Trade and Income Inequality in a Less Developed Country: The Case of Mozambique

Abstract

Although the relationship between international trade and income inequality has been widely studied in developing economies at the national level, less attention has been paid to regional differentiation within those countries. This article examines the differential impacts of trade in two distinct regions in Mozambique: the relatively more developed southern portion and the more isolated region north of the Zambezi River. Despite differences in physical geography and levels of human and physical capital, these two regions are governed by the same trade and economic development policies. The results indicate that the effects of agricultural trade orientation—the degree to which a region’s population is involved in the production and sale of cash crops and vegetable crops—on regional inequality are mixed. In southern Mozambique, the orientation toward crops traded within the country (vegetables) has inequality-increasing effects, whereas in northern Mozambique, the orientation toward internationally exported crops (cash crops) has inequality-dampening effects. These mixed findings imply a complex relationship between trade and inequality that varies by region and the type of trade. They suggest that regional trade and development policies that take historical, political, and geographic variation within countries into account would be better equipped to address the trade-related effects on uneven development than would national-level policy.