Economic Globalization and Income Inequality: Cross-country Empirical Evidence

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.