| Summary: | The 1990's dealt a blow to
traditional Heckscher-Ohlin analysis of the relationship
between trade and income inequality, as it became clear that
rising inequality in low-income countries and other features
of the data were inconsistent with that model. As a result,
economists moved away from trade as a plausible explanation
for rising income inequality. In recent years, however, a
number of new mechanisms have been explored through which
trade can affect(and usually increase) income inequality.
These include within-industry effects due to
heterogeneous?firms; effects of offshoring of tasks; effects
on incomplete contracting; and effects of labor-market
frictions. A number these mechanisms have received
substantial empirical support.
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