The Role of Globalisation and Governance in Income Inequality: An Empirical Study for Pakistan

Abstract

Income inequality is one of the most challenging issues around the globe as it affects socio-economic stability. Pakistan like many developing countries experiences persistent income inequality despite growth and globalization. Globalization through trade and investment reshaped the structure of economies, creating opportunities for economic advancement. However, it deepens inequality if the benefits remain in certain groups or sectors. Similarly, governance plays a vital role in distributing the benefits of growth and globalization equitably. Effective governance through accountability, transparency and institutional effectiveness helps mitigate inequality. However, corruption and poor governance can increase income inequality. Therefore, this study examines the effect of globalization and governance along with income per capita on income inequality in Pakistan by analyzing quarterly time series data over period 1996-2023. After order of integration is determined, the autoregressive distributed lag technique is applied for the short and long run results. The findings indicate that globalization, government effectiveness, rule of law and voice and accountability have negative effects on income inequality whereas corruption and regularity quality aggravate income inequality. Additionally, the study confirms persistent income inequality in Pakistan. The study suggests that if benefits of economic growth are equitably distributed, the inequality will tend to decrease once the real per capita income reaches USD 1,400- a threshold that Pakistan has yet to achieve. Based on these findings, the study provides recommendations for policymakers to mitigate persistent income inequality.