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Income Inequality, Trade and Financial Openness

Author

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  • G. C. Lim

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Paul D. McNelis

    (Department of Finance, Graduate School of Business Administration, Fordham University)

Abstract

This paper examines the relationships between the Gini coefficient, trade-openness, foreign aid and foreign direct investment flows. Panel data estimates show that trade openness can be effective for changing income inequality, but its effectiveness depends on the stage of development. Simulation results show that the Gini and openness can be negatively or positively correlated — it depends on the capital intensity and on the degree of openness. Overall, the results suggest that trade and financial openness can be effective policies for reducing inequality in low income countries, if they significantly increase the marginal productivity of labour through capital intensive methods of production.

Suggested Citation

  • G. C. Lim & Paul D. McNelis, 2014. "Income Inequality, Trade and Financial Openness," Melbourne Institute Working Paper Series wp2014n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2014n07
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2014n07.pdf
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    More about this item

    Keywords

    Gini coefficient; openness;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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