Technological change, globalization, and income inequality

Florence Jaumotte, Subir Lall, and Chris Papageorgiou conclude that increasing income inequality in the world's countries has more to do with technological change than with globalization: "We find technological progress as having a greater impact than globalization on inequality."  (Rising Income Inequality: Technology, or Trade and Financial Globalization?).  See the extracts from the abstract and conclusions below. 

But that doesn't seem to me to entirely jibe with the actual content of the report.  While the conclusions hold for their developing countries and overall, the situation for the advanced countries looks very different.  Here's their Figure 7:

This is a decomposition of the change in the Gini coefficient for advanced countries.  The average annual percentage change in the Gini coefficient for these countries over the time period 1981-2003, was 0.6.  Their estimate of the contribution of globalization to inequality exceeded the contribution of technology.  Both were offset somewhat by the contribution of other factors in the analysis.  I'm assuming the contribution of globalization is the joint impact of trade and financial globalization and that - based on other comments in the text - the impact of trade tended to reduce inequality.  If that's the case, the impact of financial globalization was quite strong.

Here's the abstract:

We examine the relationship between trade and financial globalization and the rise in inequality in most countries in recent decades. We find technological progress as having a greater impact than globalization on inequality. The limited overall impact of globalization reflects two offsetting tendencies: whereas trade globalization is associated with a reduction in inequality, financial globalization—and foreign direct investment in particular—is associated with an increase. A key finding is that both globalization and technological changes increase the returns on human capital, underscoring the importance of education and training in both developed and developing countries in addressing rising inequality.

And here are key paragraphs from the conclusions:

Estimates using a new and more reliable dataset on inequality and detailed measures of globalization suggest that the observed rise in inequality across both developed and developing countries over the past two decades is largely attributable to the impact of technological change.... The contribution of increased globalization to inequality has in general been relatively minor. This reflects two offsetting effects of globalization: while increased trade tends to reduce income inequality, foreign direct investment tends to exacerbate it. Both globalization and technological progress tend to increase the relative demand for skills and education. While incomes have increased across all segments of the population in virtually all countries in the sample, incomes of those who already have higher levels of education and skills have risen disproportionately more.

The implication of these findings is that broader access to education will allow a greater segment of the population to take advantage of the opportunities from globalization and technological change. While these changes have increased incomes across countries and helped reduce poverty, the benefits would be even greater, allowing for a faster reduction in poverty, if the distribution of skills became more equal. This suggests that the returns to investment in education for all countries has risen in the recent era of globalization.

Comments

[Emmanuel]

This work appears to have been featured in the October 2007 WEO by the IMF:

http://ipezone.blogspot.com/2007/10/globalization-and-inequality-roundup.html