Does digitalization contribute to lesser income inequality? Evidence from G20 countries

Abstract

ABSTRACT This study examines both the direct and moderating effects of digitalization on income inequality by using the panel data of Group of Twenty countries for 2002–2018. We find that digitalization alleviated income inequality and the interaction of digitalization with trade openness, and foreign direct investment helped narrow the income gap in the full sample, but the impact is heterogeneous by income level. The impact of digitalization on narrowing income gap has a greater effect on middle-income countries than on high-income countries. The interaction between digitalization and trade openness tends to widen the income inequality in high-income countries but has the opposite effect in middle-income countries. The interaction of digitalization with foreign direct investment has helped narrow income inequality in both high-income and middle-income countries. It implies that digitalization contributes to narrowing income inequality; there is a difference in the intensity of the digitalization effect between high-income and middle-income countries.