The effects of globalization on world income inequality

The objectives of this study are (1) to investigate whether globalization increased the income inequality in the world, (2) to analyze the between country income inequality, and, (3) to observe whether an improvement in the distribution of income between rich and poor countries was achieved. The study estimates combined cross-section times-series regressions using two inequality measures as dependent variables. First, Theil?s T statistic of industrial pay inequality is employed. The second measure is estimated household income inequality. The KOF index of globalization is used in measuring the level of globalization. The balanced panel data analysis covers the period 1970-1998 for 33 countries. The between country Theil measures are calculated for 152 countries to capture the presence of an inverted-U Kuznets curve effect for the 1970-2003 period. The increase in between country income inequality was especially witnessed during the 1980s. Then, the expected decrease in income inequality was observed as of 1991 until 2003. However, the analysis of the real GDP per capita growth rates indicates a trend of minor divergence in between country income, signifying slightly increasing inequalities throughout 1970-2003. Although, its per capita GDP is low when compared to others, China stands as an outlier since it experienced an exceptionally high rate of growth during globalization. The inclusion of China, Kuwait, Qatar, and India into the analysis distorts the results. The lack of within country income inequality data is an obstacle for future research. Emphasis should be given to poor, and developing countries, since they are more vulnerable to the ill effects of globalization.Keywords: Income and wage inequality, globalization, financial liberalization, FDI and portfolio investment, panel regressions, comparative country studies.JEL Classification: C33, F01, F3, F21, F32, O15, O57.