In preparation for this post, you should review available in the course module or e-reserves for this week. In your initial post, you should specify which resources you reviewed and then respond to
the following question.
The question seeks to understand the relationship between globalization and income inequality. The existing literature offers different perspectives on this relationship, and a critical analysis of various theories and empirical studies can help shed light on this complex topic.
One influential school of thought argues that globalization exacerbates income inequality. According to this perspective, the liberalization of trade and investment leads to a concentration of wealth in the hands of a few, while the majority of workers face stagnating wages. Proponents of this view often highlight the role of multinational corporations in exploiting cheap labor and contributing to the displacement of domestic industries.
Enhancing this argument, researchers such as Branko Milanovic introduce the concept of “global plutocracy,” emphasizing the rise of a global elite that benefits from globalization while the incomes of the lower and middle classes stagnate or decline. Milanovic’s “elephant graph” graphically illustrates how this process affects incomes across the global income distribution, with the greatest gains observed among the global top 1% and the middle classes of emerging economies, while the lower-middle and working classes in developed countries experience stagnation.
Another perspective, however, contends that globalization can be a force for reducing income inequality. Proponents of this view argue that increased trade and investment can lead to economic growth, job creation, and poverty reduction. This argument posits that as countries integrate into the global economy, efficiency gains can be realized, leading to higher wages and increased living standards.
The World Bank has provided empirical evidence supporting this claim, suggesting that globalization has contributed to poverty reduction. The bank’s research indicates that the number of people living in extreme poverty has declined significantly over the past few decades, coinciding with increased globalization. However, it is worth noting that poverty reduction initiatives often go hand in hand with domestic policy reforms and investments in education, healthcare, and infrastructure, casting doubt on the exclusive role of globalization in poverty reduction.
A nuanced perspective suggests that the relationship between globalization and income inequality depends on various factors, including a country’s level of development, institutional quality, and policy choices. For instance, some studies argue that globalization can exacerbate income inequality in developing countries with weak social safety nets and labor market regulations. In these contexts, multinational corporations may exploit cheap labor and engage in practices that exacerbate inequalities.
However, other studies contend that globalization can present opportunities for developing countries to catch up with richer nations. For example, successful industrialization processes in East Asian economies, such as South Korea and Taiwan, are often cited as evidence of how globalization, when coupled with effective industrial policies, can lead to income convergence.
Furthermore, the impact of globalization on income inequality can be mediated by domestic policy interventions. For instance, countries that have implemented redistributive policies, such as progressive taxation and social safety nets, may be better equipped to mitigate the negative effects of globalization on income disparities. These policies can help redistribute the gains from economic integration to ensure a more equitable distribution of income.
Ultimately, understanding the relationship between globalization and income inequality requires a multidimensional analysis that considers the contextual factors, policy choices, and mechanisms through which globalization operates. While some arguments suggest that globalization exacerbates income inequality, others highlight its potential to alleviate poverty and foster economic growth. The complexity of this relationship necessitates careful analysis of empirical evidence, as well as nuanced theoretical frameworks that account for the diverse effects of globalization across different countries and contexts.
a) Milanovic, B. (2016). Global Inequality: A New Approach for the Age of Globalization. Harvard University Press.
b) World Bank. (2018). Poverty and Shared Prosperity 2018: Piecing Together the Poverty Puzzle. World Bank.