Does Globalization Affect Inequality? A Cross-Country Heterogeneous Analysis

This paper examines the impact of globalization on inequality levels using data from the World Income Inequality Database (WIID) and the Penn World Table. We find that the effect of trade globalization on inequality is an inverted U-shaped relation, a result that remains robust to endogeneity concerns. The results of the heterogeneity analysis suggest that developed countries would benefit more from globalization, while globalization would further increase the level of inequality in low-income and developing countries. In addition, we take the effects of the 2008 economic crisis into account in our model. We find that the economic crisis will increase the inequality of countries, but countries with higher levels of globalization will alleviate this inequality, which implies that with the help of high-level globalization countries, low-level globalization countries can break the limits of the Kuznets curve and benefit from the globalization process as soon as possible