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Income Inequality, Trade and Financial Openness

Author

Listed:
  • G. C. Lim

    () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Paul D. McNelis

    (Department of Finance, Graduate School of Business Administration, Fordham University)

Abstract

This paper examines the relationships between the Gini coefficient, trade-openness, foreign aid and foreign direct investment flows. Panel data estimates show that trade openness can be effective for changing income inequality, but its effectiveness depends on the stage of development. Simulation results show that the Gini and openness can be negatively or positively correlated — it depends on the capital intensity and on the degree of openness. Overall, the results suggest that trade and financial openness can be effective policies for reducing inequality in low income countries, if they significantly increase the marginal productivity of labour through capital intensive methods of production.

Suggested Citation

  • G. C. Lim & Paul D. McNelis, 2014. "Income Inequality, Trade and Financial Openness," Melbourne Institute Working Paper Series wp2014n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2014n07
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2014n07.pdf
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    References listed on IDEAS

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    Cited by:

    1. João Pedro Azevedo & Antonio David & Fabiano Rodrigues Rodrigues Bastos & Emilio Pineda, 2014. "Fiscal Adjustment and Income Inequality; Sub-national Evidence from Brazil," IMF Working Papers 14/85, International Monetary Fund.
    2. Jorge Rojas-Vallejos & Stephen Turnovsky, 2015. "Erratum to: The Consequences of Tariff Reduction for Economic Activity and Inequality," Open Economies Review, Springer, vol. 26(4), pages 601-631, September.
    3. repec:kap:openec:v:28:y:2017:i:4:d:10.1007_s11079-017-9439-y is not listed on IDEAS
    4. Dong, Fang, 2014. "The impact of economic openness on standard of living and income inequality in eight countries," Emerging Markets Review, Elsevier, vol. 21(C), pages 234-264.
    5. Pierre Monnin, 2014. "Inflation and Income Inequality in Developed Economies," Working Papers 1401, Council on Economic Policies.

    More about this item

    Keywords

    Gini coefficient; openness;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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