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Does Trade Cause Inequality?

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  • Avik Chakrabarti

    ()
    (Department of Economics, College of Letters and Science, University of Wisconsin-Milwaukee)

Abstract

This paper examines the effect of international trade on intra-national distribution of income. The empirical validity of any such linkage (between trade-GDP ratio and Gini coefficient of income inequality) is tested in an instrumental variable estimation of cross-country regressions. There are three main findings from a sample of 73 countries in 1985. First, greater participation in trade significantly reduces income inequality. Second, the strong negative association between trade and inequality does not arise because countries that have a more egalitarian distribution of income for reasons other than trade engage in more trade. Third, growth provides a channel through which trade lowers inequality by raising both initial income and subsequent growth.

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File URL: http://www.jed.or.kr/full-text/25-2/chakrabarti.PDF
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Bibliographic Info

Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 25 (2000)
Issue (Month): 2 (December)
Pages: 1-21

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Handle: RePEc:jed:journl:v:25:y:2000:i:2:p:1-21

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  1. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  2. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
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Cited by:
  1. Chakrabarti, Avik, 2003. "A theory of the spatial distribution of foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 149-169.
  2. Isabelle Bensidoun & Sébastien Jean & Aude Sztulman, 2011. "International trade and income distribution: reconsidering the evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(4), pages 593-619, November.
  3. Felbermayr, Gabriel & Gröschl, Jasmin, 2013. "Natural disasters and the effect of trade on income: A new panel IV approach," European Economic Review, Elsevier, vol. 58(C), pages 18-30.
  4. Ho, Lok Sang & Wei, Xiangdong & Wong, Wai Chung, 2005. "The effect of outward processing trade on wage inequality: the Hong Kong case," Journal of International Economics, Elsevier, vol. 67(1), pages 241-257, September.
  5. Jasmin Katrin Gröschl, 2013. "Gravity Model Applications and Macroeconomic Perspectives," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 48, 8.

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