International financial integration, the level of development, and income inequality: Some empirical evidence

The period 1970–2015 has seen significant increases in both income inequality and financial globalization. We examine this relationship empirically, focusing on both the Gini coefficient, and the incomes of quintiles as we move up the income scale. In doing so, we take account of both the country's level of development, and the contemporaneous globalization in trade. Overall, our results support the finding that financial globalization tends to increase income inequality. They also suggest that reducing the costs of foreign investment have a bigger impact on inequality than do reducing borrowing costs. Our findings are less definitive with respect to the impact of trade liberalization on income inequality, though the results using the quintile data are supportive of the view that trade liberalization reduces income inequality. Finally, our results provide compelling evidence for the notion that the level of development has a strong nonlinear impact on income inequality, one that is consistent with the “inverted Kuznets curve,” as characterizing the more recent experience.