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Policy Reform and Income Distribution

  • Giovanni Andrea Cornia

The paper analyses the relationship between within-country income inequality and policies of domestic liberalization and external globalization. The models used to provide the rationale for such reforms—such as the Hecksher-Ohlin model—usually predict a decline in inequality. However, the evidence shows that inequality often rose with the introduction of such reforms. The paper tries to explain this discrepancy by identifying the conditions under which the models’ conclusions do not hold. Indeed, such models are based on a simplified view of reality and restrictive assumptions, and their predictions do not necessarily hold in conditions of institutional weakness, structural rigidities, inefficient markets, asymmetric information and persistent protectionism.

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File URL: http://www.un.org/esa/desa/papers/2005/wp3_2005.pdf
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Paper provided by United Nations, Department of Economics and Social Affairs in its series Working Papers with number 3.

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Length: 19 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:une:wpaper:3
Contact details of provider: Web page: http://www.un.org/en/development/desa/working-papers.htmlEmail:


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  1. Ke-young Chu & Hamid Reza Davoodi & Sanjeev Gupta, 2000. "Income Distribution and Tax and Government Social Spending Policies in Developing Countries," IMF Working Papers 00/62, International Monetary Fund.
  2. François Bourguignon & Christian Morrisson, 2001. "Inequality among World Citizens : 1820-1992," DELTA Working Papers 2001-18, DELTA (Ecole normale supérieure).
  3. James A. Levinsohn & Steven T. Berry & Jed Friedman, 2003. "Impacts of the Indonesian Economic Crisis.Price Changes and the Poor," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 393-428 National Bureau of Economic Research, Inc.
  4. Atkinson, A.B., 2000. "Increased Income Inequality in OECD Countries and the Redistributive Impact of the Government Budget," Research Paper 202, World Institute for Development Economics Research.
  5. Bourguignon, F. & Morrisson, C., 1989. "Income Distribution, Development and Foreign Trade: A Cross-Sectional Analysis," DELTA Working Papers 89-05, DELTA (Ecole normale supérieure).
  6. Chu, K.-y. & Davoodi, H. & Gupta, S., 2000. "Income Distribution and Tax, and Government Social Spending Policies in Developing Countries," Research Paper 214, World Institute for Development Economics Research.
  7. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
  8. Savvides, Andreas, 1998. "Trade policy and income inequality: new evidence," Economics Letters, Elsevier, vol. 61(3), pages 365-372, December.
  9. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
  10. Taylor, L., 2000. "External Liberalization, Economic Performance, and Distribution in Latin America and Elsewhere," Research Paper 215, World Institute for Development Economics Research.
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