Globalization and Income Inequality - Research Paper Example

ABSTRACT Globalization is increasingly associated to inequality, but with normally divergent findings. Many researchers show that globalization activities accentuates inequality in income both within and between nations. This paper presents a detailed review of current literature that links globalization among countries of the world to inequality. The article concludes from the existing literature that the concern of globalization and inequality is real particularly those in developing nations. The paper recommends that there is need for developing nations to unite, adopt policies and contracts that serve their actual cause to benefit more from globalization. INTRODUCTION Globalization involves the process of globalizing which implies particularly the growth of a tremendous integrated global economy marked particularly by the free flow of capital, free trade and the tapping of low-cost foreign labor markets. The world has witnessed various advances in the field of communication and enhanced technology that have both made globalization possible. Globalization has become a common phenomenon in the world wherein the most production of goods and services has become international. A key element of the current wave of increased globalization is foreign production chains that presently allow workers to pair easily up across various borders. Although globalization has been seen to have benefits, there are various arguments put forward by lobby societies and protestors who oppose the conditions under which globalization operates. Likewise, the incidence of inequality has been on the rise with many nations not getting a fair share of this global trend. The following literature addresses these concerns and provides more insight into the issue of globalization and inequality. SCOPE OF GLOBALIZATION AND INEQUALITY Effect on GDP Joyce (2008) in his research addresses the gap that exist between the richest and poorest nations in terms the average GDP per capita levels. The author argues that despite the tremendous increase in globalization, developing nations have continued to drag behind economic wise. In his research, the author provides a review of the evidence on the contributing factors of the disparities in GDP per capita, which has concentrated on the role institutions play in fostering development. These institutions mainly reflect prevailing domestic conditions; however, globalization, as indicated by the Joseph, has an impact on development of these nations. Effect on economy The work adds to the knowledge that globalization has direct effects on economic activity, which impacts the occurrence of poverty, but all the channels of transmission are not fully understood. For instance, the operations and the gain are never realized by developing countries in the long run. The article becomes relevant in addressing issues of inequality brought about trade globalization. Inequality witnessed is tolerated as a needed side-effect of raising economic growth within a nation. Through globalization that both developed and developing countries are involved, goes the argument, the wages of a segment of the workforce escalates, but the same case doesn’t happen for other portion, so the gap in between increases. Effect on Regional and Social integration In a research conducted by Jason Beckfield (2006), there was the idea that globalization, as seen in recent days, has become more prominent on the sociological agenda. They also agree with stratification scholars who have implicated globalization to the increased income inequality witnessed in various advanced capitalist countries. The work explores the most important yet more ignore concept by sociologist’s prevalent form of internationalization called regional integration. The construction of the international economy or regional integration and policy within negotiated regions should matter for income inequality. Beckfield (2006) adds more insight to the argument of globalization and inequality among countries by introducing the concept of regional economic integration. Regional economic integration becomes very important in understanding the subject. This is because; as employees of a country are exposed to foreign competition labor unions tend to be weakened. The study provided evidence from fixed effects and random-effects models of various income inequalities witnessed in Western Europe to support these arguments. The results from the finding of the study showed that regional integration nearly explains 50% of the raised in income inequality in the Western European countries analyzed in this article. The effects of regional integration on income inequality are net of numerous controls, such as two conventional measures of globalization, implying that a sociological technique to regional integration contributes to the understanding of increasing income inequality majorly witnessed in Western Europe. Effect on inequality Mehmet A. Ulubaşoğlu (2004) in his article makes a rather important contribution to the subject by using economic analysis to provide an argument that increased globalization raises the level of inequality in some set of countries. The economic analysis indicates that developing countries tend to be disadvantaged by the goods that they channel to the foreign market. The products that developing countries trade with in international market are labor-intensive goods and agricultural goods that fetch less in the international market. Ezcurra (2013) in his work supports the idea that economic globalization increase inequalities particularly among less developed country participants. In his study, Ezcurra investigates the relationship that exists between economic globalization using a panel of 47 nations. The article explored these relationships for 17 years, employing a measure of foreign trade or globalization that differentiates the various dimensions of economic global integration. The outcome of the study indicated that there exist a positive correlation and statistically significant relationship between economic globalization among these nations sampled and the degree of regional disparities. Countries with a greater degree of economic integration with the rest of the world tend to record higher levels of inequality; this was particularly with the