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Globalization, EU Enlargement and Income Distribution

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  • Fritz Breuss

    (WIFO)

Abstract

Advanced 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 Info

Paper provided by WIFO in its series WIFO Working Papers with number 296.

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Length: 27 pages
Date of creation: 28 Jun 2007
Date of revision:
Handle: RePEc:wfo:wpaper:y:2007:i:296

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Keywords: Globalisation; EU Enlargement; Income distribution;

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References

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  1. Peter Egger & Mario Larch & Michael Pfaffermayr, 2007. "Bilateral versus Multilateral Trade and Investment Liberalisation," The World Economy, Wiley Blackwell, vol. 30(4), pages 567-596, 04.
  2. Adrian Wood, 2002. "Globalization and wage inequalities: A synthesis of three theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(1), pages 54-82, March.
  3. Özlem Onaran & Engelbert Stockhammer, 2006. "The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis," Department of Economics Working Papers wuwp094, Vienna University of Economics, Department of Economics.
  4. Egger, Peter & Larch, Mario & Pfaffermayr, Michael, 2007. "On the welfare effects of trade and investment liberalization," European Economic Review, Elsevier, vol. 51(3), pages 669-694, April.
  5. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, January.
  6. Hartmut Egger & Peter Egger, 2002. "How international outsourcing drives up Eastern European wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(1), pages 83-96, March.
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Cited by:
  1. �zlem Onaran, 2012. "The Effect of Foreign Affiliate Employment on Wages, Employment, and the Wage Share in Austria," Review of Political Economy, Taylor & Francis Journals, vol. 24(2), pages 251-271, April.
  2. Alfred Greiner, 2011. "Economic Growth, Public Debt and Welfare: Comparing Three Budgetary Rules," German Economic Review, Verein für Socialpolitik, vol. 12(2), pages 205-222, 05.
  3. Özlem Onaran, 2008. "The effect of import penetration on labor market outcomes in Austrian manufacturing industry," Department of Economics Working Papers wuwp119, Vienna University of Economics, Department of Economics.
  4. Engelbert Stockhammer & Stefan Ederer, 2008. "Demand effects of the falling wage share in Austria," Empirica, Springer, vol. 35(5), pages 481-502, December.
  5. Özlem Onaran, 2008. "The Effects of Globalization on Wages, Employment, and Wage Share in Austria," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 34(3), pages 337-360.
  6. Fritz Breuss, 2009. "An evaluation of the EU's Fifth Enlargement With special focus on Bulgaria and Romania," European Economy - Economic Papers 361, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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