Globalization and Income Inequality Revisited

48 Pages Posted: 20 Mar 2018

See all articles by Florian Dorn

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: February 05, 2018

Abstract

This paper re-examines the link between globalization and income inequality. We use data for 140 countries over the period 1970-2014 and employ an IV approach to deal with the endogeneity of globalization measures. We find that the link between globalization and income inequality differs across different groups of countries. There is a robust positive relationship between globalization and inequality in the transition countries including China and most countries of Middle and Eastern Europe. In the sample of the most advanced economies, neither OLS nor 2SLS results show any significant positive relationship between globalization and inequality. We conclude that institutions providing income insurance and education, which characterize most advanced economies but are less developed in transition economies, may have moderated effects of globalization on income inequality.

Keywords: globalization, income inequality, redistribution, instrumental variable estimation, panel econometrics, development levels, transition economies, China

JEL Classification: D310, D630, F020, F600, C260, H110, H200

Suggested Citation

Dorn, Florian and Fuest, Clemens and Potrafke, Niklas, Globalization and Income Inequality Revisited (February 05, 2018). CESifo Working Paper Series No. 6859. Available at SSRN: https://ssrn.com/abstract=3143398

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

Poschinger Str. 5
Munich, DE 81679
Germany
++89-9224-1430 (Phone)

Ludwig-Maximilians-University, Munich ( email )

Schackstrasse 4 / II
Munich, DE 80539
Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

Niklas Potrafke (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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