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Can we discern the effect of globalization on income distribution? evidence from household budget surveys, Volume 1
 
Author:Milanovic, Branko; Collection Title:Policy, Research working paper ; no. WPS 2876
Date Stored:2002/09/24Document Date:2002/08/31
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; Governance Indicators; Economic Theory & Research; Inequality; Labor Policies; Poverty Impact Evaluation; Fiscal & Monetary Policy
Language:EnglishReport Number:WPS2876
Sub Sectors:Other domestic and international tradeVolume No:1
Related Dataset:Globalization and Income Distribution Dataset;   

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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