Distributional Effects of Human Capital in Advanced Economies: Dynamics of Economic Globalization

This study investigates the human capital-income inequality nexus for 19 advanced economies. The whole sample covers the period between 1990 and 2017. The econometric analysis considers two fundamental panel data methods, namely the fixed-effects and two-step system GMM, to test whether the correlation between human capital development and income inequality is negative or not. The empirical findings of these two particular panel data methods reveal that while the initial stages of accumulating a higher degree of human capital through increasing the average years of schooling and returns to education reduce the level of income inequality, the later stages show that this negative relationship turns into positive by way of widening the unequal distribution of national income. In addition, the economic globalization appears to be positively correlated with income inequality, meaning that globalized economic relations widen the scale of inequality where the statistical significance of human capital-income inequality nexus still prevails. All these estimation results show that they are contradicted with the mainstream findings, each of which puts forward that higher level of human capital reduces the level of income inequality.