Impact Of International Trade On Income Inequality In The BRICS

This paper explores the impact of international trade on income inequality in the BRICS.It studies the problem of income inequality from 1991-2015.It considers trade openness,foreign direct investment,gross domestic product(GDP)per capita,the balance of payments,exports to GDP,and Imports to GDP ratio as independent variables.Gini coefficient has been used to study income inequality as the dependent variable.The time period chosen for the study is 25 years using data from the 5 BRICS countries – Brazil,Russia,India,China,and South Africa.Data for the Gini coefficient is obtained from the Standardized World Income Inequality Database.Data for trade openness is obtained from UNCTAD.The data for Balance of payments,Gross domestic product per capita,export to GDP,and import to GDP is obtained from the World Bank database.The first equation of the model studies two hypotheses of the study-an increase in trade openness leads to a decrease in income inequality,and an increase in the Gross Domestic Product per capita decreases income inequality.A second equation is used to test the hypothesis of whether exports and imports separately,have any impact on the income inequality in these countries.The empirical analysis is done using panel autoregressive distributed lagged pooled mean group estimation method(Pesaran et al,1999)using STATA.The results indicate there is a significant effect of trade openness,GDP per capita,exports,and imports on inequality in the BRICS.It can be concluded that international trade has led to an increase in income inequality in the BRICS.We also find that while there has been an increase in incomes,(Gross domestic product per capita),it has not decreased the income inequality.Trade openness,reliance on imports,and impact on wages by exports leading to inequality are further explained as causes of the income inequality using international trade theory.