The Globalization-Inequality Nexus: A Comparative Study of Developed and Developing Countries

Abstract

This study examines the relationship between globalization and income inequality, utilizing panel data spanning from 1992 to 2020. Globalization is measured by the World Bank global-link indicators such as FDI, Remittance, Trade Openness, and Migration while income inequality is measured by Gini Coefficient and the median income of 50% of the population. The fixed effect panel data analysis provides empirical evidence indicating that globalization tends to reduce income inequality, though its impact varies between developed and developing countries. The analysis reveals a strong negative correlation between net foreign direct investment (FDI) inflows and inequality in developing countries, while no such relationship was found for developed countries.The relationship holds even if we consider an alternative measure of inequality. However, when dividing countries by developed and developing groups, no statistically significant relationship was observed. Policymakers can use these findings to support efforts to increase FDI, trade, tourism, and migration to promote growth and reduce income inequality.