Impact of Globalization, Foreign Direct Investment inflows, and institutional factors on Income Inequality in selected SAARC countries

Abstract

The broad objective of this study is to evaluate the impact of globalization, Foreign Direct investment (FDI), and institutional factor on income inequality in the selected SAARC countries using panel data of all SAARC countries except Maldives over the period of 2002-2018. Gini coefficient is used as an independent variable to measure income inequality, whereas, the dependent variables are trade openness used for globalization and corruption for institutional factor along these two variables, impact of FDI is also studied against income inequality. GDP per capita and government expenditure are also included in the model as controlled variables. According to the result of Hausman and Lagrange multiplier test, the Fixed-Effects Model was preferred over the Random-Effects Model for regression analysis. The empirical result shows that globalization has negative impact on income inequality. While FDI and institutional factors expressed in term of corruption have positive impact on income inequality. For this purpose, policies are needed to curb corruption and convey the positive impact of FDI to the people. Moreover, to further promote globalization to minimize the inequality in income as possible.