2021

Institute of Business vAdministration and

Management, UET Lahore

Project Report
Globalization, Income Inequality and Poverty:
Theory and Empirics

Submitted to: Prof. Dr. Bilal Aziz

Submitted by:
Matloob Hussain 2019-MAB-338

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Table of Contents
..................................................................................................................................................... i
About the Document ..................................................................................................................ii
Acknowledgment ..................................................................................................................... iii
Introduction ................................................................................................................................ 1
Abstract .................................................................................................................................. 1
Literature Review ................................................................................................................... 1
The Development of Globalization and Income Inequality ....................................................... 2
Globalization and its Development ........................................................................................ 2
Globalization and Income Inequality ..................................................................................... 3
Globalization and Poverty ...................................................................................................... 4
Empirical studies on Globalization and Inequality .................................................................... 5
Single Country Study ............................................................................................................. 5
Cross-Country Empirical Study ............................................................................................. 6
Globalization, Income Distribution and Poverty: Empirical Analysis ...................................... 7
Model Specification and Data ................................................................................................ 7
Data ..................................................................................................................................... 7
Methodology ....................................................................................................................... 7
Hypothesis .......................................................................................................................... 9
Empirical Results ................................................................................................................. 10
Globalization and Income Inequality ............................................................................... 10
Globalization and Poverty ................................................................................................ 13
Conclusion ............................................................................................................................... 14
References ................................................................................................................................ 16

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About the Document

This report is being submitted as part of my requirements for completion of course work of
Business Economics at the Institute of Business and Management Lahore on “Globalization,
Income Inequality, and Poverty: Theory and Empirics.”

This project has been a key learning event during the course especially the new concept of
globalization in association with income inequality and poverty and its impact on the
underdeveloped and developed countries and if the economies are import or export-based. I
did my best way to complete this report and I made every effort to make the report easy to
understand, concise and comprehensive at the same time.

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Acknowledgment

Thanks to ALMIGHTY ALLAH, the Most Beneficent and the Most Merciful, who provided
me with His kind guidance and enabled me with all resources to write and complete this project.

I have a great debt of gratitude to my most respected and kind instructor Prof. Dr. Muhammad
Bilal who taught me this very practical and industrialist course with all his dedication and
motivated us to understand the practical use and implementation in the field of Business
Economics. I thank my most honorable teacher for sowing the seed of knowledge.

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Introduction
Abstract
In this research article, the impact of globalization such as financial integration and trade
between borders on the distribution of income and poverty. Many existing empirical and
theoretical research on how globalization affected the non-equal distribution of income and
poverty. Especially the complex link among the various factors such as poverty, income
allocation, growth, and globalization are studied in this paper. In this study, it is also
investigated that how poverty and inequality are impacted by globalization considering the
cross-country regressions. It has been concluded that poverty and unequal distribution of
income is increased owing to financial globalization in general, however, it has been observed
that there is a relationship between poverty, inequality, and trade among the borders.

Literature Review
Considering the current situation of the global economy, globalization, which can be defined
as the network of the economic activities happening around the globe through across the border
trade and investment, is the hot topic. Many well know economists and international
organizations are of the view that the country’s economy and poverty reduction are directly
associated with the globalization of the world. However, on the other hand, many have the
opposite views and describe that economy has downtrends due to globalization in many
countries. It has been argued that due to international trade, the impact on growth due to
globalization is less affected whereas financial globalization does. Many researchers are now
critically reviewing and studying the impact of globalization on income inequality. It is now
the time of question if globalization harms income distribution and hinders the alleviation the
poverty. Having such a scenario penned down, it is important to conduct an extensive study
and end-to-end analysis investigating the impact of globalization on an unequal distribution of
income and poverty.

In this article, the impact of globalization on poverty and the distribution of income is
investigated after reviewing the existing research articles and conducting empirical tests. First,
it is studied how globalization is developed over time and investigated the impact on inequality
and growth of financial globalization and trade across the borders. The complex framework
among the inequality and globalization, and the effect of globalization on poverty and growing

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inequality. Moving forward, the survey of past empirical studies conducted in the near past is
presented which clarifies that there is a complex relationship between income inequality and
globalization. Finally, empirical tests are conducted on poverty, income inequality, and
globalization. This empirical study investigated the impact of international financial integration
and trade on poverty alleviation and income inequality across the countries.

There are many academic contributions to this study. First, to understand the advantages and
the cost involved in globalization, an extensive review of the topic of globalization and its
impact on poverty and income inequality is very important. Second, a new variable on
globalization is included in this empirical study which verifies the provisional and complicated
association between the inequality of income and globalization. The study helps the countries
to take measures to get the maximum benefit of globalization and minimize the cost involving
poverty alleviation and equal distribution of income.

