IDEAS home Printed from https://ideas.repec.org/a/kap/empiri/v51y2024i2d10.1007_s10663-024-09606-2.html
   My bibliography  Save this article

Income inequality, economic openness and current account imbalances in new EU member states

Author

Listed:
  • Boris Cota

    (University of Zagreb)

  • Nataša Erjavec

    (University of Zagreb)

  • Saša Jakšić

    (University of Zagreb)

Abstract

Three decades before the Great Recession (the 2008 financial and economic crisis) were marked by the continuous growth of current account imbalances and income inequality. This period of high globalization is accompanied by financial liberalization and an increase in trade openness. The empirical investigations of the causes of global imbalances show that growing income inequalities are worsening the current account. After the fall of the Berlin Wall, new EU member states experienced an increase in trade openness accompanied by current account deficits and financial liberalization, but also an increase in income inequality. The Great Recession led to a decrease in imports in these countries and an improvement in the current account. The goal of our research is primarily to examine the relationship between income inequality, current account, and economic openness in the new EU member states. We show that rising income inequality linked with financial liberalization is connected with the deterioration of the current account in new EU member states. Financial liberalization relates to an increase in household domestic debt, contributing to a deterioration of the current account.

Suggested Citation

  • Boris Cota & Nataša Erjavec & Saša Jakšić, 2024. "Income inequality, economic openness and current account imbalances in new EU member states," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(2), pages 403-423, May.
    • Handle: RePEc:kap:empiri:v:51:y:2024:i:2:d:10.1007_s10663-024-09606-2
    DOI: 10.1007/s10663-024-09606-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10663-024-09606-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10663-024-09606-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Till Treeck, 2014. "Did Inequality Cause The U.S. Financial Crisis?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 421-448, July.
    2. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    3. Cristiano Perugini & Jens Hölscher & Simon Collie, 2016. "Inequality, credit and financial crises," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(1), pages 227-257.
    4. Claudius Gräbner & Philipp Heimberger & Jakob Kapeller & Florian Springholz, 2021. "Understanding economic openness: a review of existing measures," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 87-120, February.
    5. Hongyi Li & Heng-fu Zou, 2004. "Savings and Income Distribution," Annals of Economics and Finance, Society for AEF, vol. 5(2), pages 245-270, November.
    6. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963–2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 929-965, August.
    7. Christian A Belabed & Thomas Theobald & Till van Treeck, 2018. "Income distribution and current account imbalances [Notes on capacity utilisation, distribution and accumulation]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(1), pages 47-94.
    8. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-1245, March.
    9. Galbraith, James K., 2012. "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis," OUP Catalogue, Oxford University Press, number 9780199855650.
    10. Kim, Dong-Hyeon & Lin, Shu-Chin, 2011. "Nonlinearity in the financial developmentâincome inequality nexus," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 310-325, September.
    11. Fabio Ascione & Matthias Schnetzer, 2022. "Out of balance? Revisiting the nexus of income inequality, household debt and current account imbalances after the Great Recession," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 133-165.
    12. Florian Dorn & Clemens Fuest & Niklas Potrafke, 2022. "Trade openness and income inequality: New empirical evidence," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 202-223, January.
    13. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111.
    14. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    15. Mr. Ross Levine, 2021. "Finance, Growth, and Inequality," IMF Working Papers 2021/164, International Monetary Fund.
    16. Bumann, Silke & Lensink, Robert, 2016. "Capital account liberalization and income inequality," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 143-162.
    17. Xinhua Gu & Pui Sun Tam & Yang Zhang & Chun Kwok Lei, 2019. "Inequality, leverage and crises: Theory and evidence revisited," The World Economy, Wiley Blackwell, vol. 42(8), pages 2280-2299, August.
    18. Mr. Romain Ranciere & Mr. Nathaniel A. Throckmorton & Mr. Michael Kumhof & Ms. Claire Lebarz & Mr. Alexander W. Richter, 2012. "Income Inequality and Current Account Imbalances," IMF Working Papers 2012/008, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bazillier, Rémi & Héricourt, Jérôme & Ligonnière, Samuel, 2021. "Structure of income inequality and household leverage: Cross-country causal evidence," European Economic Review, Elsevier, vol. 132(C).
    2. Rémi Bazillier & Jérôme Héricourt & Samuel Ligonnière, 2017. "Structure of Income Inequality and Household Leverage: Theory and Cross-Country Evidence," Working Papers 2017-01, CEPII research center.
    3. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    4. Bofinger, Peter & Scheuermeyer, Philipp, 2016. "Income Distribution and Aggregate Saving: A Non-Monotonic Relationship," CEPR Discussion Papers 11435, C.E.P.R. Discussion Papers.
    5. Scheuermeyer, Philipp & Bofinger, Peter, 2016. "Income Distribution and Household Saving: A Non-Monotonic Relationship," VfS Annual Conference 2016 (Augsburg): Demographic Change 145901, Verein für Socialpolitik / German Economic Association.
    6. Till Treeck, 2014. "Did Inequality Cause The U.S. Financial Crisis?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 421-448, July.
    7. Stockhammer, Engelbert & Wildauer, Rafael, 2018. "Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries," Review of Behavioral Economics, now publishers, vol. 5(2), pages 85-121, September.
    8. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. D'Orazio, Paola, 2019. "Income inequality, consumer debt, and prudential regulation: An agent-based approach to study the emergence of crises and financial instability," Economic Modelling, Elsevier, vol. 82(C), pages 308-331.
    10. Jan Behringer & Till van Treeck, 2017. "Varieties of capitalism and growth regimes," FMM Working Paper 09-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. Till van Treeck, 2012. "Did inequality cause the U.S. financial crisis?," IMK Working Paper 91-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    12. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    13. Peter Bofinger & Philipp Scheuermeyer, 2019. "Income Distribution and Aggregate Saving: A Non‐Monotonic Relationship," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(4), pages 872-907, December.
    14. Xinhua Gu & ChunKwok Lei & Li Sheng & Qingbin Zhao, 2021. "Global current account imbalances and the link between income and consumption inequality," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 557-572, August.
    15. Jan Behringer & Till van Treeck, 2018. "Varieties of capitalism and growth regimes: the role of income distribution," IMK Working Paper 194-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    16. Till van Treeck & Judith Niehues & Galina Kolev & Piotr Pysz & Peter Hampe & Andreas Peichl & Marc Stöckli & Georg Cremer, 2018. "Wie gerecht ist die Welt? – Soziale Ungleichheit und Wirtschaftswachstum," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(15), pages 03-25, August.
    17. Christian A Belabed & Thomas Theobald & Till van Treeck, 2018. "Income distribution and current account imbalances [Notes on capacity utilisation, distribution and accumulation]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(1), pages 47-94.
    18. Dirk Bezemer & Anna Samarina, 2019. "Debt shift, financial development and income inequality," DNB Working Papers 646, Netherlands Central Bank, Research Department.
    19. Al-Hussami, Fares & Remesal, Álvaro Martín, 2012. "Current account imbalances and income inequality: Theory and evidence," Kiel Advanced Studies Working Papers 459, Kiel Institute for the World Economy (IfW Kiel).
    20. Xinhua Gu & Chun Kwok Lei & Qingbin Zhao & Nian Liu, 2024. "Different experiences of Asian emerging‐market economies in the two major financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3286-3308, July.

    More about this item

    Keywords

    Current account; Income inequality; Economic openness; Financial liberalization; Panel data; Feasible generalized least squares;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:51:y:2024:i:2:d:10.1007_s10663-024-09606-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.