Trade Liberalization and Income Distribution

Donald Davis ()

No 5693, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F11 O19 (search for similar items in EconPapers)
Date: 1996-08
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (113)

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Working Paper: Trade Liberalization and Income Distribution (1996)
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