Income Inequality, Trade and Financial Openness

32 Pages Posted: 15 Apr 2014 Last revised: 5 Jun 2014

See all articles by Guay C. Lim

Guay C. Lim

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Paul D. McNelis

Fordham University - Gabelli School of Business

Date Written: March 1, 2014

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.

Keywords: Gini coefficient, openness

JEL Classification: E10, F41

Suggested Citation

Lim, Guay C. and McNelis, Paul D., Income Inequality, Trade and Financial Openness (March 1, 2014). Melbourne Institute Working Paper No. 7/14, Fordham University Schools of Business Research Paper No. 2425068, Available at SSRN: https://ssrn.com/abstract=2425068 or http://dx.doi.org/10.2139/ssrn.2425068

Guay C. Lim (Contact Author)

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

Paul D. McNelis

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

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