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Globalisation and Income Inequality Revisited

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  • 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.

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  • Florian Dorn & Clemens Fuest & Niklas Potrafke, 2017. "Globalisation and Income Inequality Revisited," European Economy - Discussion Papers 2015 - 056, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:056
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    Cited by:

    1. Klaus Gründler & Niklas Potrafke & Timo Wochner, 2020. "Structural Reforms and Income Inequality: Who Benefits from Market-Oriented Reforms?," CESifo Working Paper Series 8042, CESifo.
    2. Bergh, Andreas & Kärnä, Anders, 2019. "Globalization and Populism in Europe," Working Paper Series 1304, Research Institute of Industrial Economics, revised 06 Oct 2020.
    3. Florian Dorn & Christoph Schinke, 2018. "Top income shares in OECD countries: The role of government ideology and globalisation," The World Economy, Wiley Blackwell, vol. 41(9), pages 2491-2527, September.
    4. Andreas Bergh & Irina Mirkina & Therese Nilsson, 2020. "Can social spending cushion the inequality effect of globalization?," Economics and Politics, Wiley Blackwell, vol. 32(1), pages 104-142, March.
    5. Philipp Harms & Jakob Schwab, 2019. "Depression of the deprived or eroding enthusiasm of the elites: What has shifted the support for globalization?," Working Papers 1912, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    6. Haufler, Andreas & Perroni, Carlo, 2020. "Incentives, Globalization, and Redistribution," The Warwick Economics Research Paper Series (TWERPS) 1282, University of Warwick, Department of Economics.
    7. Niklas Potrafke, 2019. "The globalisation–welfare state nexus: Evidence from Asia," The World Economy, Wiley Blackwell, vol. 42(3), pages 959-974, March.
    8. Li, Xiang & Su, Dan, 2020. "Capital account liberalisation does worsen income inequality," IWH Discussion Papers 7/2020, Halle Institute for Economic Research (IWH).
    9. Markus Brueckner & Ngo Van Long & Joaquin L. Vespignani, 2020. "Non-Gravity Trade," Globalization Institute Working Papers 388, Federal Reserve Bank of Dallas, revised 29 May 2020.
    10. Klaus Gründler & Niklas Potrafke & Timo Wochner, 2020. "Structural Reforms and Income Inequality: Who Benefits from Market-Oriented Reforms?," CESifo Working Paper Series 8042, CESifo.
    11. Björn Kauder & Manuela Krause & Niklas Potrafke, 2020. "Do Left-Wing Governments Decrease Wage Inequality among Civil Servants? Empirical Evidence from the German States," CESifo Working Paper Series 8723, CESifo.
    12. Valentin F. Lang & Marina Mendes Tavares, 2018. "The Distribution of Gains from Globalization," IMF Working Papers 18/54, International Monetary Fund.
    13. Markus Brueckner & Ngo Van Long & Joaquin Vespignani, 2020. "Trade, Education, and Income Inequality," CIRANO Working Papers 2020s-33, CIRANO.
    14. Manuela Magalhães & Tiago Sequeira & Óscar Afonso, 2019. "Industry Concentration and Wage Inequality: a Directed Technical Change Approach," Open Economies Review, Springer, vol. 30(3), pages 457-481, July.
    15. Harms, Philipp & Schwab, Jakob, 2020. "Depression of the deprived or eroding enthusiasm of the elites: What has shifted the support for international trade?," European Journal of Political Economy, Elsevier, vol. 64(C).

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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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