IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/5693.html
   My bibliography  Save this paper

Trade Liberalization and Income Distribution

Author

Listed:
  • Donald R. Davis

Abstract

Empirical work relating trade liberalization and income distributed has iden- tified an important anomaly. The Stolper-Samuelson theorem predict trade liberalization will shift income toward a country's abundant factor. For developing countries, this suggests liberalization will principally benefit the abundant unskilled labor. Yet extensive empirical studies have identified many cases with a contrary result. This paper develops a simple theoretical explanation for this anomaly. It shows that countries which are labor abundant in a global sense may see wages decline with liberalization if they are capital abundant in a local sense. The current absence of empirical work that would allow us to identify the relevant local abundance implies that virtually all assertions regarding anticipated distributional consequences of trade liberalization are without foundation. There may likewise be important implications for industrialized countries that border developing countries undertaking trade liberalization, particularly in regard to the incentives for migration.

Suggested Citation

  • Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," NBER Working Papers 5693, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5693
    Note: ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w5693.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alan V. DEARDORFF, 2011. "Firless Firwoes: How Preferences Can Interfere With The Theorems Of International Trade," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 13, pages 129-140, World Scientific Publishing Co. Pte. Ltd..
    2. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394, Elsevier.
    3. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
    4. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    5. Zadia M. Feliciano, 2001. "Workers and Trade Liberalization: The Impact of Trade Reforms in Mexico on Wages and Employment," ILR Review, Cornell University, ILR School, vol. 55(1), pages 95-115, October.
    6. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184, Elsevier.
    7. Jagdish N. Bhagwati, 1978. "Anatomy of Exchange Control Regimes," NBER Chapters, in: Foreign Trade Regimes and Economic Development: Anatomy and Consequences of Exchange Control Regimes, pages 7-52, National Bureau of Economic Research, Inc.
    8. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155.
    9. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    10. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
    11. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-1393, September.
    12. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-999, October.
    13. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, vol. 94(374), pages 279-286, June.
    14. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc.
    15. Jagdish N. Bhagwati, 1978. "Foreign Trade Regimes and Economic Development: Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, March.
    16. Mussa, Michael, 1979. "The two-sector model in terms of its dual : A geometric exposition," Journal of International Economics, Elsevier, vol. 9(4), pages 513-526, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nahuis, R., 1997. "On Globalisation, Trade and Wages," Research Memorandum 747, Tilburg University, School of Economics and Management.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2215-2288 is not listed on IDEAS
    3. Basco, Sergi & Liegey, Maxime & Mestieri, Martí & Smagghue, Gabriel, 2020. "The Heterogeneous Effects of Trade across Occupations: A Test of the Stolper-Samuelson Theorem," CEPR Discussion Papers 15186, C.E.P.R. Discussion Papers.
    4. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December.
    5. Daniel Bernhofen, 2010. "The Empirics of General Equilibrium Tade Theory: What Have we Learned?," CESifo Working Paper Series 3242, CESifo.
    6. Gabriel Sánchez, 1998. "Lobbying, innovation and protectionist cycles," Economics Working Papers 272, Department of Economics and Business, Universitat Pompeu Fabra.
    7. R. E. Baldwin & G. G. Cain, "undated". "Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments," Institute for Research on Poverty Discussion Papers 1132-97, University of Wisconsin Institute for Research on Poverty.
    8. Aida Caldera Sánchez & Filippo Gori, 2016. "Can Reforms Promoting Growth Increase Financial Fragility?: An Empirical Assessment," OECD Economics Department Working Papers 1340, OECD Publishing.
    9. Douglas A. Irwin, 2019. "Does Trade Reform Promote Economic Growth? A Review of Recent Evidence," Working Paper Series WP19-9, Peterson Institute for International Economics.
    10. Maria Cipollina & Luca Salvatici, 2008. "Measuring Protection: Mission Impossible?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 577-616, July.
    11. Robert E. Baldwin, 1995. "The Effects of Trade and Foreign Direct Investment on Employment and Relative Wages," NBER Working Papers 5037, National Bureau of Economic Research, Inc.
    12. Jorge Saba Arbache, 2004. "Do Structural Reforms always Succeed?: Lessons from Brazil," WIDER Working Paper Series RP2004-58, World Institute for Development Economic Research (UNU-WIDER).
    13. Anne O. Krueger & Mr. Andrew Berg, 2003. "Trade, Growth, and Poverty: A Selective Survey," IMF Working Papers 2003/030, International Monetary Fund.
    14. Donald R. Davis & David E. Weinstein, 2001. "Do Factor Endowments Matter for North-North Trade?," NBER Working Papers 8516, National Bureau of Economic Research, Inc.
    15. Eleydiane Maria Gomes Vale & João Mário De Franç, 2014. "Cones De Diversificação E Comércio Exterior: Uma Análise Sobre Diferenças Salariais E Competitividade Industrial No Nordeste E Sudeste Do Brasil," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 109, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    16. Nowak-Lehmann D., Felicitas, 2003. "Trade Policy and its Impact On Economic Growth: The Chilean Experience in the Period of 1960 to 1998," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(2).
    17. Gordon H. Hanson & Matthew J. Slaughter, 1999. "The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States," NBER Working Papers 7074, National Bureau of Economic Research, Inc.
    18. Tarlok Singh, 2010. "Does International Trade Cause Economic Growth? A Survey," The World Economy, Wiley Blackwell, vol. 33(11), pages 1517-1564, November.
    19. Shafaeddin, Mehdi, 2010. "Trade liberalization, industrialization and development; experience of recent decades," MPRA Paper 26355, University Library of Munich, Germany.
    20. Arnaud Costinot & Jonathan Vogel, 2010. "Matching and Inequality in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 747-786, August.
    21. Anne O. Krueger, 2019. "Increased capital mobility and policy reform in developing countries," Indian Economic Review, Springer, vol. 54(1), pages 113-133, December.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5693. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.