Globalization’s Ripple Effect: Analyzing Its Impact on GDP Growth, Trade Balance, and Income Inequality

Abstract

Analytically, this study focuses on key drivers of economic performance including GDP growth, world trade in service, FDI net outflows and inflation rate impact on income inequality computed by Gini coefficient. The World Development Indicators data for the years 1981-2020 is employed to examine the relationships between these variables and income inequality in a group of countries with panel regression models with random and fixed effects. Basically, the results reveal that the GDP having a significant correlation with FDI is strongly associated with rising levels of income inequality, which underlines two opposing roles of GDP growth and FDI as symbols of economic development as well as intensifying income gaps. Hence, significant variations are observed and have been discussed with respect to various degrees of relevance: which is the case of trade in services and inflation. These results suggest that, although development requires economic growth, capital accumulation and foreign investment, these processes have to be managed more efficiently so that the benefits could be fairly implemented. The last part of the report is the policy recommendations which include the means of enhancing inclusive growth, general enhancement of the quality of FDI, enhancing the successful inflation control, social protection instruments for income distribution impacts. It also enables the policy-makers to start initially addressing these concerns that are central to achieving an equitable and sustainable economic environment.