Inequality and poverty in the shadow of global tensions

Purpose While domestic factors such as economic policies, institutional quality and social safety nets have traditionally driven social disparities, escalating international tensions and geopolitical risks are increasingly significant contributors to income inequality and poverty. Global factors like oil price volatility, financial market fluctuations and economic uncertainties exacerbate these issues by destabilizing economies, disrupting investment flows and weakening social welfare systems. Vulnerable populations face intensified challenges as geopolitical risks widen income gaps and deepen poverty levels. Addressing these global influences is critical to mitigating their impact and ensuring more equitable development, particularly in regions most susceptible to external shocks. Design/methodology/approach We employ an autoregressive distributed lag model with an unbalanced fixed-effects panel to analyze the short- and long-term impacts of geopolitical risks on income inequality and poverty. Using data from 55 advanced and emerging economies from 1990 to 2023, it incorporates GPR indices, such as those by Caldara and Iacoviello (2022), to quantify international tensions. Separate regressions are conducted for three panels – 24 EMEs, 31 AEs and the entire sample – to capture development-level variations. The analysis excludes periods of heightened geopolitical conflict and focuses on post-2008 transitions, offering nuanced insights into temporal and developmental contexts. Findings We find that geopolitical risks exacerbate income inequality and poverty, with EMEs experiencing more severe impacts than AEs. EMEs are disproportionately affected due to their reliance on foreign investment, export-driven economies, and weaker social safety nets, heightening vulnerabilities for low-income populations. Military expenditure widens income disparities, particularly in AEs, where it influences public investment. Global factors such as oil price volatility, financial market fluctuations and economic uncertainties amplify disparities, while inflation emerges as the key domestic driver of inequality and poverty. These findings emphasize the critical need for policies enhancing geopolitical stability and resilience. Originality/value The study contributes to the literature by systematically examining geopolitical risks’ short- and long-term impacts on income inequality and poverty across 55 advanced and emerging economies. Unlike previous research, it incorporates empirically validated GPR indices, distinguishes between economic contexts and explores how global and domestic factors interact to drive disparities. The study provides nuanced insights into geopolitical tensions’ economic and social implications by focusing on emerging economies’ heightened vulnerabilities and advanced economies’ structural inequalities. It offers valuable policy recommendations for enhancing institutional resilience, mitigating global shocks and addressing the disproportionate impact on vulnerable populations.