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

This study examines the capacity of modernisation theory, dependency theory, world-system analysis, and democracy theory to explain the determinants of income inequality in the less-developed countries before and after the major structural economic changes stemming from the collapse of Bretton Woods system in 1971, and the Organisation of Petroleum Exporting Countries (OPEC) oil crisis in 1973 and 1974 in the global economy. Data from the 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 result 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, modernisation theory and political democracy theory are only predictive of levels of income inequality before the changes in the global economy occurred. Overall, the results of the research highlight the importance of integrating historical shifts in the global economy into the theories of income inequality.