World Economy Essay Art Personal Study Essay
One way globalisation can increase inequality is through the effects of increasing specialisation and trade.
A rise in trade-to-GDP ratios signifies an increase in the volume and value of trade between countries and regions.
A third way in which globalisation can create increased inequality is by increasing the demand for and returns to higher-skilled work and lowering the expected earnings of people in relatively low-skill and low-knowledge occupations.
One of the driving forces of foreign direct investment is that resources tend to flow where the unit cost of production is lowest.
The latter is a good indicator of the depth of inequality since it tracks incomes flowing to the top ten percent of households and divides by the incomes for the bottom forty percent.
For example, if a country can now import cheaper steel from elsewhere, then there will be a contraction in domestic supply and a fall in employment and real incomes in that industry.
However, one could argue that the benefits of globalisation can be used to offset this.
If trade generates faster GDP growth, then the government will see an increase in tax revenues which might then be used to fund capital investment in public goods and merit goods and services including finance for re-training programmes and improvements to infrastructure in economically-depressed areas.
Because of tax avoidance, national governments do not generate the revenues needed to pay for public services and welfare systems - both of which can have a progressive effect on the final distribution of income.
The UK government has estimated that, in 2017, multinational businesses managed to avoid paying nearly £6 billion in tax revenues.