Innovation and income inequality : exploring the dynamics of technological progress, globalization, and financial development in OECD economies : 1996-2022

This paper investigates the relationship between innovation and income inequality in 38 OECD countries from 1996 to 2022, addressing ongoing debates about whether technological change functions as an equalizing force or reinforces disparities. Employing a heterogeneous panel framework with the Common Correlated Effects Mean Group (CCEMG) estimator, the study accounts for cross-sectional dependence, slope heterogeneity, and nonstationarity, ensuring reliable inference in long macroeconomic panels.The results consistently show that innovation, proxied by patent applications per labor force, is positively and significantly associated with income inequality, indicating that its benefits accrue disproportionately to groups with greater skills and capital. Interaction models further reveal that globalization and financial development amplify these inequality-enhancing effects, in line with recent evidence on the regressive tendencies of global and financial integration absent inclusive institutions. By contrast, human capital and institutional quality exert a mitigating influence, confirming their central role in shaping the inclusiveness of innovation-driven growth. Inflation is positively related to inequality, while GDP per capita does not exhibit a robust association, suggesting that economic growth alone is insufficient to secure equitable outcomes.Overall, the findings highlight the conditional nature of innovation's distributive effects and underscore the importance of complementary policies-particularly in education, governance, and financial inclusion-to transform technological progress into a driver of sustainable and inclusive prosperity.