Eric S. Maskin (2014) - Why Haven’t Global Markets Reduced Inequality in Developing Economies?

Eric S. Maskin (2014)

Why Haven’t Global Markets Reduced Inequality in Developing Economies?

Eric S. Maskin (2014)

Why Haven’t Global Markets Reduced Inequality in Developing Economies?

Abstract

The theory of comparative advantage predicts that globalization should cause income inequality in emerging economies to fall. However, this has not happened in the current era of increasing international trade (although the prediction held up well for previous globalizations). In this lecture, I sketch an alternative theory - developed in collaboration with Michael Kremer - that seems to fit recent history well. Our model conceives of globalization as an increase in international production (Computers provide a good example: they may, for instance, be designed in the U.S., programmed in Europe and assembled in China). We show that when the barriers to international production come down, moderately-skilled workers in emerging economies get new employment opportunities and unskilled workers don’t. It is this disparity, we argue, that accounts for rising inequality in many developing countries.

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