Do globalization, foreign direct investment, and inflation drive income inequality? Evidence from Somalia within the Kuznets curve hypothesis

Income inequality remains one of Somalia’s most pressing socio-economic challenges. A new study (1990–2020) investigates how globalization, foreign direct investment (FDI), inflation, and other structural factors shape inequality within the framework of the Kuznets curve hypothesis. Using advanced econometric methods—including ARDL bounds testing, Kernel-based Regularized Least Squares (KRLS), and Granger causality—the research uncovers important insights.

First, the results confirm the Kuznets curve: income inequality rises during early stages of economic growth but declines as the economy matures. Second, globalization significantly exacerbates inequality in both the short- and long-run, highlighting the unequal distribution of global integration benefits. Third, inflation and unemployment are strong drivers of inequality, disproportionately affecting lower-income households. Interestingly, FDI and institutional quality help reduce inequality only in the short-run, but their long-term impacts remain statistically insignificant.

The study emphasizes that inclusive growth frameworks, stronger institutions, targeted employment strategies, and price-stability measures are essential to narrowing income disparities in Somalia. Without such interventions, globalization and macroeconomic instability may continue to deepen inequality rather than alleviate it.

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