Working Paper: NBER ID: w14643
Authors: James E. Anderson
Abstract: Does globalization widen inequality or increase income risk? In the specific factors continuum model of this paper, globalization widens inequality, amplifying the positive (negative) premia for export (import- competing) sectors. Globalization amplifies the risk from idiosyncratic relative productivity shocks but reduces risk from aggregate shocks to absolute advantage, relative endowments and transfers. Aggregate-shock-induced income risk bears most heavily on the poorest specific factors, while non-traded sectors are insulated. Heterogeneous shocks to firms induce Darwinian competition for sector specific factors that is harsher the more productive the sector. Wage bargaining implies within-sector wage dispersion that falls or rises with export intensity depending on the joint distribution of sectoral and firm shocks.
Keywords: Globalization; Income Distribution; Specific Factors; Inequality
JEL Codes: F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Globalization (F60) | Inequality (D63) |
| Globalization (F60) | Sector-specific wage premia (J31) |
| More productive firms (D21) | Less productive firms (D22) |
| Globalization (F60) | Individual income risk (D31) |
| Globalization (F60) | Aggregate income risk (G59) |
| Idiosyncratic relative productivity shocks (D89) | Individual income risk (D31) |
| Aggregate shocks (E19) | Aggregate income risk (G59) |