Book review: Globalization and Inequality

I just finished reading Elhanen Helpman's 2018 book Globalization and Inequality. The book is essentially a 175-page literature review on the topic. However, calling it a literature review is not an attempt to denigrate the book, which is excellent. Helpman does a great job of clearly outlining the evidence spanning over two decades of research on the relationship between trade and inequality. If I had one criticism, it is that narrowing of focus. As I note in my ECONS102 class, globalization is not synonymous with trade. To be fair though, Helpman makes this point himself in the first paragraph of the preface, saying:

...I will review the theoretical mechanisms through which foreign trade and offshoring affect earnings inequality and the evidence on their quantitative effects. Other aspects of globalization, such as international capital flows or migration, will be addressed only in passing.

I guess that addressing those other aspects would have led to a much longer book. If you are interested in the topic of trade and globalisation, and can handle the economic theory (since a lot of the trade literature is theory-heavy), then this book will be good for you. If you are interested but the theory is not for you, then the concluding chapter is essentially a condensed and non-technical review and will likely give you what you need.

So, what does the literature on foreign trade and offshoring, and their effects on earnings inequality, have to say? Helpman starts by outlining the recent experience of inequality over time - a topic which I have written about before (see here and here, and the links at the bottom of those posts, for examples). He then talks through the literature, more or less in chronological order. The ordering is for good reason. As he notes in the conclusion, the early studies (from the 1990s) set the scene, finding that:

...trade did not play a large role in altering inequality.

He then goes on to outline the many modelling and methodological extensions that have been subsequently added to those earlier studies. However, despite the innovations the conclusion has not really changed:

As is apparent from this short (and selective) review of the empirical findings, globalization in the form of foreign trade and offshoring has not been a large contributor to rising inequality. Multiple studies of different events around the world point to this conclusion.

This conclusion will not be palatable to all readers, of course. However, it is based on what I believe is a thorough and balanced review. I found it gratifying that the conclusion agrees with the findings of one of my PhD students, whose work used cross-country data on trade, migration, and inequality (more on that in a future post). Trade has an ambiguous effect on inequality - arguments can be made in both directions, increasing and decreasing. The theoretical and empirical studies that Helpman reviews in this book demonstrate clearly that the net effect of trade on inequality is only small.