The Resilience of Dependency Effects in Explaining Income Inequality in the Global Economy: A Cross National Analysis, 1975-1995

Abstract

The contemporary era is one of both accelerated economic globalization and rising inequality. There is an increasing awareness among both academic scholars and development professionals that globalization puts certain populations at risk. However, there has been inadequate theoretical analysis and a lack of up to date empirical studies that explain just how contemporary globalization a?ects inequality and the well being of individuals. This study explores the conditions under which TNC penetration and other globalization processes in?uence change in domestic income distribution. Its aim is to investigate whether theoretical models that have proven successful in explaining di?erences in income inequality cross-sectionally also allow for an understanding of the dynamics of income distribution during the 1980s and early 1990s, an era characterized by a dramatic acceleration of globalization. We present an analysis of change in national income distribution using linear regression models with a panel design. This study suggests that dependence on foreign investment as a development strategy, especially compared to domestic and human capital investment, may be misguided for nations concerned with equality. Net of other factors, foreign investment dependence bene?ts the elite segments of the income-earning population over the poorer eighty percent. Our analysis provides evidence of a shift in capital/labor relations brought about by globalization that has signi? cantly contributed to the rise in income inequality seen throughout the world.