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INCOME INEQUALITIES IN THE EU COUNTRIES BASED ON PANEL DATA MODELS
Abstract
In this paper we investigated the influence of foreign direct investment, trade openness, level of development and level of education on Gini index (as a measure of income inequality). The analysis was conducted over the period 2000-2012, using data for 27 European Union member states. After a short statistical analysis we applied a Hierarchical cluster analysis, obtaining two main groups based on their level of GDP per capita. For each cluster we estimated a robust fixed-effect panel data model. The econometric results for the group of countries with high GDP per capita show that trade openness has the greatest influence on the Gini index, while education has a much smaller contribution to income inequality. For the second group of countries education has the greatest influence on income inequality, but the FDI also contributes to higher income differentiation, while the influence of GDP is negative.
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