Can we discern the effect of globalization on income distribution? evidence from household budget surveys

Branko Milanovic

No 2876, Policy Research Working Paper Series from The World Bank

Abstract: The effects of globalization on income distribution in 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 author presents another attempt to discern the effects of globalization by using data from household budget surveys and looking at the impact of openness and foreign direct investment on relative income shares of low and high deciles. The author finds some evidence that at very low average income levels, it is the rich who benefit from openness. As income levels rise to those of countries such as Chile, Colombia, or Czech Republic, for example, the situation changes, and it is the relative income of the poor and the middle class that rises compared with the rich. It seems that openness makes income distribution worse before making it better-or differently in that the effect of openness on a country's income distribution depends on the country's initial income level.

Keywords: Poverty Impact Evaluation; Environmental Economics&Policies; Labor Policies; Economic Theory&Research; Fiscal&Monetary Policy; Inequality; Economic Theory&Research; Poverty Impact Evaluation; Environmental Economics&Policies; Governance Indicators (search for similar items in EconPapers)
Date: 2002-08-31
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Citations: View citations in EconPapers (52)

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Working Paper: CAN WE DISCERN THE EFFECT OF GLOBALIZATION ON INCOME DISTRIBUTION? Evidence from Household Budget Surveys (2003)
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