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Recent perspectives on trade and inequality

  • Harrison, Ann
  • McLaren, John
  • McMillan, Margaret

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 these mechanisms have received substantial empirical support.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5754.

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Date of creation: 01 Aug 2011
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Handle: RePEc:wbk:wbrwps:5754
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