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Globalization and Income Inequality

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  • Meschi, Elena

    (Università Ca’ Foscari di Venezia)

  • Vivarelli, Marco

    (Università Cattolica del Sacro Cuore)

Abstract

This paper discusses the distributive consequences of trade flows in developing countries (DCs). On the theoretical side, we argue that the interplays between international openness and technology adoption may constitute an important mechanism leading to a possible increase of income differentials in the liberalizing DCs, trough skill enhancing trade. We use a dynamic specification to estimate the impact of trade on within-country income inequality in a sample of 70 DCs over the 1980-1999 period. Our results suggest that total aggregate trade flows are weakly related with income inequality. However, once we disaggregate total trade flows according to their areas of origin/destination, we find that trade with high income countries worsen income distribution in DCs, both through imports and exports. This finding provides a preliminary support to the hypothesis that technological differentials between trading partners are important in shaping the distributive effects of trade openness. Moreover, after testing for the differential impact of trade in middle income DCs vs low income ones, we observe that the previous result only holds for middle income countries (MICs). We interpret this evidence by considering the greater potential for technological upgrading in MICs both in terms of their higher “absorptive capacity” and in terms of their superior ability in serving the differentiated and high-quality markets of the developed world.

Suggested Citation

  • Meschi, Elena & Vivarelli, Marco, 2007. "Globalization and Income Inequality," IZA Discussion Papers 2958, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp2958
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    3. Djeneba Doumbia, 2019. "The quest for pro-poor and inclusive growth: the role of governance," Applied Economics, Taylor & Francis Journals, vol. 51(16), pages 1762-1783, April.
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    5. Jaejoon Woo & Elva Bova & Tidiane Kinda & Y. Sophia Zhang, 2017. "Distributional Consequences of Fiscal Adjustments: What Do the Data Say?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 273-307, June.
    6. Ahmed Mohamed Ezzat, 2018. "Trade Openness: An Effective tool for Poverty Alleviation or an Instrument for Increasing Poverty Severity?," Working Papers 1248, Economic Research Forum, revised 07 Nov 2018.
    7. Kashif MUNIR & Maryam SULTAN, 2017. "Macroeconomic determinants of income inequality in India and Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(613), W), pages 109-120, Winter.
    8. Neagu Olimpia, 2019. "Disparities Regarding Competitiveness, Human Capital And Inclusive Development In The Eu: A Cluster Analysis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 61-71, February.
    9. Azra Khan & Gulzar Khan & Sadia Safdar & Sehar Munir & Zubaria Andleeb, 2016. "Measurement and Determinants of Inclusive Growth: A Case Study of Pakistan (1990-2012)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 455-466.
    10. Mr. Tidiane Kinda & Djeneba Doumbia, 2019. "Reallocating Public Spending to Reduce Income Inequality: Can It Work?," IMF Working Papers 2019/188, International Monetary Fund.
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    More about this item

    Keywords

    LSDVC estimator; technology transfer; globalization; within-country income distribution; developing countries;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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