Highly globalized + well-governed = equitable income distribution? an analysis of the impact of globalization and governance on national income inequality
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2006-03
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Abstract
This paper intends to show relationships among globalization, governance and their interaction with income inequality. To test the significance of the relationships of specific globalization dimensions (trade and capital flow) and governance practices (democratic governance, corruption control and regulatory quality) with income inequality, the study uses pooled time-series and cross section analysis on 39 countries from 1995 to 2000. In particular this paper aims: (1) to derive the exclusive effect of globalization to income inequality, (2) to determine the exclusive effect of governance to income inequality and (3) to find out the effect of globalization-governance interaction to within country inequality.
Results show that globalization, governance and their interaction affects income distribution significantly and differently per dimension and type of country. For globalization dimensions, trade reduces income inequality while capital flow appears to worsen income distribution only for the developing countries. Meanwhile, democratic governance and anti-corruption practices reduces income inequality while an improvement in regulatory quality increases it. For all countries, the study shows that an interaction between democratic governance and all globalization dimensions creates an additional reducing effect to income inequality. Furthermore, the effect of globalization, governance and its interaction to income distribution tends to be stronger and larger for the developing than the developed nations.
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Globalization, Income inequality, Economic governance, Income distribution, Globalization impact, Trade