Is Rising Inequality Unavoidable in a Globalizing Economy Characterized by Rapid Technical Change?

Abstract

This paper assesses how correct is the view that a rise in income inequality is unavoidable in a globalizing economy characterized by rapid skill-biased technical change. To do so, it reviews the inequality trends recorded in the main developed and developing region during the last three decades. The data show that inequality rose in almost 70% of the countries with data during the years 1980–2000. These years were characterized by rapid internal and external liberalization and privatization. Yet, this trend was reversed during the subsequent decade, when Latin America and parts of sub-Saharan Africa and Southeast Asia recorded a decline in inequality. The evidence also suggests that while globalization and technical change may indeed increase inequality, domestic factors and policies were often behind the inequality increases of the last three decades.