Income inequality, globalization, and country risk: a cross-country analysis
Abstract
Guided by the assessments of globalization in its broader sense, this paper explores the impact of globalization in terms of a salient aspect of economic, social and political on income inequality for a more comprehensive dataset of 121 countries from 1984 to 2014. We also investigate whether the correlations between globalization and inequality vary with economic, financial, and political country risk indicators. Our empirical results reveal that globalization deteriorates income distribution, but economic and financial stability can mitigate the adverse effect. In addition, lowerincome or non-OECD countries generally have higher inequality caused by globalization. Knowledge of these relationships can help the government to formulate more specific policies aiming at improving the income distribution.
First published online 13 December 2019
Keyword : income inequality, globalization, country risk
How to Cite
Lee, C.-C., Lee, C.-C., & Lien, D. (2020). Income inequality, globalization, and country risk: a cross-country analysis. Technological and Economic Development of Economy, 26(2), 379-404. https://doi.org/10.3846/tede.2019.11414
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Becerra, O., Cavallo, E., & Scartascini, C. (2012). The politics of financial development: the role of interest groups and government capabilities. Journal of Banking & Finance, 36(3), 626-643. https://doi.org/10.1016/j.jbankfin.2011.10.017
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1), 27-49. https://doi.org/10.1007/s10887-007-9010-6
Bennett, D. L., & Nikolaev, B. (2017). On the ambiguous economic freedom–inequality relationship. Empirical Economics, 53(2), 717-754. https://doi.org/10.1007/s00181-016-1131-3
Berggren, N. (1999). Economic freedom and equality: friends or foes? Public Choice, 100(3-4), 203-223. https://doi.org/10.1023/A:1018343912743
Bergh, A., & Nilsson, T. (2010). Do liberalization and globalization increase income inequality? European Journal of Political Economy, 26(4), 488-505. https://doi.org/10.1016/j.ejpoleco.2010.03.002
Bergh, A., & Nilsson, T. (2014). Is globalization reducing absolute poverty? World Development, 62, 42-61. https://doi.org/10.1016/j.worlddev.2014.04.007
Blundell, R., & Bond, S. (2000). GMM estimation with persistent panel data: an application to production functions. Econometric Reviews, 19(3), 321-340. https://doi.org/10.1080/07474930008800475
Boubakri, N., Cosset, J. C., Debab, N., & Valéry, P. (2013). Privatization and globalization: an empirical analysis. Journal of Banking & Finance, 37(6), 1898-1914. https://doi.org/10.1016/j.jbankfin.2012.12.014
Breen, R., & García‐Peñalosa, C. (2005). Income inequality and macroeconomic volatility: an empirical investigation. Review of Development Economics, 9(3), 380-398. https://doi.org/10.1111/j.1467-9361.2005.00283.x
Bulíř, A. (2001). Income inequality: does inflation matter? IMF Staff Papers, 48(1), 139-159.
Bumann, S., & Lensink, R. (2016). Capital account liberalization and income inequality. Journal of International Money and Finance, 61, 143-162. https://doi.org/10.1016/j.jimonfin.2015.10.004
Carter, J. (2007). An empirical note on economic freedom and income inequality. Public Choice, 130(12), 163-177. https://doi.org/10.1007/s11127-006-9078-0
Cerny, P. G. (1996). Globalization and other stories: the search for a new paradigm for international relations. International Journal: Canada’s Journal of Global Policy Analysis, 51(4), 617-637. https://doi.org/10.1177/002070209605100402
Das, M., & Mohapatra, S. (2003). Income inequality: the aftermath of stock market liberalization in emerging markets. Journal of Empirical Finance, 10(1-2), 217-248. https://doi.org/10.1016/S0927-5398(02)00025-7
