Does Digitalization Widen Income Inequality? A Comparative Assessment for Advanced and Developing Economies

Abstract

The paper raises two questions: (1) Does digitalization contribute to wealth and income inequality? (2) Does it affect inequality differently between advanced and developing economies? For the answers, the paper investigates the impact of digitalization on inequality for a balanced panel dataset of advanced economies and a balanced panel dataset of developing economies from 2002 through 2020. It applies the system-GMM and PMG estimators for estimation and robustness check. Some exciting results it provides. First, digitalization narrows inequality in developed economies and widens in developing economies. Second, the economic growth – income inequality relationship is U-shaped as real GDP per capita increases from low (developing economies) to high (advanced economies). Third, unemployment enhances inequality in two groups. The results note some necessary implications to develop digital technology and reduce income inequality in these economies.

The importance of digital skills for the Western Balkans -comparative analysis between the Western Balkans and the European Union

“…The results of this study also confirm prior findings that digitalization can impact the labor markets in a major way since it changes current jobs and creates new ones that did not exist a few years ago (Mantulenko et al, 2021). Claims that the higher inclusion of women and rural communities thanks to digitalization (Nguyen, 2022;Zhang et al, 2023) means that more people participate in the workforce and contribute to a nation's productivity. Thus, the higher the level of digital skills of a population, the more likely it is to experience a higher value of labor productivity.…”

“…This is because digital skills offer the opportunity to increase the employment rates of women, minimize long-term unemployment, and widen the employment choices in terms of human and social capital for rural workers (Stofkova et al, 2022;Zhang et al, 2023). Yet, this may be different in various contexts as it has been demonstrated that digitalization can narrow inequalities in developed economies and widen this gap in developing economies (Nguyen, 2022).…”

Yükselen Sanayi Ekonomilerinde Dijitalleşme ve Küreselleşmenin Gelir Dağılımı Üzerindeki Etkisi

“…According to their findings, a 1% increase in robot density in 2005-2017 increased the Gini coefficient by 4.2%, while ICT did not affect inequality. Nguyen (2022) applied the GMM and PMG estimators for developed and developing countries for the period 2002-2020. According to the author's findings, while digitalization narrows inequality in developed economies, it widens it in developing economies.…”

“…Researchers suggest that digitalization can improve economic activities, boost productivity, and offer low-cost financial tools for low-income individuals. Furthermore, digitalization is expected to enhance the skills of workers and create new opportunities for knowledge acquisition (Nguyen, 2022;Nguyen, 2023). In particular, digital financialization provides affordable credit facilities and financial instruments in rural areas, which can help close the income gap and reduce income inequality (Yao and Ma, 2022).…”