Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2008:12: Do economic liberalization and globalization increase income inequality?

Andreas Bergh () and Therese Nilsson ()
Additional contact information
Andreas Bergh: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Therese Nilsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Using the newly developed KOF-index of globalization, as well as the economic freedom index from the Fraser institute, we examine if globalization and economic liberalizations are linked to increases in income inequality within countries. Studying changes between 1980 and 2000, we find a positive link between inequality and liberalization only for certain types of reforms: Trade liberalizations, deregulation of product and labor markets and economic globalization. The Scandinavian welfare states have increased economic freedom and globalization more than other countries, but they have also experienced high increases in income inequality.

Keywords: Economic freedom; Globalization; Income Inequality; Gini Coefficient; Welfare states

JEL-codes: D63; O11; P51

22 pages, September 12, 2008

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