Impact of Globalization on Income Inequality: A Panel Data Econometric Approach

Abstract

Global inequality has been a major concern of economists from different nations for the past decades. Fortunately, the economic development has resulted in a decreasing trend of global inequality. For globalization being the foundation of the economic environment, the relationship between the increase of globalization and the decrease in global inequality should be researched so that a method to diminish global poverty could be possibly raised. During the research process, the data of the GDP of different countries was firstly gathered and filtered. Unusual numbers were examined and removed from the data collection based on the research of secondary information and logical deduction. Because there were many variables affecting the result, trade liberalization was selected to be the controlled variable, for its dominant influence on a country's GDP. Taking S-S theory, H-O theory, Neoclassical Economic Growth theory, Endogenous Economic Growth theory, Outsourcing Model and the NEG method, a regression model was generated from the data collection, reflecting the relationship between global inequality and globalization. Using these models, not only the relationship between global inequality and globalization was developed (global inequality decreases while globalization increases), but the exact coefficient of the relationship function. From this research, the importance of trade liberalization to a country's GDP was mathematically reflected, the relationship between global inequality and globalization was found, and the regression model for this trend was established. The result of this research could be used in the process of predicting a country's future economic development and the trend of global inequality.