JSPES, Vol. 41, No. 2 (Summer 2016)
pp. 3–30

Economic Openness, Power Resources and Income Inequality in the American States

Ping Xu

University of Rhode Island

Data from American states over the 18-year period from 1987 through 2004 are used to explore the economic and political determinants of rising income inequality. Error Correction Models are used to examine both the short- and long-run effects of economic openness (i.e., trade, foreign direct investment in the United States, and immigration) and “power resources” (by which is meant, government ideologies and union strength) on state-level income inequality in the United States. Results show that during the period examined international trade and immigration each increased income inequality but that foreign direct investment decreased it. The indicate that states with liberal governments and/or strong labor unions were likely to experience decreases in inequality, and that Democratic presidents contributed to a decreasing income inequality in American states.