Globalization, EU Enlargement and Income Distribution
Advanced industrial countries have been exhibiting a steady decline of the labor income shares in the last two decades. We explain this phenomenon by resorting to the old Stolper-Samuelson theorem. The conclusions concerning the impact of free trade on the income distribution are unambiguous in a Heckscher-Ohlin world with two countries, two goods and two factors of production (capital and labor). In contrast, the consequences of FDI from the capital abundant country (EU) to the labor abundant CEEC are ambiguous. Both scenarios are investigated theoretically and then simulated with a hypothetical two country CGE model, including the EU and the CEEC. A panel regression for both regions separately, helps to decide empirically which influences on the development of the labor income shares are at work. Globalization, measured by revealed comparative advantage (increase in global net trade) has contributed to a decline in the labor income shares in the EU. Additionally, those countries which are engaged more in trade with the CEEC can expect a sharper decline in the wage share. Global net FDI outflow also exerts a negative influence on the labor income share in the EU. In the CEEC the increase in global net trade had a positive influence on the labor income share, trade with the EU, however, dampened the labor income share. FDI inflow increased the labor income share in the CEEC.
|Date of creation:||Oct 2007|
|Date of revision:|
|Contact details of provider:|| |
|Order Information:|| Postal: FIW Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Özlem Onaran & Engelbert Stockhammer, 2006. "The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis," Department of Economics Working Papers wuwp094, Vienna University of Economics and Business, Department of Economics.
- EGGER Peter & LARCH Mario & PFAFFERMAYR Michael, .
"On the Welfare Effects of Trade and Investment Liberalization,"
- Egger, Peter & Larch, Mario & Pfaffermayr, Michael, 2007. "On the welfare effects of trade and investment liberalization," European Economic Review, Elsevier, vol. 51(3), pages 669-694, April.
- Peter Egger & Mario Larch & Michael Pfaffermayr, 2007. "Bilateral versus Multilateral Trade and Investment Liberalisation," The World Economy, Wiley Blackwell, vol. 30(4), pages 567-596, 04.
- Adrian Wood, 2002. "Globalization and wage inequalities: A synthesis of three theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(1), pages 54-82, March.
- Hartmut Egger & Peter Egger, 2002. "How international outsourcing drives up Eastern European wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(1), pages 83-96, March.
- James R. Markusen, 2004.
"Multinational Firms and the Theory of International Trade,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262633078, March.
- Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
- Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
When requesting a correction, please mention this item's handle: RePEc:wsr:wpaper:y:2007:i:008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.