Globalization, Spending and Income Inequality in Asia Pacific

ABSTRACT

This paper provides an overview of the patterns of government spending and income distribution in the Asia-Pacific region under globalization. Previous studies have not placed much emphasis on the underlying policy mechanisms. Not only does this article take the change in public spending into account, it also allows for different factors and distributive outcomes to be associated with distinct types of spending (education, welfare and health). Health-related spending is found to reduce income inequality, while the reverse is true for welfare expenses. The results also suggest that globalization strongly exacerbates income inequality even after controlling for economic, demographic and political factors. The results carry significant implications for governments in the Asia-Pacific region.

KEYWORDS:

• Globalization
• spending
• income inequality
• redistribution
• Asia

Notes

¹Most observations come from the post-1980 period. The 16 countries are Australia, Cambodia, China, Indonesia, Japan, Korea (South), Laos, Malaysia, Mongolia, New Zealand, Papua New Guinea, Philippines, Singapore, Thailand, Timor-Leste and Vietnam.

²The suitability of the AR(1) process for the main models is confirmed by the test suggested by Wooldridge (2002, pp. 282–283).

³The decadal dummies are the 1960s, 1970s, 1980s, 1990s and post-2000 (2000–2012).

⁴As inequality might determine the level of spending, the instrumental variable approach was also tested for the effect of spending on inequality. Following Lewbel (1997) and Rudra (2004), the second and third moments of the endogenous variables (spending) are used as instruments. Estimates returned from two-Stage least squares (2SLS) are largely similar to those reported here (models 7–9). Results are available in the Appendix.

⁵Instead of using market Gini as a dependent variable, this research design made the coefficients more comparable across the two models. This research design worked like a lagged dependent variable, and the coefficients only captured the effects of the independent variables during the stage of redistribution.

⁶Indeed, variance inflation factor (VIF) scores go above the recommended threshold whenever two or more spending categories are included in a regression model.

Additional information

Notes on contributors

M.Y.H. Wong

Mathew Y. H. Wong is Assistant Professor in the Department of Politics and Public Administration, University of Hong Kong. His research interests lie in income inequality, democracy, and development. His publications can be found in the Studies in Comparative International Development, Journal of Contemporary Asia, and China Review.