A recent International Monetary Fund working paper entitled “Rising Income Inequality: Technology, or Trade and Financial Globalization?” provides a fascinating look at the almost universal phenomenon of rising income inequality. The abstract outlines the central conclusions of the paper:
We examine the relationship between trade and financial globalization and the rise in
inequality in most countries in recent decades. We find technological progress as having a
greater impact than globalization on inequality. The limited overall impact of globalization
reflects two offsetting tendencies: whereas trade globalization is associated with a reduction in inequality, financial globalization—and foreign direct investment in particular—is associated with an increase. A key finding is that both globalization and technological changes increase the returns on human capital, underscoring the importance of education and training in both developed and developing countries in addressing rising inequality.
The authors of this paper, Florence Jaumotte, Subir Lall, and Chris Papageorgio, do a remarkable job of looking at the roles of the interacting forces of technology, trade globalization, and financial globalization in producing this inequality. Growth of inequality, they show, is widespread around the world, but with significant variations:
...inequality has risen in all but the low-income country aggregates over the past two decades, although there are significant regional and country differences. In addition, while inequality has risen in developing Asia, emerging Europe, Latin America, the Newly Industrialized Economics, and the advanced economies over the past two decades, it has declined in some sub-Sahara African countries. ....among the largest advanced economies, inequality appears to have declined only in France, whereas among the major emerging market countries ..., trends are more diverse, with sharply rising inequality in China, little change in India, and falling inequality in Brazil.
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