developing countries. According to Dreher and Gaston (2008) the concerns over increased globalization and how it is impacting on the level of inequality is very real, and it has increased more than before. Their study titled Has globalization increased inequality? uses data on household income inequality, industrial wage inequality, as well as indicators of the economic, political and social dimensions of globalization to explore this controversial concern. The authors adds their contribution to this topic by purporting to explain why the increasing level of globalization may have insignificant, adverse or even beneficial impacts on earnings and income inequality. Most importantly, the study done by Axel and Gaston (2008) found that globalization has aggravated inequality making their study very relevant to this topic; this is specifically true in the in a case in point of income inequality in OECD nations. Effect on international market Globalization means removal of various trade tariffs. The authors alluded that with the elimination of trade barriers, there are possibilities that such conditions encourage structural unemployment to occur in the short run. Nonetheless, it is interesting to note that whenever tariffs are increased it encourages domestic economic instability from foreign trade cycles, as nations became dependent on international markets. The article gives the example of the economic crisis in Asia of 1998 to support their claim. Mehmet A. Ulubaşoğlu in his work further pointed out that International markets may not seem a level playing field as many individuals perceive. Many developed nations with surpluses likewise dump their fewer quality products on the world markets at low cost for a better exchange. In this regard, the research indicated that some efficient firms are likely to find it challenging to compete for long periods under conditions like this. The article thus concludes that globalization has largely ensured inequality in income distribution due to prevailing economic conditions that the countries find themselves. The article explores economic performance in terms of GDP per capita by ranking various nations in Asia. The article however, failed to provide enough quantitative data. Inadequate data limits the study and various economic concepts that could have made the study more relevant in addressing the concept of globalization of inequalities among nations. Effect on developing countries The explanation given by the research indicates that the prevailing market conditions never favor the growth of developing countries to the degree at which other industrial countries grow. The finding from the study conducted by Roberto Ezcurra is robust to the inclusion of further descriptive variables and to the choice of the exact measure employed to quantify the significance of spatial inequality within the sample 47 nations. Through analysis, the study revealed that the spatial effects as a result of economic globalization among countries is greater in middle and low -income nations, whose levels of regional disparities are on average significantly higher than in high-income countries. The study further confirms the high inequality witnessed today in poor countries has prompted new theories. The findings from the study likewise confirm that whenever rich countries shift part of their production process to poor countries. More often than not the gains are never beneficial to these poor nations Contrary to popular ideologies; multinationals in poor nations often use skilled workers while paying high wages. They concluded in their study that as things stand, globalization will always struggle to promote equality in trade gains within the poorest nations of the world. Drawbacks of globalisation Hamdi (2013) the article contributes to the topic of inequality brought about by globalization by specifically examining drawbacks that are brought by increased globalization. The article discusses the drawbacks from a perspective that globalization causes inequality when in the developing as seen in three important fields such as trade processes and economic, health and education systems. The various drawbacks according to the study by Hamdi (2013) are due the strategies employed by the countries some of which are from the point of entry to the foreign market. Likewise, the study agrees that the business world has become more dynamic and competitive, and this can largely contribute to the inequality witnessed in the long run. The research done by Hamdi (2008) becomes very critical in understanding the contributing factors to inequalities experienced by countries due to increased globalization from different perspectives. In other words, the research provides various globalization contributors to inequality. CONCLUSION Globalization has today become an important phenomenon in the world. Globalization been seen as a need and no nation willing to live in trade isolation. However, the manner in which globalization is operated has disadvantaged many nations particularly those that are still developing. With the impact of globalization varying from country to the other depending on the level of economic, social and political advancements. Nonetheless, this paper recommends that countries such as the LDCs can counteract the adverse impacts brought by globalization by uniting, adopting policies and contracts that serve their actual cause. This will ensure they have a level ground and gain fairly in matters of globalization. References Dreher, Axel, and Noel Gaston. ""Has Globalization Increased Inequality?" ." Review of International Economics (2008): 516-36. Ezcurra, Roberto, and Andrés Rodríguez-Pose. ""Does Economic Globalization Affect Regional Inequality? A Cross-country Analysis." World Development (2013): 92-103. Hamdi , Fairooz Mustafa . ""Impact of Globalization in the Developing Countries." World Development (2013): Vol.3, No.11 . Jason Beckfield. "European Integration and Income Inequality." American Sociological Review Vol. 71, No. 6 (2006): 964-985. Joyce, Joseph p. . "Globalization and Inequality Among Nation.." (2006): . Retrieved from: https://www.wellesley.edu/sites/default/files/assets/departments/economics/files/joyce- inequal2.pdf Ulubasoglu, Mehmet A. : .. ""Globalisation and Inequality."." The Australian Economic Review (2004): 116-22. Read More