Do globalization progress and sectoral growth shifts affect income inequality? An exploratory analysis from India

Abstract

This paper examines the effects of globalization (i.e., economic, social, and political) and sectoral growth shifts (i.e., changes in relative shares of agriculture, industry, and services) on income inequality in India from 1976 to 2012. We have used two unique datasets: the Standardized World Income Inequality Database (SWIID) and the KOF Globalization Index – Revisited, and employed the Stock and Watson Dynamic Ordinary Least Square cointegrating regression model for empirical estimation. This study finds that economic globalization reduces income inequality, while social and political globalization increases income inequality in India. Additionally, socioeconomic factors, such as per capita income, fiscal spending, and agricultural dependency are pertinent factors that reduce income inequality. On the contrary, factors such as rapid urbanization, changes in society, international interference in public policy, and rapid services sector growth that have been triggered by the social and political globalization processes show a detrimental effect on income inequality, which merits special attention in future development policies and actions. Additionally, the growth in agricultural value added helps reduce income inequalities in India, which is a desirable trend and justified on the grounds of continued rural dependence on the sector for income and employment. This underscores the need to strengthen the agricultural sector through strategies including crop diversification, value‐added processing, and investments for expansion of rural infrastructure, so that growth in the primary sector is sustained despite the decline in its relative contribution to gross domestic product (GDP).

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