The Global Economy and Changes in the Determinants of Cross-National Income Inequality

Abstract

This study examines the capacity of modernization theory, dependency theory, world-system analysis, and political democracy theory to explain the determinants of income inequality in less-developed countries before and after major structural economic changes,stemming from the collapse of the Bretton Woods system in 1971 and the OPEC oil crisis in 1973 and 1974, occurred in the global economy. Data from two cohorts of countries are used to test these theories. The first cohort contains thirty-three countries with data on income inequality between 1968 and 1973, and the second cohort contains thirty-one countries with data on income inequality between 1985 and 1992. The results suggest that world-system analysis and some aspects of dependency theory are relevant to explaining income inequality both before and after the global changes.. However, modernization theory and political democracy theory are only predictive of levels of income inequality before changes in the global economy occurred. Overall, the results of this research highlight the importance of integrating historical shifts in the global economy into theories of income inequality.