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Recent Findings on Trade and Inequality

  • Ann Harrison
  • John McLaren
  • Margaret S. McMillan

The 1990's dealt a blow to traditional Heckscher-Ohlin analysis of the relationship between trade and income inequality, as it became clear that rising inequality in low- income countries and other features of the data were inconsistent with that model. As a result, economists moved away from trade as a plausible explanation for rising income inequality. In recent years, however, a number of new mechanisms have been explored through which trade can affect (and usually increase) income inequality. These include within-industry effects due to heterogeneous firms; effects of offshoring of tasks; effects on incomplete contracting; and effects of labor-market frictions. A number of these mechanisms have received substantial empirical support.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16425.

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Date of creation: Sep 2010
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Publication status: published as “Recent Perspectives on Trade and Inequality”, Ann Harrison, John McLaren and Margaret McMillan, Annual Review of Economics, Volume 3: 261-289, 2011.
Handle: RePEc:nbr:nberwo:16425
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