Working Paper 5754 Recent Perspectives on Trade and Inequality (original) (raw)
The 1990s dealt a blow to traditional Heckscher-Ohlin analysis of the relationship between trade and income inequality, as it became clear that rising inequality in lowincome 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 a¤ect (and usually increase) income inequality. These include within-industry e¤ects due to heterogeneous rms; e¤ects of o¤shoring of tasks; e¤ects on incomplete contracting; and e¤ects of labor-market frictions. A number of these mechanisms have received substantial empirical support. University of California, Berkeley and World Bank. yDepartment of Economics, University of Virginia, P.O. Box 400182, Charlottesville, VA 22904-4182. Email: jmclaren@virginia.edu. zTufts University and IFPRI.
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