NCPA - National Center for Policy Analysis

Globalization and Economic Inequality

March 29, 2002

The world economy has become more unequal over the last two centuries. That inequality is characterized by a widening income gap among nations, but not necessarily within them. The world economy also became more integrated, leading some economists to suggest a relationship between global economic integration and inequality.

Researchers say that increasing globalization has probably mitigated the effects of inequality between nations that participate in global markets. The nations that gained the most are poor countries that changed their policies to exploit global markets, while the ones that gained the least did not, or were too isolated to effectively change economic and political policy.

In analyzing economic data from 1820 to the present, researchers have found:

  • The dramatic widening of income gaps between nations probably has been reduced by globalization of commodity and factor markets, at least for countries integrated into the world economy.
  • Within labor-abundant countries, before 1914, opening up to international trade and factor movements lowered inequality.
  • Within labor-scarce countries, prior to 1914, opening up to international trade and factor movements raised inequality, particularly where immigration was massive.
  • All effects considered, more globalization has meant less world inequality.

World incomes would still be unequal with complete global integration, just as they are in any large integrated national economy, such as the United States or Japan. But with only negligible barriers to trade, migration and capital movements, incomes would be less unequal than today's barrier-filled, partly globalized world economy.

Source: Les Picker, "Does Globalization Make the World More Unequal?" NBER Digest, September 2001; based on Peter Lindert and Jeffrey Williamson, "Does Globalization Make the World More Unequal?" NBER Working Paper No. 8228, April 2001, National Bureau of Economic Research.

For NBER Digest

http://papers.nber.org/papers/w8228

 

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