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The anti-globalisation movement claims that capitalist international trade makes the rich richer and the poor poorer. However a recent paper from the National Bureau of Economic Research[1] finds almost the opposite is true. Increasing globalisation has mitigated the effects of inequality between nations. Those that gained the most from globalisation are those poor countries that changed their policies to exploit it. The ones that gained the least did not, or were too isolated to effectively change economic and political policy. The authors analysed economic data from 1820 to the present, and reached five conclusions. · The dramatic widening of income gaps between nations has probably been reduced by globalisation of commodity and factor markets, at least for those countries that integrated into the world economy. · In labour-abundant countries before 1914, opening up to international trade lowered inequality. · In labour-scarce countries prior to 1914 opening up to international trade and factor movements raised inequality, a powerful effect where immigration was massive. · All effects considered, more globalisation has meant less world inequality. · World incomes would still be unequal if there was complete global integration, just as they are in any large integrated national economy, such as the United States or Japan. But, they would be less unequal in such an economy than they would be in one that is fully segmented. The authors conclude that an integrated world economy with negligible barriers to trade, migration, and capital movements would be less unequal than today's barrier-filled, partly globalised world economy. They acknowledge the fear that such a globalised world would have vast regions with inferior education and chaotic legal institutions, and would be more unequal than societies found in economies such as the United States or the European Union. However, they conclude that the source of that inequality would be poor government and non-democracy in the lagging countries, not the effects of globalisation. Here is the abstract: “The world economy has become more unequal over the last two centuries. Since within- country inequality exhibits no ubiquitous trend, it follows that virtually all of the observed rise in world income inequality has been driven by widening gaps between nations, while almost none of it has driven by widening gaps within nations. Meanwhile, the world economy has become much more globally integrated over the past two centuries. If correlation meant causation, these facts would imply that globalization has raised inequality between nations, but that it has had no clear effect on inequality within nations. This paper argues that the likely impact of globalization on world inequality has been very different from what these simple correlations suggest. Globalization probably mitigated rising inequality between participating nations. The nations that gained the most from globalization are those poor ones that changed their policies to exploit it, while the ones that gained the least did not, or were too isolated to do so. The effect of globalization on inequality within nations has gone both ways, but here too those who have lost the most from globalization typically have been the excluded non-participants. In any case far too small to explain the observed long run rise in world inequality.” Click here for the full paper |
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