Impact of International Trade on Income and Income Inequality

Abstract

The impact of international trade on the level and distribution of income has been the field of focus in international economics. There have been empirical studies supporting and opposing trade openness but most of the studies drew the results from cross sectional data. In this study, we use panel data to investigate the trade's impact on levels and distribution of income. Analysis of a balanced panel of country level data revealed that trade openness increases income. Results using an unbalanced panel data set revealed that trade openness increases income inequality in the overall sample but when we split the sample in to two groups, trade increases inequality in developing countries but it reduces inequality in developed countries though the coefficient is not statistically significant.