Trade and income distribution

International trade shapes the distribution of income both between and within countries.

Looking at cross-country data, proximity to markets and to sources of supply of intermediate and capital goods are important determinants of the wages that firms can afford to pay. Redding and Venables (2001) estimate these relationships on a large sample of countries, and show that properly measured 'market access' and 'supplier access' can account for up to 70 per cent of the cross-country variation in per capita incomes. Venables (2001) discusses the likely impact of new technologies on international inequalities.

The impact of trade on the distribution of income within countries has been the subject of much recent debate, with many people suggesting that international competition is widening income inequality in developed countries. Machin and his co-authors (1999) investigate this effect in a sample of OECD countries, and find that technical change is much more important than trade in driving changes in income distribution.

The CEP's research in this area includes:

• Desjonqueres, T, Machin, S, and Van Reenen J. (1999) 'Another nail in the coffin? Or can the trade based explanation of changing skill structure be resurrected?', Scandinavian Journal of Economics, 101(4), December, 533-54. Available to those with access to Ingenta. [Full doc].
• Redding, S. and A.J. Venables (2001) 'Economic Geography and International Inequality', CEP Discussion Paper 495.[Full doc].
• Venables, A.J. (2001) 'Geography and International Inequalities: The Impact of New Technologies', Paper prepared for World Bank Annual Bank Conference on Development Economics, Washington. [Full do