Premium
Trade openness and income inequality: New empirical evidence
Author(s) -
Dorn Florian,
Fuest Clemens,
Potrafke Niklas
Publication year - 2022
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.13018
Subject(s) - openness to experience , economics , endogeneity , inequality , economic inequality , international economics , income distribution , developing country , empirical evidence , demographic economics , econometrics , economic growth , psychology , mathematical analysis , social psychology , philosophy , mathematics , epistemology
We examine how trade openness influences income inequality within countries. The sample includes 139 countries over the period 1970–2014. We employ predicted openness as instrument to deal with the endogeneity of trade openness. The effect of trade openness on income inequality differs across countries. Trade openness tends to disproportionately benefit the relative income shares of the very poor, but not necessarily all poor, in emerging and developing economies. In most advanced economies, trade openness increased income inequality, an effect that is driven by outliers. Our results suggest a strong effect of trade openness on inequality in China and transition countries.