Trade, Institution Quality and Income Inequality

Faqin Lin and Dahai Fu

World Development, 2016, vol. 77, issue C, 129-142

Abstract: We examine the effect of trade on income inequality in small developing countries. We use two well-accepted trade cost variables for identification: one is based on Baltic Dry Index and another is commodities’ price index. Our main finding is that trade leads to a significant reduction (increase) in income inequality in autocracies (democracies). To explain such different effects, we provide supporting evidence that autocracies export more primary commodities and may follow the Stolper–Samuelson theorem in HO framework, while democracies active in manufacturing outsourcing may follow Feenstra and Hanson (1996) task model.

Keywords: trade; income inequality; Baltic Dry Index; commodity price index; institution quality (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:77:y:2016:i:c:p:129-142

DOI: 10.1016/j.worlddev.2015.08.017

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