Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries

This study examines the impact of globalization on cross-country inequality and poverty using a panel data set for 65 developing counties, over the period 1970-2008. The role of globalisation in increasing inequality in economies with financial markets imperfections has been highlighted in the theoretical literature but has not been systemically tested empirically. We provide a first pass at testing the relationship between globalisation inequality, and poverty in the presence of underdeveloped financial markets. Our study finds a negative and statistically significant impact of globalisation on poverty in economies where financial systems are relatively developed, however, inequality-reducing effect of globalisation in these economies is limited. The other major findings of the study are: a non-monotonic relationship between income distribution and the level of economic development and the government emerges as a major player in reducing inequality in developing countries. JEL Classification: F21, F41 and J24.