Recent Findings on Trade and Inequality

Ann Harrison, John McLaren, Margaret S. McMillan

NBER Working Paper No. 16425
Issued in September 2010
NBER Program(s):International Trade and Investment

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w16425

Published: “Recent Perspectives on Trade and Inequality”, Ann Harrison, John McLaren and Margaret McMillan, Annual Review of Economics, Volume 3: 261-289, 2011.

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