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Trade Liberalization and Welfare Inequality: A Demand-Based Approach

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  • Tarasov, Alexander

Abstract

There is strong evidence suggesting that different income groups consume different bundles of goods. Hence, trade liberalization can affect welfare inequality via changes in the relative prices of goods consumed by different income groups (the price effect). In this paper, I develop a framework that enables us to explore the role of the price effect in determining welfare inequality. I find that trade liberalization does benefit some income classes more than others. In particular, I show that the relative welfare of the rich with respect to that of the poor has a hump shape as a function of trade costs.

Suggested Citation

  • Tarasov, Alexander, 2012. "Trade Liberalization and Welfare Inequality: A Demand-Based Approach," Munich Reprints in Economics 19576, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19576
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    Cited by:

    1. Picard, P.M. & Tampieri, A., 2024. "Quality and trade with many countries and industries," International Economics, Elsevier, vol. 180(C).
    2. Hartmut Egger & Simone Habermeyer, 2020. "How Preferences Shape the Welfare and Employment Effects of Trade," Working Papers 188, Bavarian Graduate Program in Economics (BGPE).
    3. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    4. Sergey Kokovin & Alina Ozhegova & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2024. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," American Economic Journal: Microeconomics, American Economic Association, vol. 16(2), pages 354-384, May.
    5. P. M. Picard & A. Tampieri, 2021. "Vertical differentiation and trade among symmetric countries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1319-1355, June.
    6. McCalman, Phillip, 2018. "International trade, income distribution and welfare," Journal of International Economics, Elsevier, vol. 110(C), pages 1-15.
    7. Hartmut Egger & Simone Habermeyer, 2022. "How preferences shape the welfare and employment effects of trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(3), pages 815-853, August.
    8. Christian Hepenstrick & Alexander Tarasov, 2015. "Per capita income and the extensive margin of bilateral trade," Canadian Journal of Economics, Canadian Economics Association, vol. 48(4), pages 1561-1599, November.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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