Recent perspectives on trade and inequality

Abstract

The 1990's dealt a blow to
\n traditional Heckscher-Ohlin analysis of the relationship
\n between trade and income inequality, as it became clear that
\n rising inequality in low-income countries and other features
\n of the data were inconsistent with that model. As a result,
\n economists moved away from trade as a plausible explanation
\n for rising income inequality. In recent years, however, a
\n number of new mechanisms have been explored through which
\n trade can affect(and usually increase) income inequality.
\n These include within-industry effects due to
\n heterogeneous?firms; effects of offshoring of tasks; effects
\n on incomplete contracting; and effects of labor-market
\n frictions. A number these mechanisms have received
\n substantial empirical support.