Long-run dynamics between trade liberalization and income inequality in the European Union: a second generation approach


Akyüz M. , Gueye G. N. , Karul C.

Empirica, no.2022, pp.1-24, 2022 (Journal Indexed in SSCI)

  • Publication Type: Article / Article
  • Publication Date: 2022
  • Doi Number: 10.1007/s10663-022-09539-8
  • Title of Journal : Empirica
  • Page Numbers: pp.1-24

Abstract

The surprisingly limited literature investigating whether there exists a long-run association between trade liberalization and income inequality finds strong evidence for it. We point out a possible model misspecification due to ignoring the presence of cross-section dependence. Using a panel of 15 EU countries in the 1985–2017 period we show that there is strong evidence for the presence of cross-section dependence. Therefore, we use so-called second-generation procedures (which are robust to cross-section dependence) and find no evidence that trade liberalization and income inequality share a long-run cointegrating relationship in the European Union.