Income Inequality and Trade Protection - Does the Sector Matter?

According to traditional trade theory, trade reduces inequality between the rich and the poor. However, since the beginning of the 1980s, a constantly rise in within-country inequality has been observed in many developed and developing countries. With the rapidly increasing globalization during the same period in mind, a natural question to ask is whether the two phenomenon are linked. In this paper I investigate the links between trade protection and inequality for a panel of 26 middle-income countries during the period 2000-2012. I additionally examine whether the level of protection in specific industries is of importance for the relationship. I do this by using both an OLS model and an FE model. I find no evidence for the effect of general protection on inequality, although general trade is found to reduce inequality. Further, I find the effect of sectorial protection on inequality to strongly depend on the industry and region that is being considered