Finance, globalisation, technology and inequality: Do nonlinearities matter?

Abstract

Relying on data for 90 economies over 1970-2015 and panel estimation techniques, we investigate how financial development, globalisation and technology affect income inequality. Our findings reveal significant nonlinearities, consistent with either Ushaped or inverted-U shaped relationships. As such, depending on whether a certain threshold value is achieved, the same determinants of income distribution exert opposite effects in different countries. Globalisation is associated with increasing inequality in most advanced economies, but with falling disparities for the large majority of emerging economies. Technology and financial development lead to increasing inequality for most emerging economies, while the effects for advanced economies are mixed. Furthermore, our results indicate that credit constraints act as a transmission channel for the effects of financial development on inequality, foreign direct investment and the supply of unskilled labour for the impact of technology and the supply of skilled labour for the effects of globalisation.