The Kuznets curve for export diversification and income inequality: evidence from a global sample

Abstract

This study is probably the first attempt to examine the nonlinear relationship between export diversification and income inequality. It uses a balanced panel of 90 countries over the 2002–2014 period, including 27 low and lower-middle income economies (LMEs), 22 upper-middle income economies (UMEs), and 41 high income economies (HIEs). The before- and after-tax and transfer Gini indexes are used as proxies for income inequality, while overall export diversification, export-extensive margin, and export-intensive margin index are employed as proxies of export diversification. A number of panel data estimation techniques are applied to the baseline models and the empirical results are shown to be qualitatively robust to different estimation techniques. We find that there is a long-run relationship between export diversification, macroeconomic factors, and income inequality. Interestingly, trade openness appears to reduce income inequality across the three sub-samples. Notably, there seems to be an inverted-U shaped relationship between export diversification and income inequality. This Kuznets curve is found for the global sample and three sub samples with some minor variations. The results are robust across three subsamples, different proxies of income inequality, and reasonable model specifications.