DP4436 Trade Policy and the Household Distribution of Income

Author(s):	Joseph Francois, Hugo Rojas-Romagosa
Publication Date:	June 2004
Keyword(s):	atkinson index, distribution of income, gini coefficient, globalization, inequality, tariffs, trade
JEL(s):	D31, F13, O15
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4436

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.