The relationship between trade openness and income distribution – a Kuznets-type process?

This study provides new evidence for a Kuznets-type process between trade openness and inequality in a within-country setting. A seemingly unrelated regression (SUR) estimation strategy is applied on income deciles of Latin American and Asian developing countries and emerging markets. Trade openness, as measured by the ratio of exports plus imports to GDP, has a negative impact on equality, until a certain level of GDP per capita is reached. Beyond this threshold, trade openness is equalityincreasing. Turning points are found to range between mean incomes of PPP 10500$ and 11500$. Evidence is also provided for similar turning points for the second globalisation variable, FDI. Income-thresholds vary between PPP 6500$ and 8000$. Furthermore, the effect of trade openness on the income distribution is found to be diminishing in an increasing ratio of trade to GDP.