Income Inequality and Choice of Free Trade in a Model of Intraindustry Trade
This paper explains why developed countries impose more trade barriers on middle-income countries than on either poor or other developed countries. The authors use a median voter model of the choice between trade and autarky embedded within an intraindustry trade model similar to Paul Krugman (1981). Their 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. The authors 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. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 111 (1996)
Issue (Month): 1 (February)
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