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Does Trade Cause Inequality?

  • Avik Chakrabarti

    ()

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

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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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. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
  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. Alastair R. Hall & Glenn D. Rudebusch & David W. Wilcox, 1994. "Judging instrument relevance in instrumental variables estimation," Finance and Economics Discussion Series 94-3, Board of Governors of the Federal Reserve System (U.S.).
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