The Impacts of Trade Openness on Economic Inequality: Empirical Evidence from Asian countries
Keywords:
inequality, economic development, income distributionAbstract
From the 1970s, developing countries, especially in Asia, have changed its development strategies from import substitution to export orientation. This has resulted in sustained economic growth and massive poverty reduction. However, economic inequality among these countries is still substantial and does not change significantly. The purpose of this paper is to examine the role of trade openness in income inequality in the process of economic development. The quantitative research uses econometric model drawn from Kuznets (1955) to study such relationship in the context of Asian economies between 1990 and 2018, a period when these countries adopted export-led growth development strategy. The results indicate a U-shaped relationship between the share of employment in manufacturing and income inequality. That is, inequality first declines and then rises with an increase in manufacturing employment share. Moreover, trade openness has no significant impact on income inequality. The upshot is that manufacturing-led trade openness does not worsen existing income inequality.
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