Impact of globalization on income inequality in South Africa

Abstract

Income inequality has been a major issue in South Africa. The 1994 transition from apartheid to democracy and global economic integration presented opportunities and challenges, fostering economic development while exacerbating existing inequalities. Therefore, this study aims to analyze how globalization affects income inequality in the South African economy. It utilizes the autoregressive distributed lag (ARDL) approach on a set of chosen variables. These variables include the Gini index, the Konjunkturforschungsstelle (KOF) globalization index, Gross Domestic Product (GDP) per capita, unemployment rate, inflation rate, and government expenditure. The study covers the period from 1980 to 2022, allowing for a comprehensive examination of the relationship between globalization and income inequality over time. The results obtained from the ARDL bounds test indicate that globalization has a positive long-run equilibrium relationship with income inequality. This means that as globalization progresses, it tends to be associated with higher levels of income inequality. In the short run, globalization exhibits a positive and statistically significant relationship with income inequality. The results of the Granger causality test indicate a unidirectional relationship between globalization and income inequality. This suggests that changes in globalization directly influence income inequality. Consequently, it is crucial to implement short- and long-term policies that address the adverse effects of globalization on income distribution. Policies could include providing support and retraining for workers in vulnerable industries, implementing social safety nets to protect those adversely affected by rapid economic changes, and ensuring equitable access to opportunities created by globalization.