Recent findings on trade and inequality

The 1990’s dealt a blow to traditional Heckscher-Ohlin analysis of the relationship between trade and income inequality, as it became clear that rising inequality in low- income countries and other features of the data were inconsistent with that model. As a result, economists moved away from trade as a plausible explanation for rising income inequality. In recent years, however, a number of new mechanisms have been explored through which trade can affect (and usually increase) income inequality. These include within-industry effects due to heterogeneous firms; effects of offshoring of tasks; effects on incomplete contracting; and effects of labor-market frictions. A number of these mechanisms have received substantial empirical support.

Author: 
Harrison, Ann
McLaren, John
McMillan, Margaret S.
Published date: 
2010
Publisher: 
International Food Policy Research Institute (IFPRI)
Series number: 
1047
PDF file: