The Globalization of Production and Income Inequality in Rich Democracies

Abstract

Despite prominent and compelling theoretical arguments linking manufacturing imports from the global South to rising income inequality in the global North, the literature has produced decidedly mixed support for such arguments. We explain this mixed support by introducing intervening processes at the global and national levels. At the global level, evolving characteristics of global production networks (GPNs) amplify the effect of Southern imports. At the national level, wage-coordination and welfare state generosity counteract the mechanisms by which Southern imports increase inequality, and thereby mitigate their effects. We conduct a time-series cross-section regression analyses of income inequality among 18 advanced capitalist countries to these propositions. Our analysis addresses alternative explanations, as well as validity threats related to model specification, sample composition and measurement. We find substantial variation in the effect of Southern imports across global and national contexts. Southern imports have no systematic effect on income inequality until the magnitude of GPN activity surpasses its world-historical average, or in states with above average levels of wagecoordination and welfare state generosity. With counterfactual analyses, we show that Southern imports would have led to much different inequality trajectories in the North if there were fewer GPNs, and the prevailing degrees of wage-coordination and welfare state generosity were higher. The countervailing effects of GPNs and institutional context call for theories of inequality at the intersection of the global and the national, and raise important questions about distributional politics in the years to come.

Income Inequality, Globalization, and the Welfare State: Evidence from 23 Industrial Countries, 1990–2009

“…While some scholars disagree on the magnitude of the effect of international trade on income distribution (Krugman and Lawrence ), and others question whether international trade has an effect at all (Babones and Vonada ), some research found international trade to increase inequality in advanced industrial countries (Kerrissey ; Kwon ; Mahutga et al. ).…”

“…However, research investigating the potential impact of imports from the Global South on inequality in 18 advanced industrial countries found that Southern imports increases income inequality only in countries with above‐average levels of integration in the global market and relatively strong wage‐bargaining institutions and welfare state generosity (Mahutga et al. ). This finding shows that although Southern imports may increase national income inequality in advanced economies, the process varies across countries.…”

“…However, there is disagreement among scholars regarding the degree to which globalization may be implicated in the increase of income inequality and the role of the welfare state in reducing national income inequality. Some claim that globalization should have no effect on income inequality (Mahler ), while others implicate globalization in these income inequality upswings in many advanced industrial countries (Blanton and Blanton ; Kerrissey ; Kwon ; Mahutga, Anthony, and Kwon ). This paper brings new evidence to this debate by contrasting effects of globalization and welfare state indicators on two measures of income inequality (i.e., pretax‐and‐transfer and posttax‐and‐transfer income inequality).…”

Income inequality in the post-2000 era: Development, globalization, and the state

“…In this study, I investigate what factors have shaped the distribution of income during the early 2000s. While scholars often restrict attention to affluent nations (Kollmeyer, 2015; Kwon, 2016; Mahutga et al, 2017), I build on prior work that examines inequality in a global context (Cole, 2015; Kerrissey, 2015; Lee, 2005a, Lee et al, 2007; Wong, 2016). In doing so, I employ a large cross-national sample (1284 observations across 129 countries) covering a more recent time period relative to previous work (2000–2015), using the latest version of the Standardized World Income Inequality Database (SWIID v8.0).…”

Commentary on “Globalisation and development: the relevance of classical ‘dependency’ theory for the world today” (Tausch, 2010)

“…What needs to be done now is another update of the tests for long-term effects of dependence on foreign investment to see if the negative effects found for earlier decades are still present. Tausch's prescient warnings regarding the potential for negative effects of investment dependence on core countries seem to have been borne out in the years since his article was published (Mahutga, Roberts and Kwon 2017). An interesting recent article by economist Dani Rodrik (2018) observes that the neoliberal globalisation project produced left-wing populist movements in Latin America (the so-called Pink Tide) and right-wing populist movements in Europe.…”