Trade Liberalization and Child Labor: A Case Study of Pakistan

The boom in industrial sector has lead to many problems and child labor is no exception. This study explores the linkages between trade liberalization and child labor both in short and long-run. The results suggest that GDP per capita and income inequality increase the child labor in the long-run but these results disappear in short-run. The study also finds that income inequality has positive and significant impact on child labor. Our findings also support that trade openness along with trade sanctions (imposed by the developed countries) are associated with the reduction in child labor in Pakistan.     

Income Inequality,Globalization, and the Welfare State: Evidence from 23 Industrial Countries, 1990–2009

The debate regarding the welfare state–weakening effect and the income inequality‐increasing effect of globalization remains a contentious issue among stratification scholars. For some, globalization increases income inequality, while for others, globalization has no, or a negligible, effect on income inequality. This study brings new evidence to bear on this debate by separately investigating effects of multiple indicators of globalization (international trade, foreign direct investment [FDI] and immigration), and of welfare state generosity (government social‐protection spending) on (1) income inequality before taxes and transfers and (2) income inequality after taxes and transfers, using data from 23 Organisation for Economic Co‐operation and Development (OECD) countries over 1990–2009. First, results show a positive effect of international trade, a negative effect of immigration, but no effect of FDI and government social‐protection spending on income inequality before taxes and transfers. Second, results show no effect of the globalization indicators but a negative effect of government social‐protection spending on income inequality after taxes and transfers. These findings suggest that (1) globalization has inequality‐increasing effects depending on measures of income inequality; (2) the welfare state, in many OECD countries, continues to shape income distribution; and (3) in contrast with the popular narrative, immigration may decrease income inequality.     

Inequality and growth in advanced economies: an empirical investigation

This paper empirically investigates the effect of income and human capital inequality on economic growth in different regions of the world. In the estimation of a dynamic panel data model that controls for country-specific effects and takes into account the persistency of the inequality indicators, the results show a different effect of inequality on growth depending on the level of development of the region. Specifically, we find a negative effect of income and human capital inequality on economic growth, both in the sample as a whole and in the low and middle-income economies, an effect that vanishes or becomes positive in the higher-income countries.     

INEQUALITY AND TRUST: NEW EVIDENCE FROM PANEL DATA

We estimate the causal link from income inequality to generalized trust by reconsidering the country‐level evidence on this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time‐invariant variables, and find a negative relationship between the two variables that holds only for developed countries. Second, we focus on these advanced economies and provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, the negative causal effect of inequality on trust is even larger than that coming from ordinary least squares estimation. We also provide new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality—such as the Gini index and top income shares—and dynamic inequality—proxied by intergenerational income mobility. (JEL D31, O15, Z13)     

Verteilungseffekte von Finanzialisierung

Financialisation is often associated with rising income inequality. The article describes the major aspects of financialisation in the foreign, financial, business and household sector, and identifies several hypotheses how financialisation affects functional income distribution. We discuss enhanced exit options of firms, rising financial overhead costs for businesses, increased competition in capital markets, and weakened bargaining power of workers due to indebtedness. The different hypotheses are operationalised through empirical measures and their effect on the wage share is tested econometrically by means of a panel data set of 14 OECD countries over the period 1992–2014. We find statistically significant negative effects of financial payments of firms and financial openness on the wage share.     

The microfinance promise—can it be kept? A macro perspective

After five decades of rapid expansion of microfinance worldwide, little is known about its aggregate effects and whether the “microfinance promise” of poverty reduction holds at the macro level. Challenging questions have arisen. Here we explore the dynamic response of microfinance on economic growth, financial deepening and income inequality. Countries are grouped into three broad clusters (stable, moderate and poor) based on macro‐institutional variables. Our results show that microfinance has a significant long‐term ability to affect the broader economy. However, the impact and dynamics of microfinance differ substantially across macro‐institutional environments. It grows in weaker environments, reaches its peak in developing economies, and then gradually “dies out” in more stable economies. While there is evidence of a positive impact of microfinance at the aggregate level, the response is different depending on whether countries are poor, moderately developed or economically stable. Once countries climb up the macro‐institutional “ladder,” microfinance can take a different shape and its relationship with other macroeconomic fundamentals can change. Our results indicate that microfinance has the strongest effect when the external environment is supportive and proactive; in weak environments, microfinance cannot grow sufficiently. Therefore, more attention should be given to supporting the socioeconomic dimensions of economies.     

Inequality and growth: evidence from panel cointegration

This paper uses heterogeneous panel cointegration techniques to estimate the long-run effect of income inequality on per-capita income for 46 countries over the period 1970–1995. We find that inequality has a negative long-run effect on income, both for the sample as a whole and for important sub-groups within the sample (developed countries, developing countries, democracies, and non-democracies). The effect is economically important, with a magnitude about half as high as the magnitude of an increase in the investment share.     

