CAN WE DISCERN THE EFFECT OF GLOBALIZATION ON INCOME DISTRIBUTION? EVIDENCE FROM HOUSEHOLD SURVEYS

Branko Milanovic ()

HEW from EconWPA

Abstract: The effects of globalization on income distribution within rich and poor countries are a matter of controversy. While international trade theory in its most abstract formulation implies that increased trade and foreign investment should make income distribution more equal in poor countries and less equal in rich countries, finding these effects has proved elusive. The paper presents another attempt to discern the effects of globalization by using the new data derived directly from household surveys. The paper looks at the impact of openness (trade/GDP ratio) and direct foreign investment on relative income shares across the entire income distribution. In contrast to what one would expect from theory, we find strong evidence that at low average income level, it is the rich who benefit from openness. As income level rises, that is around the income level of $5-7,000 per capita at international prices, the situation changes and it is the relative income of the poor and the middle class that rises compared to the rich. It seems that openness makes income distribution worse before making it better—or differently that the effect of openness on on income distribution depends on country’s average income level.

Keywords: : income distribution; inequality; globalization (search for similar items in EconPapers)
JEL-codes: D31 F15 I3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu and nep-mfd
Date: 2003-10-31
Note: Type of Document - pdf; prepared on windows; pages: 35; figures: 0
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http://129.3.20.41/eps/hew/papers/0310/0310002.pdf (application/pdf)

Related works:
Journal Article: Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwphe:0310002

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