Non-linear Dynamics of Trade Openness and Income Inequality: New Evidence from a Dynamic Panel Threshold Analysis

This study examines the non-linear relationship between trade openness and income inequality in BRICS countries (Brazil, Russia, India, China and South Africa) over the period 1990–2020. It explores how different levels of trade openness affect inequality, with an emphasis on identifying threshold effects. Using a dynamic panel threshold estimation technique, the analysis reveals a U-shaped relationship: trade openness reduces inequality up to a critical threshold of 50.877%, beyond which further liberalisation exacerbates inequality. The JKS panel causality test indicates a unidirectional causal relationship from trade openness to income inequality. These findings highlight the need for calibrated trade policies in BRICS nations. Promoting trade openness up to the identified threshold may reduce inequality, but liberalisation beyond this point should be accompanied by redistributive and institutional measures to mitigate adverse distributional outcomes. JEL Codes: F14, D31, C23, C33