The Effect Of FTAS On Income Inequalities: Within Countries

Abstract

In the mid-1990’s, the number of free-trade agreements has increased
rapidly. At the same time, it has been said that income inequality
increased in many nations of the world. However, it is still a matter of
huge debate among scholars whether FTAs increases or decreases
income inequality.
Using the unbalanced as well as 5 year-intervals panel dataset of 124
countries over the period 1988-2012, the present study assesses the
impact of FTA on income inequalities within-countries. Differing from the
existing empirical literature, this study aims to examine the effect of
market integration on income inequalities of a country by utilizing the
new explanatory variable FTA (Free Trade Agreement). In the framework
of neoclassical trade theory, it has been found that increases in FTAs
lead to greater income inequalities within-countries. However, the
interaction between FTAs and factor endowments, it has been found a
negative and significant association with inequality.