Chapter 4 Globalization and Inequality
- International Monetary Fund. Research Dept.
- Published Date:
- April 2007
This chapter examines the relationship between the rapid pace of trade and financial globalization and the rise in income inequality observed in most countries over the past two decades. The analysis finds that technological progress has had a greater impact than globalization on inequality within countries. 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 in inequality. It should be emphasized that these findings are subject to a number of caveats related to data limitations, and it is particularly difficult to disentangle the effects of technology and financial globalization since they both work through processes that raise the demand for skilled workers. The chapter concludes that policies aimed at reducing barriers to trade and broadening access to education and credit can allow the benefits of globalization to be shared more equally.