DP4436 Trade Policy and the Household Distribution of Income

Author(s): Joseph Francois , Hugo Rojas-Romagosa

Publication Date: June 2004

Keyword(s): trade , inequality , distribution of income , atkinson index , gini coefficient , globalization , tariffs

JEL(s): D31 , F13 , O15

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4436.asp

We explore the relationship between import protection and the household distribution of income. We first develop a general-equilibrium mapping from tariffs to household inequality measures. This also yields predictions for linkages between tariffs, development level, and observed household inequality. Working with a new dataset, we then examine cross-country variation in inequality with respect to import protection. Results are consistent with predictions of the factor-intensity model of trade. Regression results suggest that import protection makes income distribution worse for countries in labour-intensive diversification cones. This relationship shifts to one of falling inequality as incomes rise and we move to capital-intensive diversification cones.