Globalization's Impact on Inequality: The Kuznets Curve Perspective - Prof. Jeffrey S. Zax, Assignments of Economics

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“Globalization’s Kuznets Curve Behavior”

Econ 4626- Homework 1: “Inequality and Globalization”

In today’s global economy, there is a constant outcry over the increase in inequality between countries as more and more business is conducted on an international scale, discussed in “Inequality and Globalization” by David Moss and Anna Harrington. However, many people fail to recognize globalization for what it is, and therefore limit its possible effects on inequality to what has already been seen, which is an oversight this paper will work to correct. There is no question that global inequality has increased over the past ten years. In “Inequality and Globalization”, the authors note several markers which point to rising inequality both within countries and between them. Exhibits 3a and 3c show the US Gini index from 1968 to 2003, and the US Income Share, respectively. Exhibit 3c shows the increase in the amount of the income share held by the richest 10% of the US population over that time. This correlates directly with a loss of income share held by middle and low-income wage earners during the same time period, showcasing the movement towards inequality within the country, shown more broadly in Exhibit 3a, the Gini index. The US’s increase in inequality is not alone; Exhibits 2b and 2c show similarly behaving Gini indexes for both the United Kingdom and Hong Kong. Exhibit 13 gives more broad data, showing that although real world GDP per-capita has risen fairly consistently, workers in low-income countries enjoy a decreasing percentage of that (8.6% in 2002), while workers in high-income countries earn a consistently higher ratio of world GDP per-capita income. So while total global production is increasing, only workers in high- income countries seem to be reaping the profits, while workers in low-income countries see a shrinking share of their own earnings against global GDP per-capita, which illuminates the global shift towards inequality.

low education rate, a slow-to-motivate work force, and general isolation), and have seen stagnant growth rates because of it. As Moss and Harrington cite, The Economist

Globalization is a fairly new revelation affecting the way the world does business; therefore it is fitting that we presently see only its polarizing effects between countries. Since the advent of globalization is so recent, the world has not yet had the chance to see the diffusion of the global marketplace to many countries, and inequality is increasing as countries which are best positioned to take advantage of global business reap the benefits and leave slower-reacting countries behind. However, because globalization is an innovation like any other, it will diffuse globally as countries look to capitalize on their advantages such as large labor pools, high-skilled workers, up-to-date and competitive capital, and high production capabilities. The countries without these advantages will eventually develop them as globalization diffuses, as it has already started to, and inequality will decrease through faster growth rates for those countries. In the mean time, we will have to learn how to respond to higher rates of inequality throughout the world.

argues that calling such countries “victims of globalization… would be an odd conclusion, given that sub-Saharan economies are so comparatively isolated from the rest of the world economy- by force of history, circumstance and, to a large extent, the policies of their own and other governments. Sub-Saharan Africa plainly suffers not from globalization, but from lack of it”.