VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM – JAPAN UNIVERSITY NGUYEN THANH BINH THE IMPACT OF TECHNOLOGICAL CHANGE ON INCOME INEQUALITY IN SELECTED ASIAN COUNTRIES MASTER THESIS PUBLIC POLICY VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM – JAPAN UNIVERSITY NGUYEN THANH BINH THE IMPACT OF TECHNOLOGICAL CHANGE ON INCOME INEQUALITY IN SELECTED ASIAN COUNTRIES MAJOR: PUBLIC POLICY CODE: 8340402.01 RESEARCH SUPERVISOR: Dr. VU HOANG LINH Hanoi, 2022 COMMITMENT I assure that the thesis title "The impact of technological change on income inequality in selected Asian countries" is my personal research under the supervision of Dr. Vu Hoang Linh. The data used in the thesis is truthful, and the quantitative analysis and conclusions of the thesis were not public in any other research.
The source of citation for this thesis is fully stated. I am able and willing to take responsibility for my thesis. Hanoi, June 2nd, 2022 Author Binh Nguyen Thanh Binh ACKNOWLEDGEMENT While writing my master thesis, I get much valuable encouragement, guidance, and support that help me complete and attain knowledge and wonderful experiences. With all my respect and gratitude, I would like to first express my sincere appreciation to my supervisor, Dr.
Vu Hoang Linh – Lecturer in the Master of Public Policy Program, for his enthusiastic instruction throughout my research process. His insightful advice, scientific knowledge, and support have inspired me and helped me improve my research. Secondly, I would like to express my gratitude to Dr. Nguyen Thuy Anh, who has guided me from my day in the bachelor's program in the University of Economic and Business - Vietnam National University.
I also would like to show my appreciation to all of my Vietnamese and Japanese professors, including Dr. Dang Quang Vinh, Prof. Fujimoto Koji, Prof. Okamoto Naohisa, and Prof.
Naka Shigeto for their valuable knowledge. I would also like to thank Ms. Pham Thi Lan Huong and Ms. Nguyen Thi Huong - Program Assistant of the Master's Program in Public Policy, for their kind support during the program.
Finally, I would like to thank my friend at Vietnam - Japan University for giving me many memorable experiences TABLE OF CONTENTS LIST OF TABLES. Adverse effects of income inequality. Effect of technological change on the economy. Effects of technology change on income gap.
Other factors affect income inequality. THE IMPACT OF TECHNOLOGICAL CHANGE ON INCOME INEQUALITY. Data and empirical methodology. Increase national technology capability.
Improving the accessibility and capability of technology. Guiding technological changes. Preparing for the technological changes. Develop education system.
Take advantage of globalization. 40 LIST OF TABLES Table 4.1 Fixed effect regression result .2 GLS random effect regression result .3 ML random effect regression result. 28 Table A1: The data used for analysis.Error! Bookmark not defined. INTRODUCTION Research background Technology is one of the drivers of economic growth and helps improve the quality of life (Andersson, 2017; Zygmunt, 2017).
Technological development has helped raise the income and reduce the number of people living in absolute poverty in developing countries (World Bank, 2008). With globalization, we would expect a rapid technological changing pace and a higher impact of technological change on social-economic situations. Although technological change is essential for growth and development, the distribution effect that technology change cause is debatable. Researchers have tried to identify the relationship between technological advancement and the income inequality in both developed countries (e., Antonelli & Scellato, 2019; Blum, 2008; Freeman, 2011; Van Reenen, 2011) and developing countries (e., Antonelli & Gehringer, 2017; Gravina & Lanzafame, 2021; Jaumotte et al.
Asia has been one of the fastest-growing regions in the world in recent years (IMF, 2021). Technological progress help Asian countries increase growth by improving productivity and creating new jobs (Sedik, 2018). However, it could also be observed that income inequality has risen in most Asian countries (ADB, 2013). Understanding the cause of inequality in Asia is crucial for the sustainable development of Asian countries.
Without proper control over inequality, it could cause harm to the development of the country of the region as a whole. High inequality could lower the impact of economic growth on reducing poverty, negatively impacts the growth rate and harms social, and political stability (Cornia & Court, 2001; Zhuang, 2018; UN, 2020) This paper will explore the impact of technological change on income inequality in selected Asian countries in the 21st century. It will first examine the impact of technological changes on income inequality in different provinces of Vietnam to see how each province reacts to 1 technology changes. From the situations in different provinces, the paper will provide recommendations to limit the negative impact of technological progress on income inequality in Vietnam.
Problem statement The impact of technological change on income inequality, in general, is debatable. The speed of technological change could have both positive (Antonelli & Gehringer, 2017) and negative (Gravina & Lanzafame, 2021; Jaumotte et al., 2013) impacts on reducing income inequality. Without proper control over income inequality, it could harm development (Cornia & Court, 2001; Ostry, Berg, & Tsangarides, 2014; Berg & Ostry, 2011; Oishi, Kesebir & Diener, 2011). However, few studies focus on analyzing the effect of technological change on income inequality in Asia.
Understanding the impact of technological change on inequality in Asia countries provides a better understanding of technological change in Asia. It contributes to a better understanding of its impact in general. The Government could use this knowledge to devise a better development strategy to archive sustainable development. Research purpose This thesis aims to evaluate the impact of technological change in 22 middle-income Asian countries.
