Cafe Hayek: Globalization and Income Inequality

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March 14, 2007

Globalization and Income Inequality

Don Boudreaux

Another investigation -- this one by Fernando Borraz and Jose Ernesto Lopez-Cordova -- of some of the economic consequences of freer trade finds that freer trade has not increased income inequality in Mexico:

Our findings strongly indicate that globalization has not raised income inequality in Mexico. On the contrary, we present compelling evidence showing that income distribution is more equitable in states that are more closely linked to the world economy and that those states exhibit larger declines in inequality. We also find some statistical evidence suggesting that deepening globalization results in reduced inequality, although our results are sketchier on this point, perhaps because such effect is only observable in the long run. As a potential explanation of why globalization might improve the distribution of income among Mexican households, we show that states that are more integrated to the world economy offer better work opportunities for low-skilled women relative to more educated female workers.

Posted by Don Boudreaux in Inequality, Trade | Permalink

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Comments

I prefer to use the phrase "income diversity" instead of "income inequality" in all such circumstances.

Posted by: Glen Raphael | Mar 14, 2007 5:29:27 PM

who makes what is not the govts biz

i believe in the seperation of government and economics

Posted by: gcblues costa rica/Nicaragua | Mar 14, 2007 10:45:55 PM

Isn't the point of free trade that american consumers will be better off, whether mexican or american producers will be better is a matter of complete indifference.

Posted by: Kent Gatewood | Mar 15, 2007 1:01:22 PM

And so what if it had? I think those of us who believe in liberty are too generous when we engage in this debate. The standard response to claims of growing income inequality should be a simple 'So what?' and until the redistributionists can come up with an answer to that question which is not founded upon the basest of human instincts we should refrain from indulging them.

Posted by: the invisible pimp hand | Mar 16, 2007 5:46:47 AM

"Isn't the point of free trade that american consumers will be better off, whether mexican or american producers will be better is a matter of complete indifference."

Um, I suppose if you're making a campaign speech in Detroit. Otherwise, the basic principal is that free trade is good for everyone, all the way around. It would be logically impossible to say that such a thing would be good for one party, but not the other.

Anyway, it seems very obvious to me that free trade would "raise all boats.'

Think about Don's example of French productivity. If we passed a law making a $500 an hour minimum wage, of course our productivity would jump accordingly. But many others would not have the ability to produce anything, and thus they stagnate in the society.

Likewise, in a restrticted trade scenario, the lower tiers of labor often die on the vine so to speak. Whether it be because of a scenario akin to the above hypothesis, or whatever.

Posted by: Ray G | Mar 16, 2007 9:23:00 PM

And the pimp has a good point. So what?

The Left makes a misleading claim of economic suffering in this country, simply because we are free to become fabulously wealthy in the case of CEOs or professional ball players or whomever.

It's plain old class warfare; if your neighbor is doing better than you are, regardless of how much you may actually have, something is wrong.

Posted by: Ray G | Mar 16, 2007 9:26:34 PM

"On the contrary, we present compelling evidence showing that income distribution is more equitable in states that are more closely linked to the world economy and that those states exhibit larger declines in inequality."

It doesn't raise all boats. If you increase the supply of labor you lower wages. The more people at the bottom the lower the wages go. It only raises the boats of the wealthy who can skim off the global market differences in currency until the whole thing collapses. When it does finally collapse in on itself, since America should be in a recession because of massive downward wage pressure, we will finally have equal income distribution. Just like the socialists wanted.

And the reason we have not collapsed is because people are using debt as income. So when the debt comes due and no one can pay the system fails.

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