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Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys

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  • Branko Milanovic

Abstract

New data derived directly from household surveys are used to examine the effects of globalization on income distribution in poor and rich countries. The article looks at the impact of openness (proxied by the ratio of trade to gdp) and of direct foreign investment on relative income shares across the entire income distribution. It finds strong evidence that at low average income levels, the income share of the poor is smaller in countries that are more open to trade. As national income levels rise, the incomes of the poor and the middle class rise relative to the income of the rich. The article explains why using the trade to gdp ratio in purchasing power parity terms, as favored by some analysts, is inappropriate in studies of the effect of trade on income distribution. Copyright 2005, Oxford University Press.

Suggested Citation

  • Branko Milanovic, 2005. "Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys," World Bank Economic Review, World Bank Group, vol. 19(1), pages 21-44.
  • Handle: RePEc:oup:wbecrv:v:19:y:2005:i:1:p:21-44
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F15 - International Economics - - Trade - - - Economic Integration
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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