The effect of globalization on wage inequality: an application to the European Union before the Great Recession

Ana Paula Ribeiro (), Vitor Carvalho and Mariana Ferreira ()
Additional contact information
Ana Paula Ribeiro: Faculdade de Economia do Porto, University of Porto, Portugal and CEF.UP
Mariana Ferreira: Faculdade de Economia do Porto, University of Porto, Portugal

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper aims at relating globalization with wage inequality, explaining if and how this relation is expected to hold differently for different-income countries. We intend to contribute to the literature with an empirical analysis for the countries of the European Union, before the Great Recession, by building and testing a panel data model on two distinct groups: the countries from the “North” (higher GDP per capita) and those from the “South” (lower GDP per capita). We found that trade has the effect of enhancing inequality in the “North” countries (confirming the Hecksher-Ohlin-Stopler-Samuelson mechanism), though we could not significantly conclude on its effect in the “South” group. Foreign Direct Investment inflows have the effect of diminishing inequality in the “North”, while FDI outflows have the same effect in the “South”. These results are not predicted by Feenstra-Hanson theory. We also tested for the effect of technology on inequality and, while we found mixed evidence on how the share of High Tech Exports affects inequality, Gross Expenditure on Research and Development, when significant, increases inequality in the “North” group of countries. By using a composite globalization index, we conclude that trade is dominant over FDI in affecting inequality. Moreover, when we tested for the non-economic aspects of globalization, we found that both political and social dimensions cause wage inequality to increase.

Keywords: wage inequality; globalization; European Union (search for similar items in EconPapers)
JEL-codes: F15 F63 O15 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2021-11
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.fep.up.pt/investigacao/workingpapers/wp621.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.fep.up.pt/investigacao/workingpapers/wp621.pdf [302 Found]--> https://fep.up.pt/investigacao/workingpapers/wp621.pdf)

Related works:
Working Paper: The effect of globalization on wage inequality: an application to the European Union before the Great Recession (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:621

Access Statistics for this paper

More papers in FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto Contact information at EDIRC.
Bibliographic data for series maintained by ().