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Income distribution and Trade Liberalization

  • Ronald Fischer

    ()

The paper presents a general framework for the analysis of the evolution of personal income distribution following trade liberalization. The model allows many factors of production and the possibility of capital gains. In this framework, the short run evolution of inequality depends on the wage to wealth ratio, while changes in the interest rate determine the changes in long run inequality. The general frame-work is applied to the dynamic specific factors model of Eaton (1987). In this model the land-labor ratio determines whether a country exports the land-using or the capital-using good in the long run. The type of the export good determines the effects of liberalization on inequality. In land (labor) abundant countries, inequalities increase (decrease) along the dynamic path. The model provides an explanation for the differences between Latin American and Asian countries in their response to trade liberalization. Econometric analysis provide mixed results for these predictions, with the correct signs but non-significant coefficients for the coefficient on the interaction between openness and the land-labor ratio.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120030402113335.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 67.

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Date of creation: 1999
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Handle: RePEc:edj:ceauch:67
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  1. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  2. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
  3. Antonio Spilimbergo & Juan Luis Londoño & Miguel Székely, 1997. "Income Distribution, Factor Endowments, and Trade Openness," Research Department Publications 4088, Inter-American Development Bank, Research Department.
  4. Abhijit V. Banerjee & Andrew F. Newman, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 211-235.
  5. Karni, Edi & Zilcha, Itzhak, 1995. "Technological Progress and Income Inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 277-94, March.
  6. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  7. Leamer, Edward E. & Maul, Hugo & Rodriguez, Sergio & Schott, Peter K., 1999. "Does natural resource abundance increase Latin American income inequality?," Journal of Development Economics, Elsevier, vol. 59(1), pages 3-42, June.
  8. Bourguignon, F. & Morrisson, C., 1990. "Income distribution, development and foreign trade : A cross-sectional analysis," European Economic Review, Elsevier, vol. 34(6), pages 1113-1132, September.
  9. J. Peter Neary, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 551-570.
  10. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
  11. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  12. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  13. Jonathan Eaton, 1987. "A Dynamic Specific-Factors Model of International Trade," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 325-338.
  14. Fischer, Ronald D, 1992. "Income Distribution in the Dynamic Two-Factor Trade Model," Economica, London School of Economics and Political Science, vol. 59(234), pages 221-33, May.
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