Globalization and Income Inequality: A Panel Data Analysis of 68 Countries

The causal effect of globalisation on income inequality is an issue of significant academic interest. On the one hand globalisation is considered to promote global economic growth and social progress, while on the other; it is blamed for growing income inequality and environmental degradation, causing social degeneration and difficulty of competition. The objective of the study is to determine the direction of impact of globalization on income distribution. This study hypothesises that increased globalisation worsens income inequality, and vice versa. This hypothesis is investigated using panel data econometric techniques to examine income inequality index and the index of globalization for panel data of 68 developing countries over the period of 1990-2010. The analysis shows that an increase in globalisation (represented by an increase in the KOF coefficient) leads to an increase in the level of income inequality. It is worth noting, however, that this analysis also suffers from several limitations. It is possible perhaps a simple, overarching relationship does not exist. Rather it is possible that the impact of globalisation on income distribution varies between nations, depending on the structures and institutions that are in place in each country.