The effect of within-country inequality on international trade and investment agreements

Abstract

There is anecdotal evidence suggesting that those losing from globalization influence policy makers to decrease the openness of their countries to globalization, as evidenced by signing international trade and investment agreements. Surprisingly, this influence has never been examined empirically. This study provides novel empirical evidence demonstrating that greater within-country inequality, our proxy for 'perceived losses' from globalization, decreases countries' propensity to sign regional trade and investment agreements. Our findings support the argument that the existence of 'losers' from globalization can be detrimental for continued globalization. To the best of our knowledge, this is the first extensive econometric empirical evidence of the influence of within-country inequality on countries' willingness to sign international trade and investment agreements, as means to increase their global economic integration.