Effects of Globalization on World Income Inequality

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Effectsof Globalization on World Income Inequality

Globalizationrefers to the free allocation or movement of capital, goods andservices from one nation to the other across the world (Ekmekçioğlu,2012).It is also a constant practice that allows western economies toresourcefully spread globally. The entire process of assimilating theworld economies has reached unparalleled levels outshining the peakof the pre-First World War. Unfortunately, the new changes in theglobal economic setting have created significant economicconsequences amongst different people in every income group.

Developingand developed nations struggle with the issue of increased disparityin income distribution. Empirical evidence shows that most nationshave for the past two decades experienced reduced growth andincreased inequality. Cornia (1999) blames globalization for the evergrowing inequality in income levels between people in differentareas. Moreover, globalization has a constructive relationshipbetween income inequality and the production outsourcing processes.These processes, which are performed by multinationals, lead todisparity between the least and highly skilled employees as theformer earns a salary and the latter receive significant wages.

InternationalTrade Theory maintains that undertaking any business results in thegrowth of the nominal and real return on the abundant factor in anation and conversely to a scarce factor (Ekmekçioğlu, 2012).Countries with sufficient supply of human and physical capital,especially the developed nations experience improved liberation ortrade openness. The nominal and real income in those developedcountries increase for businesspeople. Essentially, such economicrelations indicate that the arrangement lessens income disparitylevels. Globalization reduces and increases inequality in developingand developed nations respectively (Dollar and Kraay, 2004, p.22).

Accordingto the dependency theory, the reliance of the developed nations bythe developing ones created negative, long-term social and economicimplications for the latter (Ekmekçioğlu, 2012).Dependency produced and sustained mostly by the current tradedependency and FDI movements dependence. FDI penetration in the lowand middle income nations hampers their economic development andaugments income disparity by producing disparities and dualism indifferent countries and their productive systems.

References

Cornia,G. (1999). Liberalisation, Globalization and Income Distribution.UNU/WIDER Study.

Dollar,D. &amp Kraay, A. (2004). Trade, Growth and Poverty. TheEconomic Journal, 114,493,22-49.

Ekmekçioğlu,E. (2012). The .InternationalJournal of Academic Research in Business and Social Sciences,2(4): 140-143.

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