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Globalization and Income Inequality: Does the Level of Financial Development Matter?

Roohollah Zare ()
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Roohollah Zare : Islamic Azad University, Beyza Branch

Journal of Money and Economy, 2019, vol. 14, issue 2, 159-175

Abstract: This paper examines the impact of globalization on income inequality in a panel of 78 developed and developing countries over 2002–2015. Moreover, the indirect effect of financial development in the link between globalization and income inequality is also analyzed by incorporating the interaction term between globalization and financial development. The empirical evidence based on the first-difference generalized method of moments (difference GMM) estimator suggested by Arellano and Bond (1991) and the system GMM estimator proposed by Arellano and Bover (1995) shows that globalization tends to worsen income inequality. However, the magnitude of the impact of globalization on income inequality is decreased with higher levels of financial development. These findings suggest that a higher level of financial development results in equal income distribution in a globalized world. As a policy implication, policymakers should improve the level of financial development to mitigate the adverse effects of globalization on income distribution.

Keywords: Globalization; Financial Development; Income Inequality; GMM (search for similar items in EconPapers)
JEL-codes: C23 E24 F62 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:mbr:jmonec:v:14:y:2019:i:2:p:159-175