Income Inequality, Redistribution of Income and Trade Openness

Adeel Ali, Syed Faizan Iftikhar, Ambreen Fatima, Lubna Naz

Abstract


Literature on nexus between trade openness and government
spending is impressive [Atif, et al. (2012), Rudra (2004), Dani (1997)
and McGuire (1999)]. The literature is growing rapidly. Analysts have
documented the positive effects of government social spending [see for
example Mesa-Lago (1994); Huber (1996); Weyland (1996); McGuire (1999)].
Unfortunately, Pakistan lacks empirical evidences on the impact of
government social spending. Although Government of Pakistan has taken
number of initiatives to have some form of redistribution policies,
however, inequality in Pakistan is higher as compared to other Least
Developed Countries that are open to trade. This situation is alarming.
This paper therefore tries to identify the nexus between trade openness
and social spending for the period 1975–2012. International evidence
suggests that government social spending influences poverty and
distribution of income. Pakistan‘s low level achievement in terms of
reducing inequality, given the likely adverse economic impact of trade
openness, point towards the fact that government has to design the
policy in such a way that it affects the distribution of income. Thus,
exploring the effect of social spending on income inequality is
necessary for the concerned policy makers.

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DOI: https://doi.org/10.30541/v54i4I-IIpp.865-874

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