A poverty-inequality trade off?

The idea that developing countries face a trade off between poverty and inequality has had considerable influence on thinking about development policy. The experience of developing countries in the 1990s does not, however, reveal any sign of a systematic trade off between measures of absolute poverty and relative inequality. Indeed, falling inequality tends to come with falling poverty incidence. And rising inequality appears more likely to be putting a brake on poverty reduction than to be facilitating it. However, there is evidence of a trade off for absolute inequality, suggesting that those who want a lower absolute gap between the rich and the poor must in general be willing to see lower absolute levels of living for poor people.Martin Ravallion: These are the views of the author, and need not reflect those of the World Bank or any affiliated organization.     

International trade,labour migrations and capital flows: long-term evidence for Australia,Canada, the United Kingdom and the United States

The historical links between international factor mobility and the extent of international trade are analysed over the long term for three high labour immigration countries (Australia, Canada and the United States) and one high labour emigration country (the United Kingdom).
Time series data are used. Current international openness is assessed relative to this experience. International factor market integration has increased over time with trade liberalization, suggesting that traditional Hecksher-Ohlin thinking cannot be readily used to account for long-term trends in several important economies.
Both trade and factor mobility have an episodic character that makes it misleading to assess current international openness only in terms of post-World War 2 economic trends.     

Trade Balance and Income Shocks: Experience of Transition Economies

This paper investigates the major sources of changes in the trade balance of four Central European and three Baltic transition economies with an emphasis on the difference between permanent and transitory disturbances to income. In all seven countries the findings support the hypothesis that transitory disturbances to income are the main determinants of changes in the trade balance. These results seem to be fairly consistent with inter-temporal models of trade balance, which view transitory shocks to income as the main source of variations in the trade balance. These results do not seem to support the view that productivity shocks alone generate most of the variation in the trade balance.      

Gender inequality and inter-household economic inequality in emerging economies: exploring the relationship

While most emerging economies have been characterised by persistence/growth of inter-household economic inequality in recent decades, and simultaneous poor performance on gender equality, the intersecting relationship between these two trends so far has not received much attention. This article is an initial attempt look at this relationship, showing how gender inequality has both contributed to, and been affected by, growing economic inequality. It focuses on eight emerging economies – Brazil, Russia, India, China, South Africa, Mexico, Indonesia, and Turkey (dubbed the BRICSAMIT countries). The article analyses Gini coefficient trends and Global Gender Gap Index trends, and draws in addition on insights gained from seven exploratory interviews with Oxfam colleagues and partners working on women's rights in the considered countries. It concludes with a reflection on the possible future policy agenda that would allow one to simultaneously address the issues of gender inequality and economic inequality in the analysed countries.     

IS THERE A “DOUBLE BONUS” FROM REDUCING INEQUALITY?

We study the effect of inequality on growth in an overlapping generations (OLG) model where inequality affects growth through accumulation of human capital and endogenous fertility. In contrast to much of the existing literature, we argue that the effect of inequality on growth might be non‐monotonic. Our model suggests that the effect depends on the demographic stage of development: inequality impedes growth in low‐fertility (high human capital) economies, but enhances growth in high‐fertility (low human capital) economies. Our finding casts doubt on a “double bonus” from reducing inequality in developing countries which are typically characterized by high fertility. (JEL O40, J13, O15)     

EU Accession and Income Growth: An Empirical Approach

The dynamic effects from EU membership are crucial for the new member states to catch up with the average income level in the old member states. To gauge the dynamic effects we follow a two-step procedure in which a gravity equation for bilateral trade shows the trade effect of EU membership and a growth regression yields the income effect of trade. Shared EU membership is found to increase trade between two of its member states with about 27%. EU membership may contribute to trade by inducing countries to improve the quality of their institutions. Trade increases by another 23% if institutions improve, yielding a total trade increase of 50%. Improved openness increases income by 38% according to our estimates. Adding a small direct effect of improved institutions on income, the total income effect of EU membership is 40% for the 12 new members and Turkey. This implies that EU membership, or its effect on trade and institutions, could lead to large economic gains for the new member states, but does not bring them economically on par with the old member states.

Growth versus Distribution: Does the Pattern of Growth Matter?

Despite the fashion for pro‐poor growth, there remains no consensus as to its meaning. This article proposes three possible definitions, and examines the pattern of growth over time and in different world regions. The growth of the poor's income can be broken down into a growth effect and a distribution effect. In 143 growth episodes, it is found that the growth effect dominates. However, in over a quarter of cases changes in distribution played a stronger role than overall growth in increasing income for the poor. Econometric analysis of growth regressions for each population quintile supports the idea that openness benefits everyone, but indicates a robust perverse relationship with governance. There is also evidence of a trade‐off between growth and distribution, suggesting that attention to distribution will be better for the poor than going for growth.     

