Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Budget Surveys
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 dis...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2002/08/1993713/can-discern-effect-globalization-income-distribution-evidence-household-budget-surveys http://hdl.handle.net/10986/19276 |
| Summary: | 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. |
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