Dawson, J. W. (2003). Causality in the freedom-growth relationship. European Journal of Political Economy, 19(3), 479-495. https://doi.org/10.1016/S0176-2680(03)00009-0
De Haan J., & Sturm, J. E. (2017). Finance and income inequality: a review and new evidence. European Journal of Political Economy, 50, 171-195. https://doi.org/10.1016/j.ejpoleco.2017.04.007
Delis, M. D., Hasan, I., & Kazakis, P. (2014). Bank regulations and income inequality: empirical evidence. Review of Finance, 118(5), 1811-1846. https://doi.org/10.1093/rof/rft039
Demirgüç-Kunt, A., & Levine, R. (2009). Finance and inequality: theory and evidence. Annual Review of Financial Economics, 1, 287-318. https://doi.org/10.1146/annurev.financial.050808.114334
Dobson, S., & Ramlogan-Dobson, C. (2010). Is there a trade-off between inequality and corruption? evidence from Latin America. Economics Letters, 107(2), 102-104. https://doi.org/10.1016/j.econlet.2009.12.038
Dobson, S., & Ramlogan-Dobson, C. (2012). Why is corruption less harmful to income inequality in Latin America? World Development, 40(8), 1534-1545. https://doi.org/10.1016/j.worlddev.2012.04.015
Dreher, A., (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091-1110. https://doi.org/10.1080/00036840500392078
Dreher, A., & Gaston, N. (2007). Has globalisation really had no effect on unions? Kyklos, 60(2), 165186. https://doi.org/10.1111/j.1467-6435.2007.00367.x
Dreher, A., & Gaston, N. (2008). Has globalization increased inequality? Review of International Economics, 16(3), 516-536. https://doi.org/10.1111/j.1467-9396.2008.00743.x
Dumitrescu, E. I., & Hurlin, C. (2012). Testing for granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014
Ezcurra, R., & Rodríguez-Pose, A. (2013). Does economic globalization affect regional inequality? a cross-country analysis. World Development, 52, 92-103. https://doi.org/10.1016/j.worlddev.2013.07.002
Feenstra, R. C., & Hanson, G. H. (1996). Foreign investment, outsourcing and relative wages. In R. C. Feenstra, G. M. Grossman, & D. A. Irwin (Eds.), The political economy of trade policy: papers in honor of Jagdish Bhagwati (pp. 89-127). Cambridge, MA: MIT Press. https://doi.org/10.3386/w5121
Furceri, D., & Loungani, P. (2018). The distributional effects of capital account liberalization. Journal of Development Economics, 130, 127-144. https://doi.org/10.1016/j.jdeveco.2017.09.007
Galor, O., Moav, O., & Vollrath, D. (2009). Inequality in landownership, the emergence of humancapital promoting institutions, and the great divergence. Review of Economic Studies, 76(1), 143-179. https://doi.org/10.1111/j.1467-937X.2008.00506.x
Galor, O., & Mountford, A. (2008). Trading population for productivity: theory and evidence. Review of Economic Studies, 75(4), 1143-1179. https://doi.org/10.1111/j.1467-937X.2008.00501.x
Gimet, C., & Lagoarde-Segot, T. (2011). A closer look at financial development and income distribution. Journal of Banking & Finance, 35(7), 1698-1713. https://doi.org/10.1016/j.jbankfin.2010.11.011
Glaeser, E., Scheinkman, J., & Shleifer, A. (2003). The injustice and inequality. Journal of Monetary Economics, 50(1), 199-222. https://doi.org/10.1016/S0304-3932(02)00204-0
Graafland, J., & Lous, B. (2018). Economic freedom, income inequality and life satisfaction in OECD Countries. Journal of Happiness Studies, 19(7), 2071-2093. https://doi.org/10.1007/s10902-017-9905-7
Gradstein, M. (2007). Inequality, democracy and the protection of property rights. Economic Journal, 117(516), 252-270. https://doi.org/10.1111/j.1468-0297.2007.02010.x
Held, D., McGrew, A., Goldblatt, D., & Perraton, J. (2000). Rethinking globalization. In D. Held, & A. McGrew (Eds.), Global transformations reader: an introduction to the globalization debate (pp. 1-45). Cambridge: Polity Press.
