Advanced industrial countries have been exhibiting a steady decline of the labour income shares in the last two decades. The
study explains this phenomenon by resorting to the old Stolper-Samuelson theorem. The conclusions concerning the impact of
free trade on the income distribution are unambiguous in a Heckscher-Ohlin world with two countries, two goods and two factors
of production (capital and labour). In contrast, the consequences of FDI from the capital abundant country (EU) to the labour
abundant CEECs are ambiguous. Both scenarios are investigated theoretically and then simulated with a hypothetical two-country
CGE model, including the EU and the CEECs. A panel regression for both regions separately helps to decide empirically which
influences on the development of the labour income shares are at work. Globalisation, measured by revealed comparative advantage
(increase in global net trade) has contributed to a decline in the labour income shares in the EU. Additionally, those countries
which are engaged more in trade with the CEECs can expect a sharper decline in the wage share. Global net FDI outflow also
exerts a negative influence on the labour income share in the EU. In the CEECs the increase in global net trade had a positive
influence on the labour income share, trade with the EU, however, dampened the labour income share. FDI inflow increased the
labour income share in the CEECs.
Keywords:Globalisation, EU Enlargement, Income distribution
Forschungsbereich:Makroökonomie und öffentliche Finanzen