Income Inequality in Latin America and Eastern EU through the Great Recession: An Ordered Probit Analysis

Abstract

Income distribution directly affects economic growth and the spending patterns in an economy. This paper employs an ordered probit panel to measure the effect of the Great Recession on income inequality in Latin American and Eastern EU members. The results suggest the crisis increased inequality in studied countries overall. However, those countries with low levels of inequality saw their Gini coefficients decrease further, while the crisis increased inequality in countries with already high inequality. Additionally, the results show that European Union membership on average contributed to lower likelihood of high Gini coefficients. Furthermore, marginal effects lend additional evidence of lower income gap for the Eastern EU members as they generally show negative marginal effects for countries with initially high inequality and positive for those with low Gini coefficients. Finally, we find no evidence that FDI and capital incentives have any direct impact on inequality, while GDP growth, poverty, and export incentives are associated with higher and tax revenues and export growth with lower income inequality.

The influence of foreign direct investment on the urban–rural income gap: evidence from China

“…For instance, Suphannachart (2019) found that trade openness and FDI in Thailand increase income inequality. Aitken et al (1996) and Mikek and Carter (2017) studied Mexico, the USA, Venezuela and other Latin America countries, and found that FDI contributes less to the labour income of domestic enterprises than foreign enterprises and increases the income gap between the employees of domestic enterprises and foreign enterprises. Jiang et al (2019) conduct a Granger causality analysis of FDI on the urban-rural income gap to study the relationship between FDI and the income of urban and rural residents in China.…”