Kose, M. A., Prasad, E. S., & Terrones, M. E. (2009). Does financial globalization promote risk sharing? Journal of Development Economics, 89(2), 258-270. https://doi.org/10.1016/j.jdeveco.2008.09.001
Lane, P. R. (2013). Financial globalization and the crisis. Open Economies Review, 24(3), 555-580. https://doi.org/10.1007/s11079-012-9266-0
Lee, C. C., & Lee, C. C. (2018). The impact of country risk on income inequality: a multilevel analysis. Social Indicators Research, 136(1), 139-162. https://doi.org/10.1007/s11205-016-1534-8
Lee, C. C., & Lee, C. C. (2019). Oil price shocks and Chinese banking performance: do country risks matter? Energy Economics, 77, 46-53. https://doi.org/10.1016/j.eneco.2018.01.010
Lee, C. C., Lee, C. C., & Chiou, Y. Y. (2017a). Insurance activities, globalization, and economic growth: new methods, new evidence. Journal of International Financial Markets, Institutions and Money, 51, 155-170. https://doi.org/10.1016/j.intfin.2017.05.006
Lee, C. C., Lee, C. C., & Ning, S. L., (2017b). Dynamic relationship of oil price shocks and country risks. Energy Economics, 66, 571-581. https://doi.org/10.1016/j.eneco.2017.01.028
Lopez, J. H. (2004). Pro-growth, pro-poor: Is there a trade off? (The World Bank Policy Research Working Paper No. 3378). Washington, DC: The World Bank. https://doi.org/10.1596/1813-9450-3378
Mundell, R. A. (1957). International trade and factor mobility. American Economic Review, 47(3), 321335. https://www.jstor.org/stable/1811242
Neto, D. G., & Veiga, F. J. (2013). Financial globalization, convergence and growth: the role of foreign direct investment. Journal of International Money and Finance, 37, 161-186. https://doi.org/10.1016/j.jimonfin.2013.04.005
Pástor, L., & Veronesi, P. (2006). Uncertainty about government policy and stock prices. Journal of Finance, 67(4), 1219-1264. https://doi.org/10.1111/j.1540-6261.2012.01746.x
Rugman, A. M. (2001). VIEWPOINT: the myth of global strategy. International Marketing Review, 18(6), 583-588. https://doi.org/10.1108/EUM0000000006300
Solt, F. (2009). Standardizing the world income inequality database. Social Science Quarterly, 90(2), 231-242. https://doi.org/10.1111/j.1540-6237.2009.00614.x
Scully, G. W. (2002). Economic freedom, government policy and the trade-off between equity and economic growth. Public Choice, 113, 77-96. https://doi.org/10.1023/A:1020308831424
Tebaldi, E., & Mohan, R. (2010). Institutions and poverty. Journal of Development Studies, 46(6), 10471066. https://doi.org/10.1080/00220380903012730
Turnovsky, S. J., & Rojas-Vallejos, J. (2018). The distributional consequences of trade liberalization: consumption tariff versus investment tariff reduction. Journal of Development Economics, 134, 392-415. https://doi.org/10.1016/j.jdeveco.2018.06.001
World Development Indicators. (2015). World Development Report. The World Bank, Washington, DC.
Adam, S. (2008). Globalization and income inequality: implications for intellectual property rights. Journal of Policy Modeling, 30(5), 725-735. https://doi.org/10.1016/j.jpolmod.2007.10.005
Albanesi, S. (2007). Inflation and inequality. Journal of Monetary Economics, 54(4), 1088-1114. https://doi.org/10.1016/j.jmoneco.2006.02.009
Antràs, P., de Gortari, A., & Itskhoki, O. (2017). Globalization, inequality and welfare. Journal of International Economics, 108, 387-412. https://doi.org/10.1016/j.jinteco.2017.07.009
Arellano, M, & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277-297. https://doi.org/10.2307/2297968
Asteriou, D., Dimelis, S., & Moudatsou, A. (2014). Globalization and income inequality: a panel data econometric approach for the EU27 countries. Economic Modelling, 36, 592-599. https://doi.org/10.1016/j.econmod.2013.09.051
Atkinson, A. B. (1997). Bringing income distribution in from the cold. Economic Journal, 107(441), 297-321. https://doi.org/10.1111/j.0013-0133.1997.159.x
Batuo, M. E., & Asongu, S. A. (2015). The impact of liberalization policies on income inequality in African countries. Journal of Economic Studies, 42(1), 68-100. https://doi.org/10.1108/JES-05-2013-0065
Becerra, O., Cavallo, E., & Scartascini, C. (2012). The politics of financial development: the role of interest groups and government capabilities. Journal of Banking & Finance, 36(3), 626-643. https://doi.org/10.1016/j.jbankfin.2011.10.017
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1), 27-49. https://doi.org/10.1007/s10887-007-9010-6
Bennett, D. L., & Nikolaev, B. (2017). On the ambiguous economic freedom–inequality relationship. Empirical Economics, 53(2), 717-754. https://doi.org/10.1007/s00181-016-1131-3
Berggren, N. (1999). Economic freedom and equality: friends or foes? Public Choice, 100(3-4), 203-223. https://doi.org/10.1023/A:1018343912743
Bergh, A., & Nilsson, T. (2010). Do liberalization and globalization increase income inequality? European Journal of Political Economy, 26(4), 488-505. https://doi.org/10.1016/j.ejpoleco.2010.03.002
Bergh, A., & Nilsson, T. (2014). Is globalization reducing absolute poverty? World Development, 62, 42-61. https://doi.org/10.1016/j.worlddev.2014.04.007
Blundell, R., & Bond, S. (2000). GMM estimation with persistent panel data: an application to production functions. Econometric Reviews, 19(3), 321-340. https://doi.org/10.1080/07474930008800475
Boubakri, N., Cosset, J. C., Debab, N., & Valéry, P. (2013). Privatization and globalization: an empirical analysis. Journal of Banking & Finance, 37(6), 1898-1914. https://doi.org/10.1016/j.jbankfin.2012.12.014
Breen, R., & García‐Peñalosa, C. (2005). Income inequality and macroeconomic volatility: an empirical investigation. Review of Development Economics, 9(3), 380-398. https://doi.org/10.1111/j.1467-9361.2005.00283.x
Bulíř, A. (2001). Income inequality: does inflation matter? IMF Staff Papers, 48(1), 139-159.
