Unpacking economic mobility: The short- and long-term impacts of trade liberalization

Abstract

Trade liberalization impacts economic growth, inequality, and mobility, typically examined separately. By breaking down absolute economic mobility into these three areas, we explain how each component contributed to real per-capita expenditure changes due to tariff reductions. Using Indonesia's IFLS data, we connect individuals over the short term (1993–2000) and father-son pairs over the long term (1993–2014). Our analysis also considers if non-coresident father-son pairs behaved differently relative to coresident pairs. Further, we explore if the economically vulnerable segments were able to participate in the overall patterns experienced by the economy. We find that tariff reductions fostered absolute economic mobility of real per-capita expenditures by promoting regional growth, reducing inequality, and enhancing relative economic mobility, particularly benefiting the individuals and households in the lowest quartile. Over time, regional disparities in the effects of tariff cuts diminished as regions converged.