Pakistan Journal of Applied Economics

1-15

Authors: Ihtisham ul HAQ,* Mohammed Saud M. ALOTAISH,* Naradda Gamage Sisira KUMARA,* and Shavkat OTAMURODOV*

Considerably more commodities are available to consumers in open economies and openness brings these at cheaper rate, according to Rome’s hypothesis. The Johansen cointegration technique nullified Romer’s hypothesis that greater openness brings less inflation. Economic growth had significant positive impact on inflation, which is according to realm of Phillips curve and Okun’s law. Supply of money was also documented by positive effect on inflation, as the classical neutrality of money reveals. This study recommended that Sri Lankan government should be very careful in policies regarding supply of money and openness as it hurts consumers.

39-73

Authors: M. Tariq MAJEED* and Guangfeng ZHANG**

This study analyses the impact of trade on within-country inequality using a panel data set from 65 developing countries [see, Appendix (Table A-2)]. This study differs from the existing literature on distributional impact of trade by explicitly noting the importance of development stage in shaping the link. The analysis shows that the effect of trade on inequality depends upon the level of GDP-per-person (to some extent a proxy for economic development) of the trade-integrating economy. Among the developing economies, those with a high level of GDP-per-person enjoy a favourable effect of trade openness on income distribution, while the impact is unfavourable for those with low GDP-per-person. In sum, trade does not accentuate ameliorates inequality in developing countries with the low level of economic development – the opposite of the prediction of standard economics [Heckscher-Ohlin (HO) Model]. The HO model implies that free trade between labour-intensive (developing) and capital-intensive (developed) countries should lead to more specialization in labour-intensive products in developing and capital-intensive products in developed countries. This should bid up the price of labour, relative to capital in developing countries, and vice versa in developed countries, increasing inequality in developed countries and decreasing it in developing countries. The Stolper-Samuelson theorem has similar consequences. Findings of the study are robust to the sensitivity analysis, different estimators, inclusion of regional and time effects.