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Technology Progress, Trade Openness, and Income Inequality: A Cross-Country Empirical Study

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Advances in Cross-Section Data Methods in Applied Economic Research (ICOAE 2019)

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Abstract

Since the 1990s, many countries encountering trade liberalization and rapid technological progress have experienced rising within-country income inequality. This paper investigates relationships between trade openness and income inequality in both cross-country and country-specific framework. Using a panel of 61 countries over a period from 1975 to 2005, this study estimates a threshold regression model to identify an inverted-U relationship between openness and inequality with threshold effects of technological progress. On the one hand, income inequality among individuals in countries with less advanced technologies might be getting worse when their trade becomes more opened. On the other hand, for countries with a higher degree of technology advancement, trade openness tends to improve their income inequality.

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Notes

  1. 1.

    See Martin and Fӧrster (p. 12, 2013).

  2. 2.

    Based on the HO model, the Stolper–Samuelson theorem predicts that after trade is opened, wages of skilled workers in developed countries should increase relative to the wages of unskilled workers; conversely, the wages of unskilled workers in developing countries should also increase.

  3. 3.

    Kuznets (1953) used data of industrial countries in the nineteenth and twentieth centuries to show the result of inverted U-shaped relationship between growth and income inequality. In the initial stage of industrial development, income inequality rises. With further development, income inequality tends to narrow down.

  4. 4.

    Harrison and Bluestone (1988) described the situation of upswing in family income inequality starting around 1969 in USA by using the term of “The Great U-Turn.”

  5. 5.

    SWIID uses the data collected by the Luxembourg Income Study to standardize data from many sources including United Nations University’s World Income Inequality Database, the OECD Income Distribution Database, the Socio-Economic Database for Latin America and the Caribbean generated by CEDLAS and the World Bank, Eurostat; the World Bank’s PovcalNet, the UN Economic Commission for Latin America and the Caribbean, the World Top Incomes Database, national statistical offices around the world, and many other.

  6. 6.

    The latest updated version of Barro-Lee Educational Attainment Dataset is available on this website: http://www.barrolee.com/.

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Author information

Authors and Affiliations

  1. Department of Economics, National Tsing Hua University, 30013, Hsin-Chu, Taiwan

    Yih-Luan Chyi

  2. National Applied Research Laboratories, Science & Technology Policy Research and Information Center, 10636, Taipei, Taiwan

    Yi-Hsuan Su

Authors
  1. Yih-Luan Chyi
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  2. Yi-Hsuan Su
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Correspondence to Yih-Luan Chyi .

Editor information

Editors and Affiliations

  1. Department of Economics, University of Western Macedonia, Kastoria, Greece

    Nicholas Tsounis

  2. Department of Economics, University of Western Macedonia, Kastoria, Greece

    Aspasia Vlachvei

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Chyi, YL., Su, YH. (2020). Technology Progress, Trade Openness, and Income Inequality: A Cross-Country Empirical Study. In: Tsounis, N., Vlachvei, A. (eds) Advances in Cross-Section Data Methods in Applied Economic Research. ICOAE 2019. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-38253-7_32

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