Growth vs. Income Inequality

Paper Summary:

This paper examines the extent to which openness, viewed as trade's share of GDP, impacts the trade-off between inequality and economic performance. The paper finds a positive and statistically significant relationship between openness and growth, yet a positive and statistically insignificant relationship between openness and inequality. The first part of the paper summarizes and evaluates the theoretical background and previous empirical research. Next, the paper presents the conceptual models tested in the paper. This is followed by a discussion of the ideal data set and an overview of the actual data. Following this discussion, the paper expounds the actual regression for the models used and presents the regression results. Finally, the paper ends with a summary and concluding remarks.

From the Paper:

"Economic theory going back to Adam Smith suggests that the greater the trade, in accordance with traditional trade theory, results in greater national income from specialization, according to Frankel and Romer (1999). Yet, several studies have found ambiguous relationships between these two measures. There are possible explanations of this, as if a country specializes in an industry that has low productivity gains, perhaps greater trade will not necessarily increase national income, but even decrease income relative to other trading countries that specialized in high productivity gaining industries. An example of high and low productivity gains industries are computers and agriculture. Yet, in general we would see that this is a special case and a positive relationship between openness and income is still predicted, and this is what is mostly seen in the empirical literature."

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