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Income Inequality and Choice of Free Trade in a Model of Intraindustry Trade

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  • Ronald D. Fischer
  • Pablo Serra

Abstract

This paper explains why developed countries impose more trade barriers on middle-income countries than on either poor or other developed countries. We use a median voter model of the choice between trade and autarky embedded within an intraindustry trade model similar to Krugman. Our main result is the derivation of conditions under which a rich country rejects trade with middle-income countries, but accepts trade with either similar or poor countries. We also show that if increased inequality lowers median wealth in the developed country, the range of countries for which free trade is rejected is enlarged.

Suggested Citation

  • Ronald D. Fischer & Pablo Serra, 1996. "Income Inequality and Choice of Free Trade in a Model of Intraindustry Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 41-64.
    • Handle: RePEc:oup:qjecon:v:111:y:1996:i:1:p:41-64.
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    File URL: http://hdl.handle.net/10.2307/2946657
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    Cited by:

    1. Bruton, Garry & Sutter, Christopher & Lenz, Anna-Katharina, 2021. "Economic inequality – Is entrepreneurship the cause or the solution? A review and research agenda for emerging economies," Journal of Business Venturing, Elsevier, vol. 36(3).
    2. Hesham M. Abdel‐Rahman, 2005. "Skill distribution and income disparity in a North‐South trade model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(4), pages 1298-1326, November.
    3. Hesham M. Abdel-Rahman & George Norman & Ping Wang, 2001. "Skill Differentiation and Income Disparity in a Decentralized Matching Model of North-South Trade," Vanderbilt University Department of Economics Working Papers 0131, Vanderbilt University Department of Economics.
    4. Francesc Obiols-Homs, 2002. "Trade Effects on the Personal Distribution of Wealth," Working Papers 0208, Centro de Investigacion Economica, ITAM.
    5. Thede, Susanna, 2002. "Trade Protection and the Location of Production," Working Papers 2002:15, Lund University, Department of Economics.
    6. Hesham ABDEL-RAHMAN, 2010. "Trade, Urban Systems, and Labor Markets," Regional and Urban Modeling 284100000, EcoMod.
    7. Susanna Thede, 2005. "Trade policy formation when geography matters for specialisation," Working Papers 200519, School of Economics, University College Dublin.

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