THE IMPACT OF TRADE OPENNESS ON INCOME INEQUALITY IN AFRICAN LESS DEVELOPED COUNTRIES (LDCs)

Abstract

This thesis explores the complex relationship between trade liberalization and income inequality in African Least Developed Countries (LDCs). The Thesis commences by providing a contextual analysis of the economic situation in these countries, highlighting the distinct obstacles and prospects each encounters within the global trade milieu. Examining the progression and growth of international trade, as well as the many institutions involved in global trade. The study examined several trade and economic theories about trade and inequality, specifically focusing on their relevance to African least developed countries (LDCs). These theories encompass the International Trade theories, such as the Comparative Advantage theory by Ricardo in 1817, the New Trade Theory proposed by Paul Krugman, and the Heckscher-Ohlin Model introduced in 1941. The study also examines growth theories, namely Solow's model from 1956 and the endogenous growth theory of the late 1980s and 1990s and their relevance in this study. The study also examined particular theories that are applicable to Least Developed Countries (LDCs) in Africa within the same setting. These includes; New International Trade (Late 1970s - 1980s), Neoliberalism and Market Liberalization (1980s), and the Human Development Approach (1990s). The study employs a comprehensive methodology, using empirical data to investigate the effects of trade liberalization on income distribution in African least developed countries (LDCs). This thesis also examines many empirical investigations. The study examined 33 African Least Developed Countries (LDCs) during a period of 22 years, from 2000 to 2022. A substantial portion of the research centers on the impact of trade policies on various socioeconomic categories, taking into account characteristics such as education (school enrollment), life expectancy (at birth), GDP per capita, exports, and imports. The study methodology entails doing a comparative examination of several African Least Developed Countries (LDCs), utilizing economic variables to provide a comprehensive perspective on the effects of trade liberalization. Using the Theil index as the metric for inequality in these nations. The study's findings indicate an intricate and diverse connection between trade openness and income disparity. Upon examining the indicator employed in the model, it is evident that both education school enrollment and life expectancy have a favorable impact on inequality. Additionally, imports also have a beneficial influence, while exports demonstrate a negative effect. Trade liberalization has the capacity to stimulate economic growth, but it does not evenly share its advantages, frequently worsening socioeconomic inequalities. These nations have a high level of income inequality, as shown by the high Theil index. The thesis contends that in order for trade openness to effectively mitigate income disparity, it must be coupled with strong domestic policies that focus on improving education, fostering skill development, and establishing comprehensive social safety nets. To conclude, the thesis provides policy suggestions for African Least Developed Countries (LDCs), emphasizing the importance of a well-rounded trade strategy that focuses on promoting fair economic growth and equal distribution of income. This may be achieved through the improvement of infrastructure and increased investment in the education sector. This highlights the need for global collaboration and customized approaches that take into account the distinct economic and social circumstances of African Least Developed Countries (LDCs).