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Inequality and Globalization: Demand versus Supply Forces and Local Outcomes
Type
applied research project
Start Date
01 January 2015
End Date
31 December 2017
Status
scheduled
Keywords
Globalization
Inequality
Trade
Demand and Supply Forces
Description
In this project, we study the causes and consequences of changes in inequality within countries and its relation to the globalization process. The project is motivated by the fact that global economic integration went hand in hand with rising economic inequalities which, in some countries, has been dramatic. Income concentration in the U.S. has increased from a top-1% income share of 8 percent in the 1970s to above 20 percent in recent years (Saez 2013). Inequality is on the rise also in many countries, including Switzerland (Foellmi and Martinez 2013). The literature has extensively documented increasing wage inequalities within and between skill groups (Autor and Acemoglu 2011, OECD 2011). Recent trends also indicate shifts in the factor income distribution, with labor shares falling in many rich countries (Guscina 2006).
A large literature has emerged that relate causes and consequences of these inequality changes to increased integration of the world economy. Our project will contribute to this literature and intends to break new ground in two broad areas. First, we want to explore how inequality affects (and is affected by) the globalization process through demand and supply forces. Previous literature has mainly focused on supply forces. However, demand forces are clearly important and interesting: when rich consumers demand more and better goods than poor consumers, inequality affects the structure of the economy and the international division of labor. Building on our own and others' recent research we will study how within-country inequality volume and structure of R&D, innovations and patenting, technology diffusion and structural change, taxation and redistrubtion, labor market outcomes, and local prices and qualities. This focus on a much broader range of outcomes differentiates our new project from the previous 2012-2014 Sinergia project "Inequality and International Trade'' which concentrated on (within- and between-country) inequality-effects on patterns of international trade. Other parts of the new project will concentrate on inequality-effects that work through the supply channel. Two subprojects will investige how the combination of inequality and imperfect capital markets affect trade and inter-sectoral reallocation. Another subproejct will study how industry-specific trade shocks affect innovations and patent flows. The second focus of our project is empirical and analyzes outcomes on local markets. Globalization and rising inequalities affect some local markets more strongly than others. By exploring the regional variation of various interesting economic (and political) outcomes, this project will contribute to a better understanding of the consequences of globalization and rising inequalities materialize on local markets. Two projects will focus on internal labor mobility, with one subproject exploring how local import exposure induces residents to migrate; and another project studying how local income inequality and taxation determine internal migration. Two further subprojects will focus on the effect of inequality on local prices for consumer goods, using detailed price (scanner) data from U.S. retail stores; and highly disaggregated data from the Swiss Bundesamt fuer Statistik. One subproject will study productivity spillovers resulting from local trade shocks in U.S. manufacturing. Two final subprojects will study how inequality and globalization affect political outcomes, with one subproject focusing on support for pro-trade policies in Swiss referenda; and another subproject looking at the impact of the globalization-induced fading of middle-class jobs on political polarization in the U.S.
A large literature has emerged that relate causes and consequences of these inequality changes to increased integration of the world economy. Our project will contribute to this literature and intends to break new ground in two broad areas. First, we want to explore how inequality affects (and is affected by) the globalization process through demand and supply forces. Previous literature has mainly focused on supply forces. However, demand forces are clearly important and interesting: when rich consumers demand more and better goods than poor consumers, inequality affects the structure of the economy and the international division of labor. Building on our own and others' recent research we will study how within-country inequality volume and structure of R&D, innovations and patenting, technology diffusion and structural change, taxation and redistrubtion, labor market outcomes, and local prices and qualities. This focus on a much broader range of outcomes differentiates our new project from the previous 2012-2014 Sinergia project "Inequality and International Trade'' which concentrated on (within- and between-country) inequality-effects on patterns of international trade. Other parts of the new project will concentrate on inequality-effects that work through the supply channel. Two subprojects will investige how the combination of inequality and imperfect capital markets affect trade and inter-sectoral reallocation. Another subproejct will study how industry-specific trade shocks affect innovations and patent flows. The second focus of our project is empirical and analyzes outcomes on local markets. Globalization and rising inequalities affect some local markets more strongly than others. By exploring the regional variation of various interesting economic (and political) outcomes, this project will contribute to a better understanding of the consequences of globalization and rising inequalities materialize on local markets. Two projects will focus on internal labor mobility, with one subproject exploring how local import exposure induces residents to migrate; and another project studying how local income inequality and taxation determine internal migration. Two further subprojects will focus on the effect of inequality on local prices for consumer goods, using detailed price (scanner) data from U.S. retail stores; and highly disaggregated data from the Swiss Bundesamt fuer Statistik. One subproject will study productivity spillovers resulting from local trade shocks in U.S. manufacturing. Two final subprojects will study how inequality and globalization affect political outcomes, with one subproject focusing on support for pro-trade policies in Swiss referenda; and another subproject looking at the impact of the globalization-induced fading of middle-class jobs on political polarization in the U.S.
Member contributor(s)
Funder(s)
Topic(s)
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Method(s)
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Range
HSG Internal
Range (De)
HSG Intern
Division(s)
Eprints ID
234878