Income Inequality in Host Countries and Remittances: A Discussion of the Determinants of Portuguese Emigrants' Remittances

The evolution of income inequality in host countries affects the migrants working there. As a significant number of these migrants do not earn high incomes, this evolution tends to significantly affect migrants' abilities to send money back to their home countries. We test this hypothesis considering the evolution of income inequality in 59 countries with Portuguese emigrants through observations from 1996 to 2014. Using the system generalized method of moments (GMM) estimator, we found that an increase in income inequality leads to fewer remittances per emigrant. We also controlled income inequality with several determinants of remittances, including the real GDP per capita, unemployment rate, education skills, and the self‐employment rates of the host countries.     

Growth,Inequality and Poverty in Emerging and Transition Economies

This paper aims to explore the quality of economic growth in a sample of 50 emerging and transition economies (ETEs), which are countries experiencing a process of fast growth and institutional change. Economic growth during 1995–2006 is regressed against poverty, inequality and human development variables using OLS cross-country regression models. The main findings are that growth did not reduce poverty and income inequality worsened too. On the one hand, economic growth occurred despite the worsening of income inequality. However, this result does not identify a “U-shaped” Kuznets curve because even after a consistent period of growth, inequality did not decrease and it remained at higher levels. Only countries with higher education levels and public expenditure in strategic dimensions seem to escape from this trap. On the other hand, growth occurred at the expense of an important human development variable i.e., life expectancy, and of an important indicator of democracy, i.e., voice and accountability.     

FINANCE-INEQUALITY NEXUS: THE LONG AND THE SHORT OF IT

Financial development affects income inequality differently in the short and in the long term. Investigating OECD countries from 1870–2011, we find in the short run, an improvement in financial development tends to reduce inequality, while in the long run, more finance contributes to more inequality. The short-run effect concurs with theories advocating financial development increases the availability of financial services, primarily for the poor. However, this effect becomes nil within a few years. Results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact. (JEL O15, O16, D31, G20, E44)     

Why Transition Countries May Specialize in Low-Quality Production

Politicians and economists of transition countries fear a low-quality trap for their economies. We present a model of international trade with two countries and two qualities of goods model where high-quality production exhibits economies of scale and low-quality production does not. Depending on transaction costs, the low-quality good will be produced either in the low-wage economy (i.e., the transition country) only or it will not be traded at all. Regarding the high-quality good, we discuss three potential reasons why transition countries may be trapped in the production of low quality when economies of scale in production prevail: (a) international trade policy (i.e., GATT / WTO); (b) external economies due to quality uncertainty; (c) external economies due to demand effects (big push). All reasons favor incumbents over entrants and thus lead to a low-quality trap for transition economies due to the existence of incumbents located in industrialized countries.     

The Impact of International Trade on Migration by Skill Levels and Gender in Developing Countries

This study conducts an empirical investigation of the effect of skilled migration on income inequality in the origin countries. Developing countries are low-skilled labour abundant and high-skilled labour scarce. Emigration of high-skilled labour increases the relative supply of low-skilled labour in the country. Excess supply of low-skilled labour depresses the wage rate of these countries while the wage rate of the highly skilled increases leading, to the Gulf of inequality, at least in the short-run. Complementarity between high-skilled and low-skilled labour could be another channel. Consequently, skilled migration is usually seen as inducing losses for the low-skilled left behind. Using a panel of 110 developing countries from 1980-2010, the study finds robust results to different econometrics specifications and subsamples that high-skilled migration increases income inequality in the short-run while there appears to be no effect of low-skilled migration on inequality. A clearer understanding of the channels through which high-skilled migration will be detrimental for income inequality in developing countries may assist policymakers to craft appropriate policies to curtail high-skilled migration, which would serve to improve equality, hence reducing social and political unrest.     

Impact of Rising World Rice Prices on Poverty and Inequality in Burkina Faso

Between January 2006 and April 2008, the prices of most agricultural products rose considerably in international markets. Empirical studies show that this spike in world food prices increased the number of poor households in developing countries, but the extent was not the same in all countries. This article assesses the impact of rising rice prices on poverty and income inequality in Burkina Faso, using a methodology based on the concept of compensating variation combined with the net benefit ratio (NBR) developed by Deaton (1989) and a living standard survey (QUIBB, 2003). The results show that higher prices have a negative impact on income and poverty in the regions with a large proportion of households that are net buyers of rice. The poverty rate increases by 2.2 to 2.9 percentage points depending on the assumptions, the increase being higher in urban areas than in rural areas. Rising rice prices also increase income inequality, which increases particularly in urban areas and in relatively rich regions, but decreases in poor regions with a large proportion of rice producers.