Grounding the Debate Elhanan Helpman
Globalization and Inequality
Harvard University Press, Cambridge, MA, 2018, 232 pp., $26.95
The rise of globalization and income inequality are two defining trends of our time. Since the beginning of the 19th century, the volume of global trade has increased dramatically, and in the past few decades several firms have globalized their production processes through offshoring and outsourcing. At the same time, within-country inequality in income has risen substantially in several countries, and particularly in the United States. Are these trends linked? Indeed, the recent backlash against globalization and international trade is to some extent based on the presumption that they have caused job losses and higher income inequality.
Not so fast, argues Elhanan Helpman in Globalization and Inequality. Although globalization may have affected inequality through a variety of channels, the overwhelming finding of recent research, he argues, is that this impact has been quantitatively small, meaning that we have to look elsewhere for the chief culprit in rising inequality. Helpman develops this point in a highly readable book that traverses three decades of theoretical and empirical research on international trade.
The book starts with a review of studies based on the factor proportions theory, the traditional lens economists use when thinking about the effects of globalization. According to this view, the progressive removal of barriers to international trade in developing economies has raised the price of goods whose production relies more on highly skilled labor, resulting in larger wage gaps between high- and low-skilled workers in rich countries. While this mechanism is plausible in theory, the empirical evidence suggests that the magnitude of the effect is rather small and that other subsidiary...