The Development of Globalization and Income Inequality

Globalization and its Development
The incorporation of the national economies of all countries at the global level through the
expansion of the international trade of the factors of production i.e., land, labor, capital, and
entrepreneurship. This phenomenon is termed Globalization. Owing to the exponential growth
of trade across the globe, economic activities now become global. The share of the total exports
across the border to total world GDP rose at the rate of 12% constantly in the early 1970s to
20% in the 1980s and expanded to 25% in 2000 due to the globalization of economies and rapid
expansion of the international trade and development of the World Trade Organization, WTO.
Foreign Direct Investment, FDI has been growing since the late 1970s in the developed world
and these numbers expanded quickly after the 1990s. The stake of the Foreign Direct
Investment out of total world’s GDP rose from 3-6% during the ’90s to almost 16% during
2000s.

Lane and Milesi-Ferretti (2006) estimated the foreign assets and liability out of total world’s
GDP became over and above 300% in developed countries in 2004 whereas the stock is half in
the underdeveloped countries. It is noted here that the short-term capital movement across the
borders is not connected to real transactions but with financial gains. The development and
expansion of multinational companies, international production and breakup of the Bretton

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woods system, and financial section development are the main causes of financial
globalization.

This wave of globalization is due to progress in technology transportation across the border
and sharing knowledge. In developed and as well as underdeveloped countries, the open
economic policy does play an important role too. During international talks, many countries
sign free trade agreements to lower the non-tariff and tariff-based barriers to improve
international trade. Following the Washington Consensus, capital controls were removed in
developed countries whereas financial globalization and open economic policy were
introduced by the undeveloped countries. Many international institutes implemented the
structural reforms program to avoid financial crisis. To improve the profitability and expand
the market shares and get the lowest cost factors of production, companies are now developing
multinational ones. Therefore, the global economy has become a more integrated one.

There are hot debates on the benefits and costs of globalization. It is argued that poverty has
been reduced and growth has been increasing due to globalization (Fischer, 2003). It has been
observed too that the impact of globalization isn’t significant. Owing to the impacts related to
foreign exchange rates, foreign reserves, rate appreciation, and financial speculations, no
evidence has been collected for the growth of financial globalization (Kose et al., 2006; Rodrik
and Subramanian, 2009). However, the growth impact of international trades appears to be
stronger (Berg and Krueger, 2003; Rodriguez and Rodrik, 2000). Due to many channels such
as the international movement of the international financial capital across the borders,
globalization harms poverty and inequality (Birdsall, 2005).

Globalization and Income Inequality

The unequal distribution of income due to the rapid expansion of globalization become the
critical issue of the time and has sought the attention of many scholars. The poverty level and
the unequal distribution of income have worsened in many countries. When the gap between
the wage with the rising requirement of the premium skills, concerns the rising negative impact
of trade across the borders and foreign direct investment on income distribution emerged in
developed countries since the 1980s. Mostly argue that the impact of technological progress
was much larger (Klein, 1997), and the impact on inequality could be huge international
competition and the globalization has been increased due to technological progress (Wood,
1994). Globalization could worsen income inequality more as the production process is divided
and some part is transferred to foreign countries by outsourcing (Feenstra, 1999).

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In developing countries, many theories have been presented concerning the increasing income
inequality (Goldberg and Pavcnik, 2007). First, after the participation of all developed and
underdeveloped countries in the globalization process, it has become difficult for the
developing counties as these countries have to face international competition (Wood, 1999).
Second, relatively high-skilled and richer workers in developing countries produce goods that
were produced by low-skilled workers in developed countries before. Then, the growth of
international trade and outsourcing could worsen the situation of lows skilled workers in
developed countries, while it could do the opposite to high-skilled workers in developing
countries, leading to rising income inequality in both countries. More FDI and more import of
capital goods in developing countries generate the same result since these are related to
production that needs relatively high-skilled workers. Moreover, developing country
governments protected vulnerable industries with mainly low-skilled workers, and thus
liberalization and opening may exert negative effects on these poor workers (Hanson and
Harrison, 1999).

