Globalisation and Income Inequality: Evidence from Urban China

Abstract

This paper examines the impact of financial globalisation and trade globalisation on income inequality using the Chinese urban household. It formally tests whether the effect of financial globalisation and trade globalisation on income varied at different levels in urban China between 1990 and 2017. Methodologically, it departs from the existing literature by exploiting quantile regression analysis. This methodological approach allows the testing of globalisation’s impact on income at different levels. The overall quantile regression results clearly reveal that the effects of various factors on urban household income are heterogeneous, depending on the income level. In the case of financial globalisation, the coefficients are positively and statistically significant at the usual level at all quantiles. However, a closer observation reveals that the magnitude of the impacts on income is heterogeneous. More specifically, at high levels of income (i.e., the 85th quantile), financial globalisation has a high impact on income compared to its impacts at low-income levels (i.e., the 20th quantile). This suggests that financial globalisation has improved the income of the rich more rapidly than that of the poor, mean financial globalisation would widen income gap within urban China.