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A note on quantitative trade restrictions, income effects and wage inequality

Listed author(s):
  • Acharyya, Rajat

This paper examines the effects of conversion of one type of physical trade restrictions into another on the intra-country wage inequality in a standard 2×2×2 Heckscher–Ohlin–Samuelson model. It shows that a conversion of an import-quota into an equivalent voluntary export restraint raises wage-inequality in the country importing the unskilled-labor intensive good and lowers the wage-inequality in its trading partner. This result does not depend on whether the unskilled-labor intensive good or the skilled-labor intensive good was initially subject to an import quota. Conversion of the import-quota into an equivalent import tariff, on the other hand, may lead to a rise in wage inequality in both countries. The driving force behind these results is the real income effect that conversion of one type trade restriction instrument into another results in.

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File URL: http://www.sciencedirect.com/science/article/pii/S026499931100191X
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 6 ()
Pages: 2628-2633

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:6:p:2628-2633
DOI: 10.1016/j.econmod.2011.07.020
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
  2. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, vol. 11(1), pages 33-57, January.
  3. Hwang, Hong & Mai, Chao-cheng, 1988. "On the equivalence of tariffs and quotas under duopoly : A conjectural variation approach," Journal of International Economics, Elsevier, vol. 24(3-4), pages 373-380, May.
  4. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
  5. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  6. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
  7. Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," NBER Working Papers 5693, National Bureau of Economic Research, Inc.
  8. Acharyya, Rajat, 2010. "Successive Trade Liberalization and Wage Inequality," MPRA Paper 30158, University Library of Munich, Germany.
  9. Dinopoulos, Elias & Kreinin, Mordechai E., 1989. "Import quotas and VERs : A comparative analysis in a three-country framework," Journal of International Economics, Elsevier, vol. 26(1-2), pages 169-178, February.
  10. Richard Harris, 1985. "Why Voluntary Export Restraints Are 'Voluntary.'," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 799-809, November.
  11. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
  12. Lizondo, Jose Saul, 1984. "A note on the nonequivalence of import barriers and voluntary export restraints," Journal of International Economics, Elsevier, vol. 16(1-2), pages 183-187, February.
  13. Sugata Marjit & Rajat Acharyya, 2006. "Trade Liberalization, Skill-linked Intermediate Production and the Two-sided Wage Gap," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(3), pages 203-217.
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