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GTAP Resource #1519

"Trade policy and the household distribution of income"
by Francois, Joseph and Hugo Rojas-Romagosa

The econometric literature linking trade and income distribution has followed two paths. The bulk of the recent literature has focused on factor income effects through direct measurement of relative wages. This litearture is largely focused on the OECD experience with globalization and wages in the 1980s and 1990s. A second branch of the literature is focused more on the household distribution of income. This includes both cross-country regressions and CGE studies linking openness to poverty.

In this paper we explore the relationship between import protection and the household distribution of income in general equilibrium. We first develop an analytical decomposition of the welfare effect of protection into real income level and variance components for social welfare functions yielding Gini and Atkinson index adjustments to mean income for inequality. These explicit inequality derivatives map import protection to inequality-adjusted welfare. They also yield empirical predictions for the linkages between trade protection, country size, level of development, and the level of inequality in Heckscher-Ohlin and Ricardo-Viner frameworks. We then examine linkages between level of development and inequality econometrically. We find strong evidence linking tariff levels at a given level of income and the pattern of income distribution. These results are broadly consistent with a factor intensity framework, and offer an alternative to the relative-wage based tests of Heckscher-Ohlin theory.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: Francois, J. (5/3/2004)
Updated: Bacou, M. (6/12/2004)
Visits: 2,394
No keywords have been specified.

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