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Income Distribution, Factor Endowments, and Trade Revisited: The Role of Non-Tradable Goods

Author

Listed:
  • Galiani Sebastian

    (University of Maryland and NBER, College Park, Maryland, USA)

  • Heymann Daniel

    (Universidad de Buenos Aires, Facultad de Ciencias Económicas, CONICET- UBA, Instituto Interdisciplinario de Economía Política de Buenos Aires (IIEP- BAIRES); UdeSA, Economics, Córdoba 2122 (C1120AAQ)Buenos Aires, Argentina)

  • Magud Nicolas E.

    (International Monetary Fund, Washington, District of Columbia, USA)

Abstract

We return to the traditional theme of the distributive consequences of international prices and trade policies, focusing on economies relatively abundant in natural resources with a large non-tradable-goods sector. Changes in international prices create an aggregate demand effect which impacts on the earnings of factors employed in the non-traded goods sector. We show that, in economies highly specialized in the production of tradable goods and where the import-competing sector is small, under standard assumptions, terms-of- trade shifts have a neutral effect on factor prices and thus lack distributive effects, quite differently from Stolper-Samuelson scenarios. In economies with sizable import-competing sectors and two “urban” productive factors (e.g. skilled and unskilled labor), changes in the terms of trade do induce distributional tensions through two channels: (i) the exogenous shift in the relative price of tradable goods, and (ii) the endogenous displacement of the demand for non-tradables. We illustrate how, according to the structure of the economy, different patterns of income distribution may arise. Next, we analyze the introduction of trade duties. Trade taxes change relative prices between tradable goods as a terms-of-trade shock does, but also introduce an additional demand mechanism, that depends on the use the government gives to the revenues. If the tax revenues are transferred back to the private sector, the resulting reallocation of spending favors those factors used intensively in the production of non-tradables.

Suggested Citation

  • Galiani Sebastian & Heymann Daniel & Magud Nicolas E., 2017. "Income Distribution, Factor Endowments, and Trade Revisited: The Role of Non-Tradable Goods," Journal of Globalization and Development, De Gruyter, vol. 8(1), pages 1-20, June.
  • Handle: RePEc:bpj:globdv:v:8:y:2017:i:1:p:20:n:1
    DOI: 10.1515/jgd-2016-0028
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    More about this item

    Keywords

    income distribution; international trade; non-tradable goods; Stolper-Samuelson effects;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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