Globalization and inequality - A pathway through education

Abstract

This study investigates the effect of globalization on economic inequality in a country through the channel of education. We measure globalization by the KOF globalization index (a composite index consisting of elements of economic, social, and political dimensions of globalization), economic inequality by the Gini coefficient of consumption/income distributions, and education outcomes by mean years of schooling in a country. An econometric model using appropriate panel data techniques is estimated for a sample of about 150 countries over the period 1980-2013. The results suggest that globalization improves the situation of economic inequality in a country, i.e. inequality in the country decreases. However, the precondition to this is that the population of the country is very less educated. As the country becomes more globalized, and the educational outcomes improve, the restorative effects of globalization on income inequality go down. At a turnaround point of about 6.73 mean years of schooling, globalization works towards worsening income inequality. The empirical results are robust to the use of inequality index from a separate data source and the change in time span of the study (1980-2008).