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The Causal Relationship Between Globalization and Income Inequality in the World: Toward the Achievement of the Sustainable Development Goals

Abstract:

The tenth target of the Sustainable Development Goals envisages reducing inequality within and between countries. In this regard, this research aims to assess the relationship between globalization and income inequality in different regions of the world from 1990 to 2018. We use data from official sources and advanced econometric techniques, such as CS-ARDL models, which avoid false correlations and provide robust conclusions, while heterogeneously exploring the proposed rela-tionship in the short and long runs. The results indicate a long-run cointegration relationship between globalization and income inequality. Specifically, globaliza-tion reduces income inequality in regions with higher incomes, but has the opposite effect in regions with weaker institutions, lower incomes and more primary produc-tion structures, at least in the short run. In the long run, we find that globalization reduces inequality in all country samples. This research also reveals that globaliza-tion has a unidirectional causality from globalization to inequality in all samples. The policy implications of these results suggest the need for inclusive financial develop-ment, the incorporation of education and innovation, and the promotion of progres-sive fiscal policies to reduce income concentration, improve living conditions and promote sustainable economic development, especially in less developed countries.