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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.

Suggested Citation

  • Avik Chakrabarti, 2000. "Does Trade Cause Inequality?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 1-21, December.
  • Handle: RePEc:jed:journl:v:25:y:2000:i:2:p:1-21
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    File URL: http://www.jed.or.kr/full-text/25-2/chakrabarti.PDF
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    References listed on IDEAS

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    1. Hall, Alastair R & Rudebusch, Glenn D & Wilcox, David W, 1996. "Judging Instrument Relevance in Instrumental Variables Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 283-298, May.
    2. 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.
    3. 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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    Citations

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    Cited by:

    1. Zhou Lei & Biswas Basudeb & Bowles Tyler & Saunders Peter J, 2011. "Impact of Globalization on Income Distribution Inequality in 60 Countries," Global Economy Journal, De Gruyter, vol. 11(1), pages 1-18, March.
    2. David Martinez Turegano & Alicia Garcia-Herrero, 2015. "Financial inclusion, rather than size, is the key to tackling income inequality," Working Papers 1505, BBVA Bank, Economic Research Department.
    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. repec:dau:papers:123456789/4212 is not listed on IDEAS
    5. Isabelle Bensidoun & Sébastien Jean & Aude Sztulman, 2011. "International trade and income distribution: reconsidering the evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(4), pages 593-619, November.
    6. 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.
    7. Jasmin Katrin Gröschl, 2013. "Gravity Model Applications and Macroeconomic Perspectives," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 48.
    8. Bukhari, Mahnoor & Munir, Kashif, 2016. "Impact of Globalization on Income Inequality in Selected Asian Countries," MPRA Paper 74248, University Library of Munich, Germany.
    9. 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.

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