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Long-run dynamics between trade liberalization and income inequality in the European Union: a second generation approach

Mert Akyuz (), Ghislain Nono Gueye () and Cagin Karul
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Mert Akyuz: Ankara Yildirim Beyazit University
Ghislain Nono Gueye: Louisiana Tech University

Empirica, 2022, vol. 49, issue 3, No 8, 769-792

Abstract: Abstract The surprisingly limited literature investigating whether there exists a long-run association between trade liberalization and income inequality finds strong evidence for it. We point out a possible model misspecification due to ignoring the presence of cross-section dependence. Using a panel of 15 EU countries in the 1985–2017 period we show that there is strong evidence for the presence of cross-section dependence. Therefore, we use so-called second-generation procedures (which are robust to cross-section dependence) and find no evidence that trade liberalization and income inequality share a long-run cointegrating relationship in the European Union.

Keywords: Trade liberalization; Income inequality; Panel cointegration; Cross-section dependence; European Union (search for similar items in EconPapers)
JEL-codes: F02 F15 F16 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10663-022-09539-8

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