This paper analyses trade and financial openness effects on growth and income
inequality in 35 OECD countries. Our model takes into account both short run and long
run effects of factors explaining income divergence between and within the countries.
We estimate, for the period 1995-2016, an error correction model in which per capita
GDP and inequality are driven by changes over time of selected factors and by the
deviation from a long run relationship. Stylised facts suggest that trade and financial
openness reduce the growth gaps across the countries but not income inequality, and
the effects of finance are stronger in high income countries. Nevertheless, low and
middle income countries benefit more from international trade. Our contribution to the
existing literature is threefold: i) we study the short and long run effects of trade and
financial openness on income level and distribution, ii) we focus on developed
countries (OECD) rather than on developing and iii) we provide a sensitivity analysis
including in our baseline equation an institutional indicator, a trade agreement proxy
and a dummy of global financial crisis. Estimates results indicate that trade openness
significantly improved the conditions of OECD low income countries both in short and
long run mostly, consistently with the catching up theory. It also decreased inequality,
but only in low and middle income countries. Differently financial openness had a
positive and significant impact only in the short run on middle income countries and
increased income disparities within countries in the short term in low income countries
and in the long term in high income countries
