Trade Liberalization and Welfare Inequality: a Demand-Based Approach
نویسنده
چکیده
There is strong evidence suggesting that di¤erent income groups consume di¤erent bundles of goods. Hence, trade liberalization can a¤ect welfare inequality via changes in the relative prices of goods consumed by di¤erent income groups (the price e¤ect). In this paper, I develop a framework that enables us to explore the role of the price e¤ect in determining welfare inequality. I nd that trade liberalization does bene t some income classes more than others. In particular, I show that the relative welfare of the rich with respect to that of the poor has a hump shape as a function of trade costs. Keywords: Nonhomothetic preferences; monopolistic competition JEL classi cation: F12 I am grateful to Kala Krishna and Andrés Rodríguez-Clare for their invaluable guidance and constant encouragement. I also would like to thank Pol Antràs, Dalia Marin, James Tybout, Kei-Mu Yi, and two anonymous referees for comments.
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