Globalization and Poverty

While studying the impact of globalization, one must be aware of the impact of globalization
on both inequity and development and the impact of inequity on development. The studies were
done in the very past on investigation of the relationship between the development and the
inequity gives the critical consequences on the globalization role in the poverty-distribution-
growth matrix. It has been investigated that the unequal distribution put great damage to the
economy of the country through many aspects. (Aghion et al., 1999). Social conflicts and
political instability have been caused due to the increasing inequality in income owing to the
political-economic position, thereby suppressing the growth and the investment (Alesina and
Perotti, 1996).

unequal wealth distribution deters economic growth since the poor cannot provide enough
education for kids, facing financial markets failures due to asymmetric information. Unequal
income parity is harmful to economic growth through enhancing the macroeconomic instability
and disabling the government to take measures to manage the economy (Rodrik, 1999). Lastly,
due to the inequality, the power, authority, and wealth are concentrated to a small number of
elite groups. Due to the concentration of the wealth in the hands of the small number of elites,
inclusive economies couldn’t be developed. Empirical studies have supported the negative
growth effects of inequality in income or assets (Deininger and Squire 1998). While recent

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studies using panel, data present opposite results and non-linear relationships (Forbes, 2000;
Barro, 2000)3, serious inequality is certainly associated with lower long-run economic growth.

Empirical studies on Globalization and Inequality

Single Country Study
To investigate the impact of globalization on the unequal distribution of income, many studies
have been conducted. Much research involves panel interviews and cross-country analyses
whereas others use time-series data and industry or regional-level data. Certainly, after the
investigation of many studies, it has been concluded that there exists a complicated relationship
between the distribution of income and globalization and conditional.

It has been observed that in many developing countries that the expansion of globalization and
rising unequal distribution of income is occurring simultaneously. For example, in regions
where the imports were more than other regions of India, the poverty was less in comparison
(Topalova, 2005). In contrast, in Columbia, the poverty and unequal wage rose higher in
regions where the demand for skilled workers grew and the tariff was lower (Goldberg and
Pavcnik, 2005; Attansio et al., 2004). In the industries which imported the capital goods in
Mexico, the demand for experienced workforce and white-collar jobs were increased (Harrison
and Hanson, 1999). Income distribution became more unequal due to Foreign Direct
Investment in Latin America which became obvious based on the time series analysis.
However, different results are also observed. It has been investigated that in regions other than
in Mexico, the rise in poverty level where there was the high level of globalization measured
by the export and FDI was much smaller. In Poland, wage inequality became less in industries
in which tariffs fell larger as non-skilled workers’ wages rose faster. Several studies on Latin
American countries argue that financial liberalization and the export of high-tech products
worsened income distribution, while trade liberalization did not (Behrman et al., 2003).

In the developed countries including the US, there is no substantial proof that trade across the
borders raised the unequal distribution of income in contrast to the great effect of technological
advancement. However, the discussion is still ongoing since the measurement is difficult and
the impact of globalization on the unequal distribution of income could be larger in the real
world. Most studies in the very past are focused on the unequal distribution of the income with
the same group of the industries as a neoclassical model was unable to explain the real causes
of the increase in the unequal distribution of the income in the same sector and both the
developing and the developed countries faced the increasing inequality. It has been presented

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that the result of the trade across the borders and decrease in the cost of the trade has a huge
impact on the unequal distribution of the income across all organizations in Brazil based on the
heterogeneity. It has also been verified that unequal wages among the organization are the latest
mechanism using which trade can affect the unequal distribution of income in Sweden. The
share of income is relatively lower in firms that are facing more globalization in terms of import
exposure. However, it is crucial to note that it is not an easy task to generalize the causal
relationship from globalization to unequal distribution of income using the one-country
analysis.

Cross-Country Empirical Study

Empirical studies using cross-country data may be more relevant to deriving a general
conclusion. An empirical study on the inequality effect of trade reports that the share of the
poor 20% out of GDP became smaller along with more trade opening. It was found that more
international trade increased wage inequality in both developed and developing countries,
associated with intra-industry trade, because of the economy of scale in the skill-intensive
sector. However, many studies also report conditional results. For example, Milanovic (2005)
finds that income of the rich increases more than that of the middle class and the poor in
developing countries as trade and FDI out of GDP rise, while it is opposite in middle income
and rich countries. This suggests that distributional effects of globalization differ across the
income level of countries, supported by findings of other studies. A study using international
comparison of wage and tariff demonstrates a fall in tariff widens the wage gap across jobs and
industries more in poorer countries. The conditional effect of international trade on income
inequality is also found in which reports trade openness is positively related to inequality but
its effect on inequality decreases as a country grows. It was found that freedom of international
trade is positively associated with income inequality and its effect is bigger in rich countries.
It also reports a conditional relationship that international trade reduces inequality more
significantly in relatively richer developing countries.

