Economic globalization and income inequality: Cross-country empirical evidence

Sovna Mohanty
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Sovna Mohanty: Institute for Social and Economic Change

No 391, Working Papers from Institute for Social and Economic Change, Bangalore

Abstract: Widening income inequality has limited the growth potential of economies in the past few decades. This paper analyses the effect of economic globalization on income inequality in both cross-country and country-specific framework using panel data techniques and policy simulations. The sample comprises of developed, developing and least-developed countries in the post-liberalization period. The results show that on the whole, globalization has helped in reducing inequality in the advanced economies but has the opposite effect in low-income economies. Trade and FDI have offsetting experiences; trade worsens income distribution whereas FDI is beneficial in all the economies and helps to reduce income inequality. FDI is found to have a greater impact on reducing income inequality. The policy simulations prove that India can reduce its income inequality by adopting the strategies of high income and middle-income nations.

Keywords: Economics; Globalization; Income; inequality (search for similar items in EconPapers)
Pages: 23
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