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Recent Perspectives on Trade and Inequality

  • Ann Harrison

    (Department of Agricultural and Resource Economics, University of California, Berkeley, California 94720, and The World Bank, Washington, DC 20433)

  • John McLaren


    (Department of Economics, University of Virginia, Charlottesville, Virginia 22904-4182)

  • Margaret McMillan

    (Department of Economics, Tufts University, Medford, Massachusetts 02155, and IFPRI, Washington, DC 20006-1002)

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 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, the effects of offshoring of tasks, effects on incomplete contracting, and the effects of labor-market frictions. A number of these mechanisms have received substantial empirical support.

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Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 3 (2011)
Issue (Month): 1 (09)
Pages: 261-289

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Handle: RePEc:anr:reveco:v:3:y:2011:p:261-289
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