With the misdeeds of globalisation, the rise in inequalities and the resulting perception of injustice have been subjects that have fuelled many debates for a little over ten years. The theme of inequalities has even come to the centre of many political programs. However, partiality, biases and common beliefs are prevalent. Is globalisation responsible for the increase in inequalities? Does growth promote inequalities? Do Inequalities hinder growth? These are essential questions.
This Discussion Paper aims to highlight the different angles of the relationships that may exist, on the one hand between growth and inequalities, and on the other hand between globalisation (economic, commercial, financial and digital) and inequalities. The subject is particularly complex, both economically and politically, theoretically and empirically.
Although a considerable part of the literature considers, for example, inequality to be harmful to growth, more recent studies have disputed this result and even found a potential and positive effect of inequality on growth ... up to a point.
The relationship between globalisation and inequalities is also complex, and even if there is a strong and indisputable correlation between current globalisation and the rising inequalities, it is necessary to go into details to form a precise and useful point of view in terms of economic policy. In this article, we present the different phases of globalisation since the 15th century, as well as the dominant doctrines on international trade and their implications for inequalities. If economic globalisation is a determinant of income inequality, it is mainly via financial globalisation - more specifically financial liberalisation - or digital globalisation, and not via the globalisation of trade.
Modern approaches to trade and growth place greater emphasis on microeconomic factors, allowing the implications for inequality to be better isolated. The (very) many determining factors at the origin of inequalities – upward and downward - are also presented, including societal factors… It is thus shown that while inequality is clearly a serious problem that deserves political attention, focusing only on trade and growth is not the way to solve it. The most unequal countries or those plagued by populism are certainly those which are under the most pressure in favour of protectionism, but this one, clearly at work since 2009, is not the solution to growing inequalities. Usually, tariffs (and especially trade wars) reduced growth and increased levels of inequality. Autarky has never been an option, and the persistence of open, unprotected, less profitable and more fragile sectors inevitably increases inequality. In other words, only effective redistribution and inclusive policies can correct glaring inequalities, while structural policies can improve fairness and equal opportunities.
To find out more, download the full paper
This article is part of a series of four Discussion Papers on inequality. It complements a Discussion Paper on “inequalities and poverty: ongoing challenges” and a Discussion Paper on “Pro- Piketty and Anti-Piketty: A review of the literature in 20 topics”, both to be published shortly.