Urbanization drives rising inequality as globalization delivers mixed outcomes

The study finds that government consumption expenditure has a negative and significant relationship with inequality, meaning that when governments allocate resources effectively toward social services, healthcare, and education, disparities in income levels shrink. This provides support for policy frameworks that emphasize the redistribution of resources through public programs.

Income inequality remains one of the most pressing challenges for governments worldwide, shaped by the complex interplay of global forces, national policies, and social structures.

A new peer-reviewed study, Global Trends and Local Divides: Investigating the Impact of Economic and Social Dynamics on Income Disparities in the Era of Globalization, published in SAGE Open, provides fresh evidence on the economic, social, and political drivers of inequality across 58 economies between 2005 and 2021. The findings show that growth and strong institutions tend to reduce inequality, while rapid urbanization consistently worsens it.

Does growth and public spending reduce inequality?

The study confirms that sustained economic growth plays a significant role in reducing income disparities. By analyzing the relationship between GDP per capita and inequality, the authors demonstrate that rising income levels are linked to fairer income distribution. This evidence supports the argument that inclusive growth strategies can improve welfare across society rather than concentrating benefits among the wealthiest groups.

Public spending is another critical factor. The study finds that government consumption expenditure has a negative and significant relationship with inequality, meaning that when governments allocate resources effectively toward social services, healthcare, and education, disparities in income levels shrink. This provides support for policy frameworks that emphasize the redistribution of resources through public programs.

The research also points out a limitation: not all forms of spending are equally effective. Expenditures that fail to reach vulnerable groups or are poorly managed may not reduce inequality. The effectiveness of government consumption depends heavily on institutional quality and governance.

How does globalization shape disparities?

Globalization, often portrayed as both an opportunity and a threat, emerges in the study as a mixed but largely beneficial force. Economic globalization, driven by trade and cross-border investment, is associated with lower inequality in the panel of countries analyzed. Similarly, social globalization, which includes the flow of information, migration, and cultural exchange, also correlates with reduced disparities. These findings suggest that economies integrated into global markets and societies can experience more balanced income distribution, provided that the benefits are equitably shared.

However, the political dimension of globalization shows no significant effect on inequality. This suggests that while economic and social integration generate measurable impacts, political ties such as participation in international organizations or treaties may not directly alter income gaps.

The research also raises concerns about uneven gains from globalization. While skilled workers and technologically advanced regions benefit disproportionately, less-developed areas risk being marginalized. Without targeted policies, globalization may deepen divides between countries and within societies, even as it promotes overall growth.

What roles do urbanization and institutions play?

The study found a consistent impact of urbanization on inequality. As populations move from rural to urban areas, income disparities widen. Urban growth often creates opportunities in high-paying sectors, but it also leaves behind those in informal or low-skilled employment. Rising living costs, limited access to housing, and unequal distribution of services amplify these gaps, making urbanization a double-edged sword for social equity.

In contrast, institutional quality strongly mitigates inequality. The study constructs an institutional index based on governance indicators such as rule of law, political stability, regulatory effectiveness, and corruption control. Across all models tested, better institutions correlate with more equal income distribution. This finding underscores the importance of governance in shaping how economic and social dynamics translate into real-world outcomes.

Institutions not only manage redistribution more effectively but also create environments where investments, property rights, and fair competition thrive. Weak institutions, on the other hand, allow corruption and inefficiency to entrench inequality.

Causality and policy implications

In addition to correlations, the study also explores causal relationships. Results show bidirectional causality between inequality and most variables, including GDP, globalization, government spending, urbanization, and institutions. The exception is foreign direct investment, which is not found to cause inequality but appears to be influenced by existing disparities. This suggests that inequality itself shapes economic decisions and global capital flows, creating feedback loops that policymakers must account for.

The authors propose several policy measures to address these dynamics. Governments are urged to pursue inclusive growth strategies, strengthen institutional frameworks, and improve governance to ensure that resources reach vulnerable populations. They also recommend targeted spending to support small and medium-sized enterprises, workforce retraining to manage the disruptions of globalization, and fair trade policies to prevent marginalization of developing economies.

At the local level, managing the urban transition is critical. Investments in affordable housing, urban infrastructure, and rural development are essential to offset the inequality pressures created by rapid urbanization. Without such measures, the economic promise of urban growth may be overshadowed by rising disparities.