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Globalization and Income Inequality: Does the Level of Financial Development Matter?

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  • Zare , Roohollah

    (Islamic Azad University, Beyza Branch)

Abstract

This paper examines the impact of globalization on income inequality in a panel of 78 developed and developing countries over 2002–2015. Moreover, the indirect effect of financial development in the link between globalization and income inequality is also analyzed by incorporating the interaction term between globalization and financial development. The empirical evidence based on the first-difference generalized method of moments (difference GMM) estimator suggested by Arellano and Bond (1991) and the system GMM estimator proposed by Arellano and Bover (1995) shows that globalization tends to worsen income inequality. However, the magnitude of the impact of globalization on income inequality is decreased with higher levels of financial development. These findings suggest that a higher level of financial development results in equal income distribution in a globalized world. As a policy implication, policymakers should improve the level of financial development to mitigate the adverse effects of globalization on income distribution.

Suggested Citation

  • Zare , Roohollah, 2019. "Globalization and Income Inequality: Does the Level of Financial Development Matter?," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(2), pages 159-175, April.
    • Handle: RePEc:mbr:jmonec:v:14:y:2019:i:2:p:159-175
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    More about this item

    Keywords

    Globalization; Financial Development; Income Inequality; GMM;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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