The Impact of International Trade on Income Inequality: The Case of Germany

Authors

DOI:

https://doi.org/10.51153/mf.v19i1.655

Abstract

This study investigated how international trade (IT) influenced Germany's income (IN) inequity (IE) between 1990 and 2021. It used time series data to achieve its objectives. The study performed a series of tests to demonstrate that the unit root and cointegration tests can address non-stationary (NS) problems and verify relationships across time. The study used Augmented Dickey-Fuller and Phillips-Perron tests and found that all variables used in the study integrated at the first difference. Moreover, the Johansen Cointegration test “suggests a long-term association between the variables" used in the study. The study also employed the Vector Error Correction Model (VECM) to "determine the long and short-term" consequences of international trade (IT) on income inequality (IINQ). The study found a long-term and short-term association between international trade (IT) and income disparity (ID) in Germany. Using the GINI index, the study documents that the effect on international trade (IT) has diverse impacts on different income strata. Moreover, we found that increasing (EXPs) exacerbates economic disparity (DS), and increasing imports (IMPs) promotes income (IN) inequality.  Aside from that, test coefficients have revealed that exports (EXPs) and imports (IMPs) promote income inequality (IINQ) via the Gini index. Furthermore, the "CUSUM and LM tests" have shown that the model is stable and has no serial correlation. Germany's policymakers can use the findings to reduce income disparity (IDS) caused by international trade (IT).  

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Published

2024-07-06