Eleventh Global Studies Conference

Abstract

Since the 1990s many high-income countries facing trade liberalization have experienced rising within-country inequality and rapid technology progress. In recent literature, there has been an ongoing debate on interactions between technological changes, openness, and income inequality. To reconcile inconsistent empirical findings, this study investigates relationships between trade openness and income inequality across countries with different advancement in technology. Using a panel of sixty-one countries over a period from 1975 to 2005, this study examines openness-inequality relationships by estimating panel threshold regression models. The threshold effects of technological changes and an inverted-U relationship are identified when inspecting the impacts of trade on income inequality. On the one hand, countries with less-advanced technologies tend to have higher income inequality when they become further liberalized in trade. On the other hand, trade openness tends to ease income inequality in countries with more advanced technologies.