Globalisation, EU enlargement and income distribution

Fritz Breuss

International Journal of Public Policy, 2010, vol. 6, issue 1/2, 16-34

Abstract: Advanced industrial countries have been exhibiting a steady decline of the labour 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 labour). In contrast, the consequences of FDI from the capital abundant country (EU) to the labour abundant CEEC are ambiguous. Both scenarios are investigated theoretically, simulated with a hypothetical two country CGE model, including the EU and the CEEC and then tested empirically. Accordingly, globalisation has contributed to a decline in the labour income shares in the EU and an increase in the CEEC. Additionally, those EU countries which are engaged more in trade with the CEEC ('mini-globalisation' in Europe) can expect a sharper decline in the wage share.

Keywords: globalisation; EU enlargement; income distribution; European Union; free trade; FDI; foreign direct investment; CEEC; simulation; modelling; labour income shares; Central and Eastern European countries. (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijpubp:v:6:y:2010:i:1/2:p:16-34

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