CHAPTER 10: Trade, Technology, and Income Distribution

The functional distribution of income can be affected by price changes in international markets, by changes in technology which may be biased in factor saving, and by reductions in cost which allow vertically-integrated production processes to be fragmented and spread over several countries. Simple 2 × 2 Heckscher–Ohlin models yield predictions about income distribution which are at odds with frameworks allowing a wider variety of commodities to be produced and traded. In this framework a country losing out in labor-intensive segment of production to foreign competition may experience increases in real wages.