From the evaluation, the research aims to understand the cause of income inequality better and propose a suitable policy to help narrow the income gap in these countries. Research question This master thesis aims to answer two main questions: Does technological change widen or narrow the income gap in Asian countries in recent years? How much does technological change affect income inequality? 2 Research scope and time The research will focus on the period from 2011 to 2019 in 22 developing Asian countries, including Azerbaijan, Bahrain, Bangladesh, Cambodia, China, India, Indonesia, Israel, Kazakhstan, Kuwait, Kyrgyz Republic, Lebanon, Malaysia, Mongolia, Pakistan, Philippines, Qatar, Russian Federation, Tajikistan, Thailand, Turkey, Vietnam. Research significance This thesis will overview the impact of technological changes on income inequality in selected Asian countries from 2011 to 2019. After viewing the overall impact of technological changes on income inequality, this thesis will further analyze the effect of technology on income inequality, especially its effects on Asian countries in recent years.
According to the analyzed result, the paper offers suggestions to reduce income inequality in Asia. Finally, this research will contribute an original research focusing on the impact of technological change in middle-income Asian countries. Structure of research This thesis is organized as follows: Chapter I: Introduction Chapter II: Literature review Chapter III: Theoretical framework Chapter IV: The impact of technological change on income inequality Chapter V: Policy recommendation Chapter VI: Conclusion 3 CHAPTER II. LITERATURE REVIEW Inequality Cingano (2014) explores the trend of income inequality in OECD countries and its impact on economic performance with the data collected from the OECD countries from the 1980s to 2011.
The author observes an increase in the income gap across all countries, with different paces in each country. The income gap is the result of the faster accumulation of the higher-income class and reflects the vulnerability of the lower-income class. Using the econometric analysis, the author finds that inequality harms economic growth in the long run. The gap between low-income households with the rest of the population is the main factor that affects economic growth.
The paper also evaluates the evidence for the effect of differences in human capital on growth. The research shows that widening the income gap decreases the skills development of individuals with poorer parental education backgrounds, both in terms of the quantity and quality of education attained. The author recommends that redistribution policies using taxes and transfers and promoting equality of opportunity in access to and quality of education are good tools for improving social outcomes and sustaining long-term growth. De Maio (2007) contributes a conceptual introduction to eight ways of measuring income inequality.
These include the Gini coefficient, Atkinson index, Coefficient of variation, Decile ratios, Generalized entropy index, Kakwani progressivity index, Proportion of total income earned, Robin Hood index, and Sen poverty measure. Each measurement provides a different perspective on income inequality. The Gini index is the most popular index to measure income inequality. However, the Gini index cannot show the differences between different inequalities.
The Atkinson index includes many inequality measures. It allows for each section of the income spectrum to have different weights. The Coefficient of variation is calculated using the mean of income distribution to divide the standard deviation. However, this method cannot apply to other than data with normal distribution.
Decile ratios are calculated by dividing the income earned by the top percentage of households by 4 the lowest, for example, the top 20% and the lowest 20%. The Decile ratios enable sensitive analyses to examine the importance of each income spectrum. The Generalized entropy index is similar to the Atkinson index. The generalized entropy index had an advantage over the Atkinson index in that it could be broken down into parts to analyze area effects.
Kakwani progressivity index is used initially to measure the progressivity of tax systems. The Kakwani progressivity index is formed based on the Gini framework. The Proportion of total income is the income of the poorest nth% of the population compared to the total income. This method is easy to calculate.
However, it has limited insight into the income distribution. The Robin Hood index or the Pietra ratio is the proportion of income that needs to be transferred from the higher-than-average income to the lower-than-average to achieve an equal distribution. The Sen poverty measure combines the Gini coefficient for people under the poverty line with their average income and the headcount poverty ratio. Cornia & Court (2001) focus on the changes in national-level income inequality and the relationship between poverty, inequality, and economic growth.
They used the World Income Inequality Database (WIID) to conduct the study. In the research, they find five main issues. Firstly, the trend in income inequality since the early-mid 1980s has risen in most countries. Secondly, the technological change, unreasonably liberal economic policy regimes, and how economic reform policies were implemented are the main factors that cause the rise in income inequality worldwide.
Thirdly, a high level of income inequality or a continuous rise in the income gap reduces the effort of poverty reduction. At all growth rates, the higher the income gap, the lower the impact of economic growth on reducing poverty. Fourthly, a high level of inequality negatively impacts the growth rate and harms social-political stability. However, they also observed that the Gini index within 0.
Oishi, Kesebir & Diener (2011) use The United States of America General Social Survey data from 1972 to 2008 to find an inverse relationship between income inequality and happiness due to perceived fairness and general trust. They created a multilevel random- coefficient model to identify the negative effect of income inequality and happiness. Then 5 they used multilevel mediation analysis to reveal that higher income inequality leads to lower fair and trustworthy perceptions. The researcher also found that the lower-income groups were more affected than the higher-income groups.
The research found that the reduction in happiness was due to a lower perception of fairness and general trust, not the reduction in income. Le & Nguyen (2019) tested six theoretical models to explain the impact of income inequality on economic growth in Vietnam at the provincial level. These models are the political economy model, the capital market imperfection model, the integrated model, the socio-political instability model, the fertility/education issue model, and the social comparisons model. They found strong empirical support for the negative impact of inequality on growth through the differences in education and fertility.