Dynamics of Income Inequality, Economic Growth, Globalization and Democracy: Empirical Evidence from Bangladesh

Abstract

Income inequality has become a key issue in international development agenda in the recent years. In Bangladesh, rising income inequality is a major impediment to sustainable and inclusive economic development in spite of its achievement in several socio-economic indicators during last decades. The purpose of this paper is to examine the dynamics among income inequality, economic growth, globalization and democracy in Bangladesh using annual data from 1972-2016 applying innovation accounting approach without any prior restriction of theoretical imposition: generalized impulse response functions (GIRF) and generalized forecast error decomposition (GFEVD) methods. The empirical results show that democratization process in Bangladesh has positive effect in reducing income inequality and improving globalization. Evidence also suggests that globalization in Ba11gladesh not only accelerate economic growth but also promotes democracy. In brief, the study proposed that focusing on only market based economic liberalization even in presence of liberal democracy can results in economic growth but will sacrifice equity. Only transparent and accountable democracy is capable of tackling income inequality problem through egalitarian redistributive policies.