Analyzing the Influence of Digitalization on Income Inequality: A Comparative Analysis of Developed and Developing Economies

Abstract

This study aims to analyze the influence of digitalization on income inequality, conducting a global-level analysis as well as analyses for developed and developing nations. The analysis is performed using a sample of 127 countries over the period 2000–2022 and employs panel data techniques such as pooled OLS, fixed effects, random effects, and System-GMM. The study uses three key ICT indicators: internet users, mobile penetration rates, and broadband service subscribers. The results show that digitalization decreases income inequality at the global level. However, the analysis of developed and developing countries reveals contrasting findings. In developed countries, digitalization is found to increase income inequality, while in developing countries, it decreases income inequality. The findings of this study have significant policy implications. To harness the knowledge economy and reduce inequality, policymakers in developing nations need to prioritize ICT infrastructure, while those in developed nations need to focus on the distributional implications of ICT investments.

JEL classification codes: O33, D63, F43, I32, O47