THE RELATIONSHIP BETWEEN TRADE OPENNESS AND INCOME INEQUALITY IN WESTERN BALKAN COUNTRIES

The Western Balkan countries have small, open economies, and in order to achieve economic growth, they focus on increasing trade with other countries, thus making their economic growth dependent on external demand. While focusing on this, the Western Balkan countries face another arising issue which is the income inequality. While their level of trade openness continues to increase, they still have a moderate level of income inequality, measured by Gini coefficient. Additionally, in most developing countries there is still not done much research regarding the relationship and effects of trade openness on income inequality. Therefore, the aim of this research paper is to determine and analyze the relationship between trade openness and income inequality for the time spin 2000-2019. To conduct the analysis of the relationship between income inequality and trade openness, several panel techniques will be used such as: OLS, Fixed and Random effects, Hausman Taylor test and the investigation of one set hypothesis. According to the analysis of this paper there is a significant positive relationship between these two variables, thus it means that the hypothesis set does not hold, as the level of Trade openness increases, the income inequality, increases as well in the Western Balkans. The findings give a contribution for the literature regarding the effects of trade openness and income inequality in developing countries, but yet there is possibility for further research.

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