Technology, Not Globalization, Feeds Income Inequality

Wall Street Journal: Technology, Not Globalization, Feeds Income Inequality

Critics of globalization often cite increasing income inequality in their opposition, but a new study suggests that technological advances, not globalization, is responsible for an increase in the gap.

“The observed rise in inequality across both developed and developing countries over the past two decades is largely attributable to the impact of technological change,” Florence Jaumotte, Subir Lall, and Chris Papageorgiou write in an International Monetary Fund working paper.

The authors find that inequality has increased in most countries and regions over the past two decades. They separate the influences of trade and financial globalization, saying the two forces have opposite influences on inequality. “Trade liberalization and export growth are found to be associated with lower income inequality, while increased financial openness is associated with higher inequality,” they write.

However, technological progress is seen to have a separately identifiable effect on inequality, and that effect is bigger than trade and financial globalization combined. The two aspects of globalization effectively cancel each other out, the authors argue, leaving technology as the main culprit in the income gap. …