Trade,Institution And Income Inequality

In recent years,with the continuous improvement of the degree of economic globalization and the continuous expansion of the trade,the income inequality in the developing countries is increasing.Many scholars have studied the impact of trade openness on income inequality,but few have examined the influence of the institution on the relationship between trade and income inequality.Therefore,this paper focuses on how the institution affects the relationship between trade openness and income inequality in developing countries.We also account the endogenous problems of trade on income inequality.For small developing countries,the article is helpful to reduce income inequality and correctly deal with the problem of excessive income gap.On the basis of theoretical analysis,this paper constructs a measurement model,using the panel data of 90 small developing countries and the instrumental variable of the Baltic dry bulk index(BDI)to analyze the endogenous problem of trade expansion on income inequality.The results show that the relationship between trade and income inequality in developing countries varies depending on different institution.While democracy reaches a certain extent in developing countries,trade will aggravate the income inequality in developing countries and alleviate the lower democratic developing countries.The trade patterns of less democratic countries in developing countries are more subject to the H-O model,which mainly export primary products such as labor intensive products and resource products,the higher democratic countries have attracted a large number of FDI from developed countries and export more food processing products,manufacturing and other intermediate products.