Mechanisms of Inequality in Transition Economies

We analyze the causes and mechanisms of inequality in Post-Soviet Union transition economies. First, we show that both economic globalisation – namely, import, export, and foreign direct investment – and institutional factors – namely, privatisation reforms, labour market liberalisation, and product market liberalisation – are strongly associated with within-country rises in inequality. However, some of these mechanisms are intertwined. Second, the impact of globalisation on inequality is negative (positive) at low (high) levels of human capital. Third, human capital appears to exert a uniformly positive effect at different stages of globalisation. Fourth, trade integration with the European Union seems to have had a specific inequality-enhancing effect. JEL Clasification: D63, F16, O33