Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Budget Surveys

22 Pages Posted: 20 Apr 2016

See all articles by Branko Milanovic

Branko Milanovic

World Bank - Development Research Group (DECRG); University of Maryland

Date Written: August 2002

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. Milanovic 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.

This paper - a product of the Poverty Team, Development Research Group - is part of a larger effort in the group to study the effects of globalization. The study was funded by the Bank's Research Support Budget under the research project "World Income Distribution" (RPO 684-84).

Suggested Citation

Milanovic, Branko, Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Budget Surveys (August 2002). World Bank Policy Research Working Paper No. 2876. Available at SSRN: https://ssrn.com/abstract=636240

Branko Milanovic (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://econ.worldbank.org/staff/bmilanovic

University of Maryland ( email )

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College Park, MD 20742
United States

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