Neo-liberal Globalization and Income Inequality: Panel Data Evidence from OECD and Western Balkan Countries

Over the last few decades, neo-liberal globalization—marked especially by the liberalization of finance, extended processes of commodification/privatization, free trade and free flow of capital—has coincided with rising income inequality and an ostensible decline in global poverty levels, the latter being largely attributed to China’s and India’s rapid economic development since the 1980s. Using a three-year-averaged non-overlapping data from 1991 to 2017 covering 39 OECD and western Balkan countries and applying the efficient Feasible Generalized Least Square (FGLS) estimation method, this article examines the effect of institutional ‘quality’, export complexity, and labour union density on income inequality. We have indications that neo-liberal globalization, measured using the KOF globalization index and sub-indicators, is positively correlated with income inequality. We have also indications that institutional ‘quality’, that is, mechanisms of ‘good governance’, tend to reduce income inequality. Importantly, the level of economic or export complexity and the degree of labour unionization were also found to reduce income inequality, while improving institutional ‘quality’ and mitigating downward pressures on wages.