Title:
The Impact of Trade Openness on Income Inequality: A Theoretical and Empirical Review

Authors:
Mr. Zehao Lin, USA

Abstract:

This paper examines the complex relationship between trade openness and income inequality, integrating classical economic theories with contemporary perspectives and empirical findings. While traditional models, such as the Heckscher-Ohlin framework and the Stolper-Samuelson theorem, predict that trade liberalization should reduce inequality by favoring abundant factors of production, real-world outcomes often diverge from these expectations. Contemporary research highlights that trade can exacerbate income disparities through skill-biased technological change, capital-labor dynamics, and sectoral reallocation, particularly in the absence of robust domestic institutions. Empirical studies reveal that countries with strong education systems, inclusive labor markets, and effective social protection mechanisms are better positioned to distribute the gains from globalization, while others face deepened inequalities. This paper advocates for a comprehensive policy framework centered on investing in human capital, strengthening social safety nets, promoting inclusive labor institutions, and facilitating labor mobility. Recognizing the contingent nature of globalization's effects is critical for ensuring that trade catalyzes for inclusive economic growth rather than a driver of social fragmentation. Future research should continue exploring the interactions among globalization, technological change, and institutional quality to inform more effective policy design.

DOI: https://doi.org/10.51505/IJEBMR.2025.9502