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Globalization, Income Inequality, and Deindustrialization: The Case of South Korea
Region: Asia
Location: Korea, South
Published July 23, 2014
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This paper examines the evolution of income inequality in South Korea over the period 1965 to 2011 using a fairly new dataset, namely the Standardized World Income Inequality Database (SWIID). The author hypothesizes that it is possible to make sense of the evolution of income inequality in South Korea through an examination of structural changes in the economy, with industrialization and deindustrialization playing a crucial role. Building on the seminal contribution by Simon Kuznets, as long as growth and industrialization are positively correlated, a standard Kuznets relationship is obtained. When growth is accompanied by deindustrialization, income inequality declines initially and then increases again after a minimum point has been reached. The association of growth with deindustrialization that is driven by globalization is thus a key element behind the evolution of income inequality. Time-series estimates confirm the existence of a statistically significant and robust relationship in the South Korean case whereby income inequality followed a cyclical pattern with two turning points, thus confirming the hypothesis. The author then draws out the policy implications of the analysis with a particular attention to the role of the increasingly important service sector for the South Korean economy.

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