Work detail

The Effect of Globalization on the Income Inequality

Author: Bc. Martin Stárek
Year: 2016 - summer
Leaders: doc. Ing. Tomáš Cahlík CSc.
Work type: Bachelors
Language: English
Pages: 67
Awards and prizes:
Abstract: In this thesis, we explore the effect of globalization on the income inequality. We
examine some features of methodology used in the majority of research on this topic that can
have significant impact on results but they are not addressed in the publicly available research.
Firstly, we proposed a new method of normalization that creates more stable data and created
a new simple index of globalization using this method. This index then yielded more consistent
results than the standard globalization indices. Secondly, we found out the most significant
variable in a composite index can have no economic or logical interpretation. This was the case
with the effect of mobile cellular subscriptions per 100 people on the income inequality. This
means results of composite indeces should be interpreted carefully and a better analysis is
probably estimating effects of all underlying variables individually. Moreover, we found that
underlying variables in a composite globalization index can have opposite effects on the
income inequality. The effects than cancel out, at least partly, and this can lead to smaller,
statistically less significant results. Nevertheless, the overall effect of globalization on the
income inequality, though statistically not significant, appeared to be negative. This is the case
especially in developing countries. The effect is higher (closer to 0 or positive) for developed
countries but the sign is ambiguous. Finally, we found the evidence of Kuznets curve and also
found out taxation schemes have probably significant impact on the post-tax income inequality,
though we were not directly controlling for it (we dealt with it by fixed effect estimation).


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Patria Finance