SeveralTstudiesTfocusTonTtheTdifferencesTinTfactorTendowmentsTandTtechnologyTin
empiricalTexaminationsTofTtheTdistributionalTeffectsTofTinternationalTtrade.TsomeTfind
thatTmoreTinternationalTtradeTworsensTincomeTdistributionTinTcountriesTthatTdependT
mineral resources more and have skilled workers. Others report that the increase in the factor
OthersTreportthatTtheTincreaseTinTtheTfactorTcontentTofTnetTexport,TexpressedTinTter
msTofTlabor,TincreasesincomeTinequalityTinTpoorerTcountries..TFactor endowment and
educationTdata,TreportsTthatTtradeTliberalizationTisTassociatedTwithTaTrise in inequality

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inTcountriesTwell-endowed in skilled workers, and those with works that have
aTveryTlowTeducationTlevel.

Meanwhile, other studies focus on the effect of globalization on the wage share out of GDP. A
study that reports that the wage share was lower in countries that promoted financial opening
finds that the increase in trade volume and exchange rate crises reduce the wage share, while
capital controls increase it. It also reports that the wage share falls as capital market opening
results in economic instability. Income inequality indeed tends to rise in most developing
countries after stock market opening Reduction in fiscal spending, macroeconomic instability,
and weakening of workers’ power could be all negative to income distribution, associated with
the financial opening. In sum, empirical studies suggest that financial globalization could affect
income distribution negatively, together with conditional effects.

Globalization, Income Distribution, and Poverty: Empirical Analysis

Model Specification and Data
Data
In this article, the impact of globalization on poverty and long-run non-equal distribution of
income is studied considering cross country. All the countries in the study are included for
inequality regression, however, for poverty analysis, low income and lower-middle-income
country data is analyzed. Data for analysis is used from 1974 to 2004 for income equality
whereas, for poverty analysis data, data is considered from 1990 to 2004. This is the secondary
data that was already available.

Methodology
For the study, the ordinary least square model for cross country is simply used. To demonstrate
the time-changing effects and to address the joint endogeneity, panel regression was used in
the end. A degree of inequality in the distribution of income/wealth, Gini Coefficients data
from world reputed institute i.e., Word Development Indicators. However, the data is limited
in terms of observation and their cross-country difference is much more outstanding than its
changes within countries, which justifies the OLS method.

In this study, the dependent variable which is Gini coefficient which is used for measuring the
unequal distribution of income. Data from multiple sources are available on Gini Coefficient.
First, cross country dataset was developed of the Gini Coefficient after the collection of the
data through independent individual studies, where these studies covered many counties and
time was long, however, the data quality varied. Many researchers used high-quality data for

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this dataset. WIDER (Worl Institute for Development Economics Research) institute created
quality data termed WIID (World Income Inequality Database) which included the newer data
from many new studies which covered the period after the late 1990s. Having all the datasets
together after this much advancement, an international comparison is difficult to perform due
to varying measurement parameters and methodology in multiple studies. Careful efforts were
made for consistent international comparison in making this data. Some recent studies utilize
this dataset, and the same data has been used in this study.

Many researchers have examined the inequality impact on globalization as the same is studied
in this article. Following the past studies, specifications for cross-country regressions,
controlling for the Kuznets’ curve effects first, and including other factors relevant for income
inequality were considered for study purposes. To analyze and reflect the Kuznets’ inverted-U
hypothesis between the inequality and growth level GDP per capita was measured. Tow de
facto variables on globalization are included which are Trade Openness measured by the import
plus export divided by the Gross Domestic Product, and the other factor which is considered is
Financial Integration Indicator which is measured by total external asset plus the liability
divided by the Gross Domestic Product. To represent the overall impact of financial
globalization which includes the several types of international investment, financial integration
is the better.

The average values of all variables for the whole period in the cross-sectional regressions were
used. Table 1 presents an explanation of variables used in this study and their sources in detail.

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Hypothesis
This is an empirical study. The hypothesis for this empirical study is that there is a direct and
conditional relationship between financial globalization and international trade and as well as
income inequality. Considering other research studies, it is thought that financial
globalization increases income inequality whereas income inequality decreases with
international trade. For testing of hypothesis, level of education, and growth is included in the
model. The equation of the hypothesis is as below.

Where

GDPPCi is the level of growth,

TRADEi is trade openness,

FININTi is financial integration,

Conditioni is condition variables and

Xi is another control variable.

In this empirical model, the absolute value of poverty is being used for poverty indicators and
globalization. As per World Development Indicators, those people who use less than $2/day

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are the dependent variable for measurement of the poverty in absolute terms. It must be noted
down here that poverty is very much related to inequality in income and economic growth.
Moreover, owing to the poverty trap, poverty does impact economic growth. Hence, making a
better specification for poverty is difficult. In that case, it is simplified to test the impact of
poverty on globalization by analyzing the absolute poverty on globalization. It is very
meaningful in terms of demonstration which variables consist of globalization and growth
level, education, and threshold effect.

