Production Networks and Varieties of Institutional Change: The Inequality Upswing in Post Socialism Revisited
Abstract:In this article, we elucidate two new mechanisms for the rise in earnings inequality during post socialist transition. First, the integration of transition country firms into globalized production networks (GPNs) should increase inequality independent of foreign direct investment (FDI) Second, because EU integration hastened the transition from Soviet era labor market practices, the distributional effects of private markets and world economic integration should be larger among acceding countries. A longitudinal analysis of Gini coefficients among sixteen transition countries from 1991 to 2009 supports these interventions: GPN integration increases inequality independent of FDI, and both private markets and world economic integration have stronger effects in EU transition countries. These results are robust to a host of alternative explanations, to varying operationalizations of the labor market effects of EU integration, and to alternative estimators. Through counterfactual analysis, we show that inequality would have increased less dramatically in the absence of EU integration.