The effects of industrialization, democracy, natural resource rents and globalization on income inequality in Türkiye: Evidence from the Fourier approach

Abstract

Growing income inequality is one of the fundamental problems of the 21st century. International organizations particularly consider reducing inequalities as a prerequisite for ensuring sustainable human welfare. Türkiye is one of the countries facing increasingly deepening income inequality following the neo-liberal transformation in the 1980s and currently has one of the high income inequalities. Therefore, investigating the factors affecting income inequality is of great importance. This study analyzes the factors affecting the Gini coefficient, which is an indicator of income inequality in Türkiye during the 1987-2021 period, in the context of industrialization, civil liberties, natural resource rents, and globalization. Using the Fourier-augmented ARDL approach, the main findings of the study confirm: i) the existence of a cointegrated relationship between variables, ii) increases in industrialization, natural resource rents, globalization, and individual freedoms have reducing effects on income inequality. Additionally, the results are consistent when using the FMOLS estimator for the model's robustness analysis. From a policy standpoint, in combating income inequality in Türkiye, alongside economic factors such as re-prioritizing industrialization as a main objective, ensuring fair and transparent distribution of revenues from natural resource rents, and managing globalization in a way that improves income distribution, it is also extremely important to implement institutional improvements that guarantee individual freedoms.