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Globalisation, EU enlargement and income distribution

  • Fritz Breuss

Advanced industrial countries have been exhibiting a steady decline of the labour income shares in the last two decades. We explain 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 CEEC are ambiguous. Both scenarios are investigated theoretically, simulated with a hypothetical two country CGE model, including the EU and the CEEC and then tested empirically. Accordingly, globalisation has contributed to a decline in the labour income shares in the EU and an increase in the CEEC. Additionally, those EU countries which are engaged more in trade with the CEEC ('mini-globalisation' in Europe) can expect a sharper decline in the wage share.

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Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Public Policy.

Volume (Year): 6 (2010)
Issue (Month): 1/2 ()
Pages: 16-34

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Handle: RePEc:ids:ijpubp:v:6:y:2010:i:1/2:p:16-34
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  1. 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.
  2. 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.
  3. 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.
  4. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  5. 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.
  6. 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 and Business, Department of Economics.
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