Back in 2015-2016, I wrote a series of posts related to globalisation and inequality (see
here,
here,
here,
here, and
here). The overall conclusions from those posts was that global inequality has been decreasing over time, growth in China has been a big contributor to this, but that future continuation of growth in China may eventually lead to increases in inequality (as increases in inequality
within China increasingly contribute to increases in global inequality).
An interesting aspect to the question of how global inequality has changed over time is the contribution of globalisation. So, I was interested to read
this recent article (ungated) by Martin Ravallion (Georgetown University, but formerly at the World Bank), published in the
Journal of Economic Literature. In the article, Ravallion reviews two important recent books on global inequality, being Branko Milanovic's
Global Inequality: A New Approach for the Age of Globalization and Francois Bourguignon's
The Globalization of Inequality. Both books are on my (very long) list of books-to-read-soon, so this review was timely for me to read, especially since you can always rely on Ravallion to give a very forthright opinion. His summary of the thesis of both books is:
...the present period of globalization is essentially seen as the joint cause of both falling inequality between countries and rising inequality within countries...
...the popular argument is that global economic integration has shifted relatively low-skilled jobs from the rich world (driving up its contribution to the within-country component of global inequality) to labor-abundant low-wage countries (driving down the between-country component of global inequality).
However, Ravallion isn't as convinced about the centrality of the role of globalisation in reducing global inequality:
My reading of the literature on the empirical determinants of economic growth at country level does not give me confidence that trade openness has been as an important driving force as the authors suggest. A reasonable summary of the evidence would probably be that trade has helped promote growth and poverty reduction in the developing world as a whole, but that is only one of a number of relevant factors, which include aspects of the initial distribution of income and human development...
Inequality appears to fall in some countries when they are opened to trade and increases in others. And there are clearly many other forces in play.
I, and hopefully my ECONS102 students given that was the most recent topic we covered, would note that trade is just
one aspect of globalisation, among many. Although it may be important, there are many trends that together constitute globalisation. Ravallion touches only lightly on those other aspects, but overall for the two books he concludes that:
There has been considerable variance across countries in both their growth rates and the changes in inequality, and trade openness does not seem to stand out as the major generalizable causative factor that these books, and many other observers, assume. Technological change in unequal settings could well be a much stronger force than expanding trade. Policies have mattered to both growing poor economies and redressing inequality within countries. And these policies can coexist with considerable global integration. Globalization may well be getting too much credit, and being blamed for too much.
Dani Rodrik is another globalisation sceptic, and his arguments are neatly summarised in his book
The Globalization Paradox (which I reviewed
here). However, Rodrik isn't sceptical about the role of globalisation in inequality, and in
a recent paper, he notes explicitly China's role in both declining global inequality and increases in within-country inequality:
[China] grew rapidly off the back of an export-oriented industrialization model: it created tens of millions of better-paying, more productive jobs in urban factories, the output of which flooded the markets of advanced economies. The transition from socialism to a more market-oriented system enabled income gaps to rise within Chinese society.
At the same time, the sharp rise in Chinese imports of relatively labor-intensive goods hit production workers in the rich economies particularly hard, just as standard trade theory would predict. Imports of labor-intensive goods predictably exerted a negative impact on wages at the low end of the earnings distribution.
However, the reduction in global inequality from China's growth are coming to an end, and Rodrik argues that it seems unlikely that other countries can follow China's model:
Ultimately, global inequality will be reduced only by faster economic growth in the developing world. The good news is that the last quarter century has shown this is possible, through better policies in the poor nations. The bad news is that export-oriented industrialization, the model that has produced the most rapid and sustained development successes to date, seems to have run out of steam.
Rodrik's solution is migration, which I note was one of the three ways that Branko Milanovic also argues that global inequality can be reduced (as I posted about
here). Specifically, Rodrik notes that:
The quickest way to sharply reduce global inequality would be to drop all restrictions on labor mobility in rich countries. Yet this would cause the bottom of the labor market in those countries to collapse, and possibly cause severe institutional and political damage that undermines productivity levels in the host countries.
A more limited program of temporary work visas, with real carrots and sticks that ensured high rates of return, would produce substantial benefits to participants.
As Michael Clemens has
also noted, more open international migration is a policy with large and clear potential benefits.
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