Do Liberalization and Globalization Increase Income Inequality?
Posted: 6 Dec 2013
Date Written: December 1, 2009
Using the Standardized World Income Inequality Database, we examine if the KOF Index of Globalization and the Economic Freedom Index of the Fraser institute are related to within- country income inequality using panel data covering around 80 countries 1970-2005. Freedom to trade internationally is robustly related to inequality, also when adding several control variables and controlling for potential endogeneity using GMM. Social globalization and deregulation is also linked to inequality. Reforms towards economic freedom seem to increase inequality mainly in rich countries, and social globalization is more important in less developed countries. Monetary reforms, legal reforms and political globalization do not increase inequality.
Keywords: Liberalization, Economic freedom, Globalization, Income inequality, Institutions
JEL Classification: D63, F02, D30, C82
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