Panoeconomicus 2016 Volume 63, Issue 5, Pages: 581-601
https://doi.org/10.2298/PAN130515024Y
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Globalization, economic freedom, and wage inequality: A panel data analysis
Yay Gülsün
Taştan Hüseyin
Oktayer Asuman
This paper examines the impact of globalization and liberalization on wage
inequality using the KOF globalization index, the Economic Freedom Index
(EFI) of the Fraser Institute and the Theil industrial pay inequality
statistic compiled by the University of Texas Inequality Project (UTIP).
Both static and dynamic fixedeffects models are estimated using a 5-year
panel data set consisting of about 90 developed and developing countries for
the 1970-2005 period. Estimation results from the dynamic panel data
specification suggest that wage inequality has a significant and slowly
changing component. The overall KOF and EFI indexes are found to be
statistically insignificant in the full sample, but the results show that
economic freedom is associated with more wage inequality, especially in
Organisation for Economic Co-operation and Development (OECD) countries. The
estimation results from country groups indicate that more deregulation is
associated with more earnings inequality in OECD countries. The results from
the models with subcomponents of the EFI imply that access to sound money
has a negative effect on wage inequality. A more stable price system in an
economy implies a more equal wage distribution in emerging markets (EM),
non-OECD countries, and European Union (EU).
Keywords: wage inequality, globalization, economic freedom