Working Paper: CEPR ID: DP4436
Authors: Joseph Francois; H. Rojas-Romagosa
Abstract: 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.
Keywords: Atkinson index; distribution of income; Gini coefficient; globalization; inequality; tariffs; trade
JEL Codes: D31; F13; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| import protection (F13) | income inequality (D31) |
| labor-intensive production (L23) | import protection exacerbates income inequality (F61) |
| capital-intensive production (D24) | import protection reduces income inequality (F61) |
| per capita income < $5,500 (F40) | import protection worsens inequality (F61) |
| per capita income > $8,780 (D31) | import protection improves inequality (F61) |