The World-Economy and the Distribution of Income Within States: A Cross-National Study

Inter-country di/Jerences in income inequality have usually been explained by developmental models which posit that income inequality decreases as a consequence of economic growth. Recent research, however, points to the inadequacy of such models. This paper develops an alternative model which explains inter-country differences in inequality as a consequence of the relation of states to the world-economy. This model posits that inter-country differences in inequality are partially a result of the degree of economic dominance and influence that states, and the economic actors wit hin them, exercise in the world-economy. Three mechanisms of this economic dominance and influence are identified: state strength, direct foreign financial control and dependence on external markets. A cross-sectional regression analysis shows that indicators of these three mechanisms do have the hypothesized effects on the degree of inequality within countries. The results suggest the importance of considering the position of states within the world-economy as a cause of inter-country differences in inequality.