Globalisation and Income Inequality Revisited

Florian Dorn, Clemens Fuest and Niklas Potrafke

No 56, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: We re-examine the globalisation-income inequality nexus. Globalisation is measured by the KOF globalisation index and sub-indicators for trade, financial, political and social global globalisation. Income inequality is measured by Solt’s pre tax/transfer and the post tax/transfer Gini indices. We use data for 140 countries over the period 1970-2014 and deal with the endogeneity of globalisation measures. Our instrumental variable is predicted openness based on a time-varying gravity model. OLS results show that globalisation and income inequality are positively correlated within the full sample of countries and the sample of emerging and developing countries. The positive relationship is mainly driven by export openness, FDIs and social globalisation. The 2SLS results do not show that overall globalisation or any sub-indicator influences income inequality. The effect, however, is positive within the sample of higher developed countries and driven by transition countries from Eastern Europe and China. Within the sample of the most advanced economies, neither OLS nor 2SLS results show any significant positive relationship between globalisation and inequality.

JEL-codes: C26 D31 D63 F02 F60 H11 H20 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-07
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Globalization and Income Inequality Revisited (2018)
Working Paper: Globalization and Income Inequality Revisited (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:056

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