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On the distributional effects of trade policy: Dynamics of household saving and asset prices

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  • San Vicente Portes, Luis
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    Abstract

    This paper studies the effect of trade liberalization on inequality. We develop a theoretical framework that generates economy-wide distributions of wealth and income for different levels of trade protection. The model unambiguously determines the effect of liberalization on inequality; and rationalizes why larger inequality can be the outcome of a welfare enhancing policy, as households reduce their buffer savings when liberalization lowers the price of food. The framework reconciles the increase in inequality, the fall in the value of land, and farmers' opposition to freer trade, that have featured in different liberalization episodes. We also present empirical support for the model's predictions.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 49 (2009)
    Issue (Month): 3 (August)
    Pages: 944-970

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    Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:944-970

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Trade policy Trade liberalization Inequality Agriculture Heterogeneous agents;

    References

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    1. Robert C. Feenstra, 1987. "Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test," NBER Working Papers 2453, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Ligthart, J.E. & Meijden, G.C. van der, 2010. "Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution," Discussion Paper 2010-61, Tilburg University, Center for Economic Research.
    2. Takashi Kamihigashi & John Stachurski, 2011. "Existence, Stability and Computation of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2011-32, Research Institute for Economics & Business Administration, Kobe University.

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