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, vol.49, no.2022, pp.769-792, 2022 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 49 Issue: 2022
  • Publication Date: 2022
  • Doi Number: 10.1007/s10663-022-09539-8
  • Journal Name: Empirica
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Geobase, PAIS International, Political Science Complete, Sociological abstracts, Worldwide Political Science Abstracts
  • Page Numbers: pp.769-792
  • Keywords: Trade liberalization, Income inequality, Panel cointegration, Cross-section dependence, European Union
  • Ankara Yıldırım Beyazıt University Affiliated: Yes

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.