The following mathematical expression depicts the specification for poverty.

Where

GDPPCi is the level of growth,

TRADEi is trade openness,

FININTi is financial integration,

Conditioni is condition variables and

Xi is another control variable.

Empirical Results
Globalization and Income Inequality
To evaluate the relationship between the unequal distribution of income and globalization, the
researcher conducted a cross-country analysis. Table 02 shows the result of globalization on
inequality in the period 1976-2004. The t-ratios are reported in parentheses and all the
coefficients are estimated using heteroscedasticity robust estimations to address
heteroscedasticity.

Note:

1) Coefficients for constants are not reported.

2) White heteroskedasticity-consistent standard errors and covariance were reported.

3) t-value in parentheses. statistical significance: ***: 99%, **: 95%, *: 90%

4) For variables, see Table 1.

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5) Luxemburg is excluded as an outlier.

First, from the results, it is indicated that there is a strong Kuznets’ inverted-U curve
relationship among the unequal distribution of income and economic growth. Further, the result
of the term square for the Gross Domestic Product per capita variable is considered negative.
However, the Gross Domestic Product per capita is considered positive. Hence, it is deduced
that the inequality in the income increase when underdeveloped countries grow up to some
threshold level, whereas the trend in inequality is downturn after that threshold level. This
outcome is reasonable as the researcher has used cross-sectional regressions to indicate the
long-run results.

Secondly, the other variables do have significant value. This shows that as the education level
increase so does the income inequality decreases which is obvious as the social countries tend
to have equal income that other countries. The variable representing the land abundance for
sugar and wheat is also negatively significant which suggests that the income inequality is less
in those countries which have comparatively more benefits for production. Whereas the other

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variables like financial development which is measured by the private credit are non-
significant.

Most importantly, the financial integration which is measured by the total liability and assets
out of GDP is considered positive to unequal distribution of income in all models. This
indicates that in countries with financial integration into the world economy more, income
inequality rises. It must be related to the negative effects of FDI, financial instability, and other
channels we discussed on income inequality. These findings are in line with the empirical
studies to find the inequality effects of FDI, but it is associated with more far-reaching effects
of financial opening and various international investments. In contrast to financial
globalization, international trade is negative in all models, but it is not so significant. Thus, the
effect of international trade to improve income distribution across countries appears to be weak
compared with another study.

When we examine the threshold effects of globalization on income inequality in Table 3, we

find that international trade exerts those effects associated with the level of education. The
interaction term of trade openness and education is significantly negative in the model.

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Globalization and Poverty
In this section, the researcher has investigated the impact of globalization on absolute poverty. The
researcher has used the share of the population which is consuming less than $2/day, taking it as poverty
headcount ratio, from WDI as the dependent variable. In the countries where poverty is of serious
concern, the researcher has considered those low- and middle-income countries for the research
purpose. The researcher used the same globalization variables and factors such as the education and
data used after 1990 as per the available data.

Table 4 shows the regression results.

It is evaluated that absolute poverty is naturally negative on the level of growth. This is also reported
that growth has reduced the poverty respectively, but no direct relationship has been observed of
international trade on poverty. However, the researcher has found that international trade is a
considerably negative control for the growth level whereas poverty has a positive association with
financial integration. This indicates that the impact of globalization has been different among financial
globalization and international trade. More transactions across the borders can lower the level of poverty
even after taking the growth impact into account while more financial opening and foreign liability
variable instead of the financial integration variable.

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This highlights that foreign direct investment is playing a crucial role in the swell of poverty in
underdeveloped countries which do not have a greater foreign reserve. The researcher’s outcomes are
consistent the international trade lowers the absolute poverty rate while the foreign direct investment
increases. The results also highlight that both FDI and trade openness increase poverty in developing
countries, particularly more so in countries with underdeveloped financial markets.

Finally, the researcher investigated if the impact of globalization on poverty considering the other
interacting variables. When the interaction of the trade openness variable is observed with the level of
growth, it has been observed that the interaction is significantly positive. This means that in
underdeveloped countries, the impact of international trade is bigger to lessen the poverty level after
controlling the growth level and inequality. However, these results get weaker when the control
variables are introduced such as the education level and school enrollment ratio. No such considerable
impact of threshold effect is observed either of FDI or the financial integration. Overall, these results
are the same when we use the share of the population to spend less than $1 per day. However, careful
considerations are required while interpreting these results because of potential endogeneity.

