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Temporal effects of financial globalization on income inequality

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  • Khan, Haris
  • Shehzad, Choudhry Tanveer
  • Ahmad, Ferhana

Abstract

Through parametric accelerated failure-time survival analysis on a panel of 117 countries for 1970–2018, the study finds robust and generalizable empirical evidence that TTUII (Total Time to Upsurge in Income Inequality) declines after a country allows capital flow across borders. This arguably occurs via the channel of wage inequality, and one or more channels of patrimonial capitalism, labor replacement with capital and market concentration which are transmitted through foreign direct investment. This occurs with a nonmonotonic, unimodal hazard rate of income inequality upsurge which keeps rising for around first three decades of financial globalization exposure before starting to taper off. This implies the need for utilizing FDI as a source of distributional spending targeted towards the low-skilled part of the labor force and the structurally unemployed for the first three decades of an exposure to financial globalization, as well as implementing robust antitrust laws before opening capital markets to the world.

Suggested Citation

  • Khan, Haris & Shehzad, Choudhry Tanveer & Ahmad, Ferhana, 2021. "Temporal effects of financial globalization on income inequality," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 452-467.
    • Handle: RePEc:eee:reveco:v:74:y:2021:i:c:p:452-467
    DOI: 10.1016/j.iref.2021.03.012
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    More about this item

    Keywords

    Financial globalization; Income distribution; Survival analysis;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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