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.

The Relationship between Income Inequality, Poverty and Globalization

“…Babones (2002) finds evidence of increasing between-nation inequality since the mid-twentieth century. Beer and Boswell (2002) link increased within-nation inequality to greater dependency on foreign investment. Bornschier (2002) observes stable inequality until 1972, but increasing inequality both within and between nations upto the end of the century.…”

Foreign Direct Investment and Income Inequality revisited

“…Other empirical studies also found evidence of FDI having negative effects on the income distribution of developing countries [e.g. Beer/Buswell (2002)]. The reason lies in the character of FDI, which is not only a simple capital transfer, but a bundle of human capital, know-how, and technology.…”

Political Economy, Capability Development, and Fundamental Cause: Integrating Perspectives on Child Health in Developing Countries

“…The more a country's exports are concentrated in a small number of products, the more vulnerable that country is to fluctuations and disturbances in the global market. Countries with more diverse export portfolios, however, can better weather economic downturns because they have more options in responding to those fluctuations (Beer and Boswell 2002;Shen and Williamson 2001). Export concentration also tends to correlate with trade partner concentration.…”

“…Transnational corporations (TNCs) monopolize internal capital, accumulate a disproportionate share of local sources of credit, repatriate profits instead of reinvesting them in local economies, and displace many local businesses. Furthermore, foreign investors hamper health and well-being by discouraging social welfare policies that are beneficial to the local population but that don't serve TNC interests (Beer and Boswell 2002;Shen and Williamson 2001). Through tax evasion and disguising taxable profits, TNCs reduce the government resources that would otherwise fund health and social services (Wimberley 1990).…”