Rising income inequality: Technology, or trade and financial globalization?

Abstract

The paper examines the relationship between the rapid pace of trade andfinancial globalization and the rise in income inequality observed in most countries overthe past two decades. Using a newly compiled panel of 51 countries over a23-year period from 1981 to 2003, the paper reports estimates that supporta greater impact of technological progress than globalization on inequality.The limited overall impact of globalization reflects two offsetting tendencies:whereas trade globalization is associated with a reduction in inequality, financialglobalization—and foreign direct investment in particular—is associated with anincrease in inequality. © 2013 International Monetary Fund.