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Financial globalization and income inequality nexus: panel quantile regression approach

Jeleta Gezahegne Kebede (Griffith Business School, Griffith University, Brisbane, Australia)
Vincent Tawiah (Business School, Dublin City University, Dublin, Ireland)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 22 December 2021

Issue publication date: 24 February 2023

855

Abstract

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 whether de facto and de jure financial 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 into de facto and de jure financial globalizations to investigate whether their effects on income inequality vary.

Findings

Overall financial globalization raises income inequality more at lower quantiles of inequality. De jure financial globalization reduces income inequality in high-income countries. In high-income countries, de jure financial globalization has more favorable income distribution at lower quantiles of inequality. In contrast, de facto financial 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 to de facto globalization, the authors used the newly developed de jure financial 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 facto and de jure, impact inequality in high-income, middle-income and low-income countries.

Keywords

Acknowledgements

The authors would like to thank the Editor and the two anonymous referees of this journal for their constructive comments that significantly contributed to the improvement of the paper.

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Funding information: There are no funders to report for this submission.

Citation

Kebede, J.G. and Tawiah, V. (2023), "Financial globalization and income inequality nexus: panel quantile regression approach", Journal of Economic Studies, Vol. 50 No. 2, pp. 73-95. https://doi.org/10.1108/JES-04-2021-0179

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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