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Globalisation and Income Inequality Revisited

Author

Listed:
  • Florian Dorn
  • Clemens Fuest
  • Niklas Potrafke

Abstract

We re-examine the globalisation-income inequality nexus. Globalisation is measured by the KOF globalisation index and sub-indicators for trade, financial, political and social global globalisation. Income inequality is measured by Solt’s pre tax/transfer and the post tax/transfer Gini indices. We use data for 140 countries over the period 1970-2014 and deal with the endogeneity of globalisation measures. Our instrumental variable is predicted openness based on a time-varying gravity model. OLS results show that globalisation and income inequality are positively correlated within the full sample of countries and the sample of emerging and developing countries. The positive relationship is mainly driven by export openness, FDIs and social globalisation. The 2SLS results do not show that overall globalisation or any sub-indicator influences income inequality. The effect, however, is positive within the sample of higher developed countries and driven by transition countries from Eastern Europe and China. Within the sample of the most advanced economies, neither OLS nor 2SLS results show any significant positive relationship between globalisation and inequality.

Suggested Citation

  • Florian Dorn & Clemens Fuest & Niklas Potrafke, 2017. "Globalisation and Income Inequality Revisited," European Economy - Discussion Papers 056, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:056
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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