Conclusion
After the advancement of trade across the borders and financial globalization after the 1980s,
many researchers have conducted studies to investigate the complicated impact of globalization
on poverty, inequality, and growth. The concern, however, is increasing regarding the negative
impacts of globalization on the unequal distribution of income since inequality is seeing rising
trends both in developed and underdeveloped countries. This research article first presented an
extensive review of the studies either theoretical or empirical, in the past on the impacts of
globalization on poverty and unequal distribution of income. Then, in the research article,
single country, and the cross-country examination on the impact of globalization on poverty
and income inequality is conducted.

Many researchers have argued that globalization helped in promoting economic growth.
However, past experiences indicate that the growth effects of globalization, especially financial
globalization, are not robust. Globalization might have worsened income inequality in many
ways. The rapid increase in the FDI has increased the income inequality in the more advanced
countries. Globalization can be a cause of increasing the income inequality in underdeveloped
countries too in many ways such as initial endowment and detrimental effects of financial
instability.

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It must be noted, however, that the impact of globalization might not be uniform but depends
on many particulars. Improved education background and institutional effort are pivotal to
minimize the negative effects of globalization and get benefits from the positive effects. Many
empirical studies report the threshold effects of globalization on income inequality. We should
also take complex relationships and interactions among globalization, growth, and income
inequality into account when studying the effects of globalization on poverty.

In this empirical study, the researcher presented evidence about the multiple impacts of trade
across the border and financial globalization in the long period of inequality and poverty over
many countries. Using cross-country regressions for inequality and poverty, the researchers
investigated the impact of finical integration is negative on the unequal distribution of income
and poverty. The researcher also found that more trade across the borders has improved the
distribution of income and poverty, by showing the threshold impact linked with the growth
and education level. The researcher outcomes underscore the endeavors undertaken by the
government to manage the development of globalization effectively and to establish the
required environment such that the effect of globalization could be minimized.

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References
Lane, P., and G. M. Milessi-Ferreti., 2006. “The External Wealth of Nations Mark II: Revised
and Extended Estimates of Foreign Assets and Liabilities, 1970-2004,” IMF Working Paper,
WP/06/69.
Fischer, S., 2003. “Globalization and Its Challenges”, Presented at the conference in memory
of Rudiger Dornbush.
Kose, M. A., E. Prasad, K. Rogoff, and S-J. Wei, 2006. “Financial Globalization: A
Reappraisal,” IMF Working Paper, WP/06/189.
Berg, A. and A. Krueger, 2003. “Trade, Growth, and Poverty: A Selective Survey,” IMF
Working Paper. WP/03/30.
Birdsall, N., 2005. “The World is Not Flat: Inequality and Injustice in our Global Economy,”
WIDER Annual Lecture 9.
Wood, A., 1994. North-South Trade, Employment, and Inequality, Oxford University Press.
____, 1999. “Openness and Wage Inequality in Developing Countries: The Latin American
Challenge to East Asian Conventional Wisdom”, in Baldwin, R. et al. eds. Market Integration,
Regionalism, and the Global Economy, Cambridge: Cambridge University Press.
Attanasio, O., Goldberg P., and N. Pavcnik, 2004. “Trade Reforms and Wage Inequality in
Colombia,” Journal of Development Economics 74
Hanson, G. and A. Harrison, 1999. “Trade and Wage Inequality in Mexico,” Industrial and
Labor Relations Review, 52(2).
Aghion, P., C. Eve and G-P. Cecilia, 1999. “Inequality and Economic Growth: the perspective
of the new growth theories”, Journal of Economic Literature, 37(4).
Alesina, A., and R. Perotti, 1996, “Income Distribution, Political Instability, and Investment”,
European Economic Review, 40(6).
Rodrik. D., 1999. “Where Did All the Growth Go? External Shocks, Social Conflicts and
Growth Collapses,” Journal of Economic Growth, 4(4).
Deininger, K and. L. Squire, 1996. “A New Data Set Measuring Income Inequality,” World
Bank Economic Review, 10(3)
Forbes, J. K., 2000. “A Reassessment of the Relationship between Inequality and Growth”,
American Economic Review, 90(4).
Topalova, P., 2005. “Trade Liberalization, Poverty and Inequality: Evidence from Indian
Districts,” NBER Working Paper No. 11614.

