of one-third of the worlds poor. Second,
the nature of India’s trade liberalization—sudden, comprehensive, and largely externally imposed facilitates a causal interpretation of the
findings. India liberalized its international trade as part of a major set of reforms in response to a severe balance-of-payments crisis in 1991.
On trade policy, benchmarks Trade Liberalization, Poverty, and Inequality 295 for the first review of the standby arrangement included a
reduction in the level and dispersion of tariffs and a removal of a large number of quantitative restrictions. Specific policy actions in a
number of areas notably industrial deregulation, trade policy and public enterprise reforms, and some aspects of financial-sector reform
also formed the basis for a World Bank Structural Adjustment Loan, as well as sector loans.