Temporal Effects of Financial Globalization on Income Inequality

Abstract

Through parametric accelerated failure time survival analysis on a panel of 120 countries for 1970-2018, the study finds empirical evidence that time to upsurge in income inequality declines after a country liberalizes investment across borders. This occurs with a significant non-monotonic hazard rate of upsurge, arguably via the channels of capital-skill complementarity and wage inequality. This effect is robust to distributional assumptions, alternative measurements of financial globalization and income inequality, sample restriction to pre-crisis period and residual heteroskedasticity. Moreover, it is reasonably generalizable across different economic arrangements due to employing diverse panel and handling issues of imputation and cross-country standardization in contemporary income inequality data.