The handicap for enhanced solidarity across advanced economies: The greater the economic openness higher the unequal distribution of income

Abstract

Perspectives on degree of economic openness have been discussed by different paradigms resulting in concluding remarks which differ widely from each other. However, the existing literature has passed over the importance of the relationship between economic openness and income distribution in relation to the bargaining framework and thus its effect on social solidarity. In this paper, the rationale is based on the argument that an increase in the degree of economic openness has a significant impact on the distribution of income through the channels of trade and financial account. The empirical results show that a more open economic environment leads to an unequal distribution of income, both reducing labor’s share and increasing income inequality, through the collapse of bargaining power of labor in favor of capital across advanced economies over the 1996–2014 period. However, the results also suggest that the trade channel is a more effective influence on income distribution than the finance channel. Additionally, other globalization measures, including economic, social and political factors, also have negative effects on income distribution by way of reducing the bargaining power of labor, which results in the collapse of social solidarity and cohesion over time.