We analyze the causes and mechanisms of inequality in transition economies of Central and Eastern Europe and the Commonwealth of Independent States after the break-up of the Soviet Union. First, we show that both economic globalisation – namely, imports, exports, and foreign direct investment – and institutional factors – namely, privatisation reforms, labour market liberalisation, and product market liberalisation – are strongly associated with within-country rises in inequality. However, some of these factors are intertwined. Second, the impact of globalisation on inequality is negative (positive) at low (high) levels of human capital. Third, human capital appears to exert a uniformly positive effect on inequality at different stages of globalisation. Fourth, trade integration with the European Union is correlated with rises in inequality
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