Economic Globalization, Democratization, and Income Inequality

Abstract

In the last 40 years, East Asian countries have undergone significant economic and political transformation, with deepening integration into the world economy and substantial progress toward democracy. I investigate the impact of these two major developments on income distribution in East Asia. This study extends prior research by (1) examining the role of both international economic and domestic political factors, topics that have mostly been studied separately; (2) employing inequality data that are more complete than those used in previous studies; and (3) using data for a period during which the pace of globalization greatly accelerated, a major relevant event (the Asian financial crisis) occurred, and several countries in the region witnessed a considerable expansion of democratic rights. Evidence for the claim that trade increases inequality is robust, but empirical support for the redistributive effects of both foreign direct investment and democracy is weak.