Effect of Trade Liberalization on Regional Income Inequality in an Endogenous Growth Model

This paper constructs a footloose capital and endogenous growth model with agriculture, manufacturing, and service goods. We show that globalization increases, decreases, or does not change inequality in the regional income. This is because regional real income is defined as expenditure divided by price index of manufacturing and price of service good. Globalization leads to decreases inequalities in expenditure and price index of service while increases inequality in price of manufacturing goods. Thus, interregional minus intraregional knowledge spillovers in the service goods from manufacturing sector determines the sign of globalization on inequality in regional income.