Bumann, S., & Lensink, R. (2016). Capital account liberalization and income inequality. Journal of International Money and Finance, 61, 143-162. https://doi.org/10.1016/j.jimonfin.2015.10.004
Carter, J. (2007). An empirical note on economic freedom and income inequality. Public Choice, 130(12), 163-177. https://doi.org/10.1007/s11127-006-9078-0
Cerny, P. G. (1996). Globalization and other stories: the search for a new paradigm for international relations. International Journal: Canada’s Journal of Global Policy Analysis, 51(4), 617-637. https://doi.org/10.1177/002070209605100402
Das, M., & Mohapatra, S. (2003). Income inequality: the aftermath of stock market liberalization in emerging markets. Journal of Empirical Finance, 10(1-2), 217-248. https://doi.org/10.1016/S0927-5398(02)00025-7
Dawson, J. W. (2003). Causality in the freedom-growth relationship. European Journal of Political Economy, 19(3), 479-495. https://doi.org/10.1016/S0176-2680(03)00009-0
De Haan J., & Sturm, J. E. (2017). Finance and income inequality: a review and new evidence. European Journal of Political Economy, 50, 171-195. https://doi.org/10.1016/j.ejpoleco.2017.04.007
Delis, M. D., Hasan, I., & Kazakis, P. (2014). Bank regulations and income inequality: empirical evidence. Review of Finance, 118(5), 1811-1846. https://doi.org/10.1093/rof/rft039
Demirgüç-Kunt, A., & Levine, R. (2009). Finance and inequality: theory and evidence. Annual Review of Financial Economics, 1, 287-318. https://doi.org/10.1146/annurev.financial.050808.114334
Dobson, S., & Ramlogan-Dobson, C. (2010). Is there a trade-off between inequality and corruption? evidence from Latin America. Economics Letters, 107(2), 102-104. https://doi.org/10.1016/j.econlet.2009.12.038
Dobson, S., & Ramlogan-Dobson, C. (2012). Why is corruption less harmful to income inequality in Latin America? World Development, 40(8), 1534-1545. https://doi.org/10.1016/j.worlddev.2012.04.015
Dreher, A., (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091-1110. https://doi.org/10.1080/00036840500392078
Dreher, A., & Gaston, N. (2007). Has globalisation really had no effect on unions? Kyklos, 60(2), 165186. https://doi.org/10.1111/j.1467-6435.2007.00367.x
Dreher, A., & Gaston, N. (2008). Has globalization increased inequality? Review of International Economics, 16(3), 516-536. https://doi.org/10.1111/j.1467-9396.2008.00743.x
Dumitrescu, E. I., & Hurlin, C. (2012). Testing for granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014
Ezcurra, R., & Rodríguez-Pose, A. (2013). Does economic globalization affect regional inequality? a cross-country analysis. World Development, 52, 92-103. https://doi.org/10.1016/j.worlddev.2013.07.002
Feenstra, R. C., & Hanson, G. H. (1996). Foreign investment, outsourcing and relative wages. In R. C. Feenstra, G. M. Grossman, & D. A. Irwin (Eds.), The political economy of trade policy: papers in honor of Jagdish Bhagwati (pp. 89-127). Cambridge, MA: MIT Press. https://doi.org/10.3386/w5121
Furceri, D., & Loungani, P. (2018). The distributional effects of capital account liberalization. Journal of Development Economics, 130, 127-144. https://doi.org/10.1016/j.jdeveco.2017.09.007
Galor, O., Moav, O., & Vollrath, D. (2009). Inequality in landownership, the emergence of humancapital promoting institutions, and the great divergence. Review of Economic Studies, 76(1), 143-179. https://doi.org/10.1111/j.1467-937X.2008.00506.x
Galor, O., & Mountford, A. (2008). Trading population for productivity: theory and evidence. Review of Economic Studies, 75(4), 1143-1179. https://doi.org/10.1111/j.1467-937X.2008.00501.x
Gimet, C., & Lagoarde-Segot, T. (2011). A closer look at financial development and income distribution. Journal of Banking & Finance, 35(7), 1698-1713. https://doi.org/10.1016/j.jbankfin.2010.11.011
Glaeser, E., Scheinkman, J., & Shleifer, A. (2003). The injustice and inequality. Journal of Monetary Economics, 50(1), 199-222. https://doi.org/10.1016/S0304-3932(02)00204-0
Graafland, J., & Lous, B. (2018). Economic freedom, income inequality and life satisfaction in OECD Countries. Journal of Happiness Studies, 19(7), 2071-2093. https://doi.org/10.1007/s10902-017-9905-7
Gradstein, M. (2007). Inequality, democracy and the protection of property rights. Economic Journal, 117(516), 252-270. https://doi.org/10.1111/j.1468-0297.2007.02010.x
Held, D., McGrew, A., Goldblatt, D., & Perraton, J. (2000). Rethinking globalization. In D. Held, & A. McGrew (Eds.), Global transformations reader: an introduction to the globalization debate (pp. 1-45). Cambridge: Polity Press.
