Globalization, EU Enlargement and Income Distribution
AbstractAdvanced industrial countries have been exhibiting a steady decline of the labour income shares in the last two decades. The study explains this phenomenon by resorting to the old Stolper-Samuelson theorem. The conclusions concerning the impact of free trade on the income distribution are unambiguous in a Heckscher-Ohlin world with two countries, two goods and two factors of production (capital and labour). In contrast, the consequences of FDI from the capital abundant country (EU) to the labour abundant CEECs are ambiguous. Both scenarios are investigated theoretically and then simulated with a hypothetical two-country CGE model, including the EU and the CEECs. A panel regression for both regions separately helps to decide empirically which influences on the development of the labour income shares are at work. Globalisation, measured by revealed comparative advantage (increase in global net trade) has contributed to a decline in the labour income shares in the EU. Additionally, those countries which are engaged more in trade with the CEECs can expect a sharper decline in the wage share. Global net FDI outflow also exerts a negative influence on the labour income share in the EU. In the CEECs the increase in global net trade had a positive influence on the labour income share, trade with the EU, however, dampened the labour income share. FDI inflow increased the labour income share in the CEECs.
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Bibliographic InfoPaper provided by WIFO in its series WIFO Working Papers with number 296.
Length: 27 pages
Date of creation: 28 Jun 2007
Date of revision:
Globalisation; EU Enlargement; Income distribution;
Other versions of this item:
- Fritz Breuss, 2007. "Globalization, EU Enlargement and Income Distribution," FIW Working Paper series 008, FIW.
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-27 (All new papers)
- NEP-EEC-2007-08-27 (European Economics)
- NEP-INT-2007-08-27 (International Trade)
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