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Recent perspectives on trade and inequality
 
Author:Harrison, Ann; McLaren, John; McMillan, Margaret; Collection Title:Policy Research working paper ; no. WPS 5754
Country:World; Date Stored:2011/08/08
Document Date:2011/08/01Document Type:Policy Research Working Paper
SubTopics:Economic Theory & Research; Emerging Markets; Trade Policy; Labor Markets; Labor PoliciesLanguage:English
Region:The World RegionReport Number:WPS5754
Volume No:1 of 1  

Summary: 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 these mechanisms have received substantial empirical support.

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