Kose, M. A., Prasad, E. S., & Terrones, M. E. (2009). Does financial globalization promote risk sharing? Journal of Development Economics, 89(2), 258-270. https://doi.org/10.1016/j.jdeveco.2008.09.001
Lane, P. R. (2013). Financial globalization and the crisis. Open Economies Review, 24(3), 555-580. https://doi.org/10.1007/s11079-012-9266-0
Lee, C. C., & Lee, C. C. (2018). The impact of country risk on income inequality: a multilevel analysis. Social Indicators Research, 136(1), 139-162. https://doi.org/10.1007/s11205-016-1534-8
Lee, C. C., & Lee, C. C. (2019). Oil price shocks and Chinese banking performance: do country risks matter? Energy Economics, 77, 46-53. https://doi.org/10.1016/j.eneco.2018.01.010
Lee, C. C., Lee, C. C., & Chiou, Y. Y. (2017a). Insurance activities, globalization, and economic growth: new methods, new evidence. Journal of International Financial Markets, Institutions and Money, 51, 155-170. https://doi.org/10.1016/j.intfin.2017.05.006
Lee, C. C., Lee, C. C., & Ning, S. L., (2017b). Dynamic relationship of oil price shocks and country risks. Energy Economics, 66, 571-581. https://doi.org/10.1016/j.eneco.2017.01.028
Lopez, J. H. (2004). Pro-growth, pro-poor: Is there a trade off? (The World Bank Policy Research Working Paper No. 3378). Washington, DC: The World Bank. https://doi.org/10.1596/1813-9450-3378
Mundell, R. A. (1957). International trade and factor mobility. American Economic Review, 47(3), 321335. https://www.jstor.org/stable/1811242
Neto, D. G., & Veiga, F. J. (2013). Financial globalization, convergence and growth: the role of foreign direct investment. Journal of International Money and Finance, 37, 161-186. https://doi.org/10.1016/j.jimonfin.2013.04.005
Pástor, L., & Veronesi, P. (2006). Uncertainty about government policy and stock prices. Journal of Finance, 67(4), 1219-1264. https://doi.org/10.1111/j.1540-6261.2012.01746.x
Rugman, A. M. (2001). VIEWPOINT: the myth of global strategy. International Marketing Review, 18(6), 583-588. https://doi.org/10.1108/EUM0000000006300
Solt, F. (2009). Standardizing the world income inequality database. Social Science Quarterly, 90(2), 231-242. https://doi.org/10.1111/j.1540-6237.2009.00614.x
Scully, G. W. (2002). Economic freedom, government policy and the trade-off between equity and economic growth. Public Choice, 113, 77-96. https://doi.org/10.1023/A:1020308831424
Tebaldi, E., & Mohan, R. (2010). Institutions and poverty. Journal of Development Studies, 46(6), 10471066. https://doi.org/10.1080/00220380903012730
Turnovsky, S. J., & Rojas-Vallejos, J. (2018). The distributional consequences of trade liberalization: consumption tariff versus investment tariff reduction. Journal of Development Economics, 134, 392-415. https://doi.org/10.1016/j.jdeveco.2018.06.001
World Development Indicators. (2015). World Development Report. The World Bank, Washington, DC.