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Attanasio, O., Goldberg P., and N. Pavcnik, 2004. “Trade Reforms and Wage Inequality in
Colombia,” Journal of Development Economics 74
A., 2002. “Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence”, mimeo.
_____, 2007. Introduction. in Harrison, A. ed., Globalization and Poverty, Chicago: University
of Chicago Press and the National Bureau of Economic Research
J., N. Birdsall and M. Szekely, 2003. “Economic policy and wage differentials in Latin
America”, Center for Global Development Working Paper No. 29

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Article 01
Title
Regional Convergence of Growth, Inequality, And Poverty in India—An Empirical Study

Objective
The paper attempts to examine whether there is regional convergence of per capita
consumption, inequality, and poverty across various states in India.

Model
To test cross-sectional dependence, researcher used the Lagrange multiplier (LM) type tests. A
simple modified Lagrange multiplier (MLM) test is also considered as it precludes the inherent
oversize problem of the LM test. Researcher considered the tests which explicitly incorporate
cross-sectional dependence Consider the data generating process:

where the starting values of yi0; yi;−1;…; yi;−pi are set equal to zero.

It is an empirical study. This study is based on long and consistent time-series data across major
states of India on consumption level, poverty and inequality-based measures assembled from
the 34th round national sample surveys (NSS) conducted by the National Sample Survey
Organization (N.S.S.O), Govt. of India, for both rural and urban sectors spanning the period
1958 to 2005.

Hypothesis
• Inequality and poverty indicators converge at both rural and urban levels
• Per capita consumption converges at urban level but not at rural level
• Two groups of states for rural sectors, viz., low-growth and high-growth states, for each
of which per capita consumption converges

Conclusion
This paper has attempted at examining if disparities in consumption level, poverty, and
inequality among major states of India have converged with the passage of time. Using panel
unit root tests that are robust to cross-sectional dependence, we have found that inequality and
poverty indicators have converged across both rural and urban levels. Consumption has also
converged at urban level. However, divergence has been observed at rural level for per capita

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consumption. We have also tried to find if there exist homogeneous groups such that
heterogeneity may be present across groups, but convergence may be achieved among the
members of the same group. Based on factor analysis, we have found two such groups of states
for rural sectors, viz., low-growth and high-growth states. It has been found that the level of
consumption has converged among the members in each group separately. Finally, we have
attempted at identifying the responsible entities for such divergences — central or state
governments or both. It has been argued that both the central authority and state governments
have the responsibility to bring back the alienated states at par with the developed states. The
emergence of the two groups at the rural level is an issue of major concern for policy makers.
Divergence across regions may have negative effects on subsequent growth and development,
and may consequently worsen economic, social, and political conditions. Further explorations
using state specific characteristics for explaining the emergence of such groups may be very
interesting and useful.

Article 02
Title
An Empirical study on the relationship between Poverty, Inequality and Economic Growth in
Nigeria

Objective
The objective of this study is to examine the causal relation between inequality, poverty, and
economic growth in Nigeria.

Methodology
This paper used secondary time-series data sourced mainly from Central Bank of Nigeria
(CBN) and National Bureau of Statistic (NBS) covering 2000 and 2012 periods. The data
consist of Real Gross Domestic Product (RGDP), Poverty rate, Population Growth, Literacy
level.

Model
The model of this paper expresses economic growth, which is proxy by the RGD as the function
of various components of inequality and poverty (represented as the variables that determine
the relationship between inequality and poverty). These variables include poverty itself,
population and literacy level. The model is express in linear form as follows-

RGDP = F (POV, POP, LIT)……………(1)

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The model is also expressed in the logarithmic form which will allow us to interpret the results
in elasticity. The below is double-log form of the model.

LNRGDP = β +β ₁ 2LNPOV+β3LNPOP+β4LNLIT+εt………………... (2)

Where:

LNRGDP = Natural log of real GDP

LNPOV= Poverty rate

LNPOP= Population

LNLIT= Literacy level

εt = error term

β2, β3, β4 are the coefficient of percentage change in the level of poverty, population, and
literacy level respectively.

Hypothesis
The null hypothesis for testing non-stationarity is H0: α = 0 meaning economic series are
non-stationary.

