Financial globalization and income inequality nexus: panel quantile regression approach

Purpose - The general purpose of the paper is to examine the effect of financial globalization on income inequality. The specific purposes are: 1) To examine the effect of overall financial globalization on income inequality. 2) To analyze whetherde factoandde jurefinancial globalization have differential effects on income inequality. 3) To scrutinize whether the effect of financial globalization on income inequality varies across countries of different income groups and quantiles of income inequality. Design/methodology/approach - The authors employed panel quantile regression using 73 countries over 2000–2016 to examine the effect of financial globalization on income inequality. The authors employed fixed effect and panel quantile regressions and classified the countries into income groups to compare differential effects of financial globalization across different income groups. Further, the authors unbundled financial globalization intode factoandde jurefinancial globalizations to investigate whether their effects on income inequality vary. Findings - Overall financial globalization raises income inequality more at lower quantiles of inequality.De jurefinancial globalization reduces income inequality in high-income countries. In high-income countries,de jurefinancial globalization has more favorable income distribution at lower quantiles of inequality. In contrast,de factofinancial globalization raises inequality regardless of income classification of the countries. Originality/value - To the best of the authors’ knowledge, the authors for the first time employed panel quantile regression to analyze whether financial globalization affects income inequality across different quantiles. In addition tode factoglobalization, the authors used the newly developedde jurefinancial globalization index to examine its impact on income inequality. The de jure dimension is largely neglected in the literature. The authors provide empirical evidence on how the different dimensions of financial globalization,de factoandde jure, impact inequality in high-income, middle-income and low-income countries.