We analyze the causes and mechanisms of inequality in transition economies of Central and Eastern Europe and the Commonwealth of Independent States after the break-up of the Soviet Union. First, we show that both economic globalisation – namely, imports, exports, and foreign direct investment – and institutional factors – namely, privatisation reforms, labour market liberalisation, and product market liberalisation – are strongly associated with within-country rises in inequality. However, some of these factors are intertwined. Second, the impact of globalisation on inequality is negative (positive) at low (high) levels of human capital. Third, human capital appears to exert a uniformly positive effect on inequality at different stages of globalisation. Fourth, trade integration with the European Union is correlated with rises in inequality.
JEL Classification: D63, F16, O33
Keywords: Inequality, Transition Economies, International Trade, Skill Biased Technological Change
This paper was produced as a part of the research project ‘Inequality: Mechanisms, Effects, Polices (INEQ)’ for which financial support from the European Commission is gratefully acknowledged (Contract N. 029093). We are grateful to Andrea Conte, Huw Edwards, Maurizio Franzini, Mouhoud El Mouhoub, Pascal Pettit, Dominic Redor, Massimiliano Tancioni, Natalia Weissar, Marco Vivarelli, and participants in the CSGR 10th Annual Conference “Pathways to Legitimacy” (Warwick University, 17-19 September 2007), the INFER Annual Conference (Loughborough, 12-14 October 2007), the EAEPE Annual Conference (Porto, 1-3 November 2007), and the CEPN - SCEPA “Globalization and Inequality” workshop (Paris, 17, 18 January 2008) for helpful comments and suggestions. All errors are our sole responsibility.
Centre for the Study of Globalisation and Regionalisation (CSGR)
University of Warwick
CV4 7AL Coventry (UK)