Conclusion
This study examines the causal relationship between poverty, inequality, and economic growth
in Nigeria from 2000 to 2012 periods. The result of bound testing for cointegration reveals that
there is no evidence of long run relationship among the variables. In examining the causal
relation, the, result shows that there is a unidirectional causal relationship running from RGDP
to poverty, which means an increase in GDP in Nigeria causes high level of poverty. In
addition, the result revealed that the RGDP Granger causes literacy level, but literacy does not
Granger cause RGDP. This confirms the current situation in Nigeria that as GDP increases
government tends to build more schools which results in an increase in the level of literacy.
However, labor market is not responding to the pressure of labor supply thereby leading high
rate of unemployment of both skills and semis kills laborers. Unidirectional causal relationship
existed between population growth and RGDP which means a population growth causes RGDP
to increase in Nigeria. The result further reveals that the bidirectional causal relationship
existed between literacy and poverty. The paper also indicated that population growth causes
literacy without feedback while unidirectional causality exists between poverty and population.
The policy implication is that demand management policies that will aim at reducing the gap

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between rich and poor should be vigorously pursued to minimize the rate of inequality in the
country. More so, concerted effort is needed to strengthen small and medium enterprises
through tax holiday, access to finance and temporal protection so that more employment would
be generated which in turn will reduced poverty and inequality.

Article 03
Title
The impact of gender inequality in education on rural poverty in Pakistan: An empirical
analysis

Objective
The main purpose of this paper is to investigate the impact of gender inequality in education
on rural poverty in Pakistan using Logit regression analysis on primary data sets

Methodology and Data

The empirical analysis of this study is based on primary source of data collected through a
household survey from the villages of Muzaffargarh district of Punjab Province of Pakistan.
The survey is based on simple random sampling and stratified random sampling techniques.
Information was collected from the household head and other family members from 10 villages
of three tehsils (Muzaffargarh, Ali Purr and Jatoi) of District Muzaffargarh. The format of the
household survey questionnaire has covered various household's village specific and socio-
economic characteristics and information were collected through interview of the selected
informants and direct questioning of household head and other members of target population.
The survey was conducted in the months of November-December 2008. District Muzaffargarh
is situated in the south of Punjab province of Pakistan. It is situated between the two rivers,
Indus, and Chenab. It forms a strip between these two rivers. The District is bounded on the
south by Bahawalpur and Rahimyar Khan, on the east by Multan across the river Chenab. On
the west by Dera ghazi khan across the river Indus and on the north newly created district
Layyah is situated. Muzaffargarh District comprises of four tehsils namely Muzaffargarh, Ali
purr, Kot Addu and Jatoi. The area of the district is 8249 square kilometers, and the population
is almost 2.8 million. The rural areas are mostly characterized by scattered population. The
overall literacy rate of population age 15 and above is 33 percent, out of which 46.22 percent
males and 19.06 percent females.

As far as methodological issues are concerned, we considered official poverty line of Rs.944.47
per adult equivalent per month in 2005-06. This poverty line is updated by making CPI inflation

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general index for the year 2007-08 and is resulted as Rs. 1140.05. This is also called an official
poverty line as developed by the planning commission, government of Pakistan. In this study,
we have calculated the incidence of poverty by the well-known method of Head Count Ratio.
The empirical analysis of the impact of gender inequality in education on rural poverty is
carried out by employing Logit Model. In a Logit Regression Model, the explained or
endogenous variable is a categorical or dummy variable with 1 if household is poor and 0 if
the household is non poor. The present study considered some significant quantitative
explanatory variables.

Hypothesis
Hypothesis is that female-male literacy ratio (FMLR), Female-male enrolment ratio of age 6-
10 years (FMER), female-male enrolment ratio of age 11-21years (FMEE), female-male ratio
of total years of schooling of population age 10 years and above (FMTS), female-male ratio of
total years of education of population age 25 years and above (FMTSC), education of
household head (EDHH), age of household head (AGHH) and female-male ratio of earners
(FMRE) have negative or inverse impact on poverty. Female-male ratio of members (FMRM)
and household size (HSZ) have positive impact on poverty-based theory and literature.

Conclusion
Keeping in view the importance of issue of gender inequality in education, the present study
has attempted to analyze the impact of gender inequality in education on rural poverty in
Pakistan by using cross-sectional data and Logit regression analysis. The main findings of the
empirical analysis of cross-sectional data are as follows.

• Gender Inequality in education has significant impact on rural poverty. Female-male

enrolment ratio, female male literacy ratio, female-male ratio of total years of schooling
of population, education of household head, female-male ratio of earners, age of
household head, asset holding, and land holding are significant variable having negative
impact on the probability of being rural poor.
• Household size and female-male ratio of members or sex ratio have strong positive
relation with the rural poverty and the large presence of these variables increase the
probability of being poor.

It is concluded that the incidence of poverty is higher in households with lesser number of
enrolled or literate females, low educational qualification of females, greater number of
females, low or no female participation in earning activity, illiterate household head and large

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household size. Poverty is also influenced by physical asset and landholding. These findings
of the study suggest the importance of a set of policies helpful for poverty alleviation and
sustainable development.

Article 04
Title
Inequality, Poverty and Economic Growth

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