Transition and income distribution, determinants of income inequality: 1990-2009 panel data study

ABSTRACT: The last decade of twentieth century has had a major importance for Eastern European and Central Asia countries. They embarked on transition process, transformation from central planned economy to free market economy. Although these countries differ due to their country characteristics and transition process, they all have common past: planned economy and performed the same transformation process. The transition process was realized in different dimensions: socio-political and economic dimensions. The process considered the transformation from single-party political system to pluralist democracy. Economic transformation considered liberalization measures, such as liberalization of prices and trade, privatization, building of competitive environment and development of entrepreneurship. The transition period was significant with major macroeconomic and structural changes which has also affected the income inequality in these countries. This study aims to identify the determinants of income inequality and assess the impact of liberalization measures on income distribution in transition countries for selected time period. The estimations exhibited that, price liberalization and smallscale privatization indices had significant effect on income inequality measures as Gini coefficient. While price liberalization affected income inequality positively, impact of small-scale privatization on income inequality was negative, e.g. this index has improved income distribution. Moreover, it is shown that, macroeconomic variables such as inflation rate and unemployment rate had positive and highly significant effect on income inequality. Effect of GDP per capita growth rate on income inequality was found to be insignificant as a result of this study. The natural resources rents as a share of GDP is revealed to have a positive effect on income distribution. Key words: transition period, income inequality, price liberalization, privatization. …………………………………………………………………………………………………………………………………………………………………………………………………………