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Income Distribution in the Dynamic Two-Factor Trade Model


  • Fischer, Ronald D


The issue of the effects of trade on personal income distribution has remained largely unexamined. This paper describes an overlapping generations 2 x 2 model with a bequest motive and heterogeneous agents in order to examine the problem. In this dynamic setting, trade leads to both short-run and long-run reductions (increases) in inequality in labor (capital)-abundant countries if the investment good is capital-intensive. If the consumption good is capital-intensive, the short-run effects continue to hold but the long-run effects are ambiguous. Copyright 1992 by The London School of Economics and Political Science.

Suggested Citation

  • Fischer, Ronald D, 1992. "Income Distribution in the Dynamic Two-Factor Trade Model," Economica, London School of Economics and Political Science, vol. 59(234), pages 221-233, May.
  • Handle: RePEc:bla:econom:v:59:y:1992:i:234:p:221-33

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    References listed on IDEAS

    1. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
    2. Rothschild, Michael & Stiglitz, Joseph E., 1973. "Some further results on the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 6(2), pages 188-204, April.
    3. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    4. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
    5. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931, June.
    6. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
    7. Deardorff, Alan V., 1974. "Trade reversals and growth stability," Journal of International Economics, Elsevier, vol. 4(1), pages 83-90, April.
    8. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    9. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
    10. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-488, May-June.
    11. Dasgupta, Partha & Sen, Amartya & Starrett, David, 1973. "Notes on the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 6(2), pages 180-187, April.
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    Cited by:

    1. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report 377, Federal Reserve Bank of Minneapolis.
    2. Fischer, Ronald D., 2001. "The evolution of inequality after trade liberalization," Journal of Development Economics, Elsevier, vol. 66(2), pages 555-579, December.
    3. Fedotenkov, Igor & van Groezen, Bas & Meijdam, Lex, 2012. "International trade with pensions and demographic shocks," MPRA Paper 74874, University Library of Munich, Germany, revised 31 May 2016.
    4. Ronald Fischer, 1999. "Income distribution and Trade Liberalization," Documentos de Trabajo 67, Centro de Economía Aplicada, Universidad de Chile.
    5. José Wynne, 2005. "Wealth as a Determinant of Comparative Advantage," American Economic Review, American Economic Association, vol. 95(1), pages 226-254, March.

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