Trade openness and income inequality: The moderating role of institutional quality

Hyun-Jung Nam, Bart Frijns and Doojin Ryu

Global Finance Journal, 2024, vol. 60, issue C

Abstract: This study examines the effects of trade openness on income inequality and the moderating role of institutional quality in this dynamic within the Association of Southeast Asian Nations. We find the inverted U-shaped relationship between trade openness and income inequality. At a low level of trade openness, an increase in trade openness leads to higher income inequality. Beyond a certain threshold, however, trade openness starts to decrease income inequality. Institutional quality plays a moderating role, proving essential in reducing inequality. As policies and regulations improve and mature, they support private sector growth, contributing to a decrease in inequality. We highlight the importance of institutional quality as a moderator, not only to promote economic growth but also to ensure an equitable distribution of its benefits, particularly those derived from trade openness, across society.

Keywords: ASEAN; Income inequality; Institutional quality; Inverted U-shape; Trade openness (search for similar items in EconPapers)
JEL-codes: B27 D63 F14 F41 G18 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:60:y:2024:i:c:s1044028324000310

DOI: 10.1016/j.gfj.2024.100959

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