The Paradox of Globalization: Unraveling the Short and Long-Term Impacts on Income Inequality in Indonesia

Abstract

This study investigates the impact of globalization and financial growth on income inequality in Indonesia using empirical data from 1995 to 2020. The analysis reveals that globalization and financial development, while initially appearing advantageous, can exacerbate income inequality over time. In Model I, the overall measure of globalization contributes to income inequality in both the short and long run. Initially, globalization may reduce income inequality, but its long-term effects are detrimental. Financial development and inflation in Indonesia also have a significant and positive impact on income inequality in this model. Model II shows that economic, political, and social globalization have statistically significant impacts on income inequality in both the short and long term. Economic and political globalization can help mitigate income inequality over time, but in the short term, income inequality in Indonesia worsens. Social globalization, on the other hand, consistently has a positive influence on income disparity in both the short and long term. The study highlights the need for proactive government measures to maintain the stability of economic, political, and social globalization. Policymakers should implement progressive policies that address the adverse effects of globalization on income distribution to ensure a more equitable society.