Why globalisation may not reduce inequality in poor countries
The article I read on The Economist takes a look at the inequality gap in poor countries, and the effects globalization has on said inequality. Equality in countries around the world is measured in terms of the Gini Index, as we saw in our vocab. A Gini Index of 1 means perfect inequality, and a Gini Index of 0 means perfect equality. Economists are beginning to say that globalization has nothing to do with the falling of the Gini Index. Basic economic theory says that inequality falls as poorer countries enter the global economy. The Theory of Comparative Advantage states that poor countries produce goods requiring large amounts of unskilled labor, while rich countries require skilled workers for their services. When a country's economy improves, the demand for unskilled workers increases and so do their wages, allowing for increased equality.
However, there is still high inequality in poor countries, leaving economists puzzled. They are trying to understand why this is happening, and are thinking up theories to explain this phenomenon. One explanation that economists have come up with has to do with outsourcing. When countries shift their workforce to other countries, they generally give skilled employees high wages. These workers also have to meet rich-world deadlines which boots high productivity, and accounts for even higher wages. On the other hand, poor workers in the same countries have low wages and low productivity. This uneven balance of wages makes for even higher inequality in poor countries, as a result of globalization.
As long as free-markets exist, there will be income inequality in a country, and the Gini index proves that. The overall income inequality is going up no matter what a country is (small or large; importers or exporters).
ReplyDeleteThis is true, there will always be inequality in a country. However, The Theory of Comparative Advantage states, as mentioned in the article, when poorer countries enter global economies, that the country's overall equality will improve. The most recent example of poor countries entering global economies has been the increase in globalization, but despite this increase in globalization inequality has continued to rise. Again, I agree with you that there will always be inequality and that it is currently rising, however, the inequality in a country may not always follow this trend. If certain factors change in the global economy then overall inequality may begin to fall.
DeleteI was actually just wondering what you mean by perfect inequality and perfect equality. If you could explain that to me, I would really appreciate it.
ReplyDeleteSure. Perfect equality means that a country is completely equal; all resources and wealth are shared evenly to everyone in a county. Perfect inequality is just the opposite; one person would have all the wealth in a country, and everyone else would have no wealth at all. Hope this helps.
DeleteIt is very difficult for poor countries to come up on the world stage and this in an obvious reason for that. Bigger business would need to happen within the country to stimulate the economy enough help growth.
ReplyDelete***By the way, check your typo in the second paragraph, line 4.
That is a very good point. Thank you for telling me about the typo. I didn't notice that, but I just corrected it.
ReplyDeleteI am a little confused on how globalization has nothing to do with the falling of the Gini Index? It would be great if you could clear that up for me.
ReplyDeleteThanks
When countries enter global economies, i.e. globalization, inequality falls. Falling inequality means a falling Gini Index, however, countries that have been entering the global economy through globalization have not seen falling inequality. This has led economists to believe that the two may be unrelated to each other. Hope this helps.
DeleteMax has a good point there a poor country won't be able to grow if there isn't any business there. You need them so there will be jobs and more money flow.
ReplyDeleteNice article james
I agree with Kevin as long as free markets exist, there will be income inequality. It is just something that happens when you have economic freedom.
ReplyDeleteI think it is horrible how people who live in these poorer countries don't even stand a chance in their life. I agree with Kevin regarding free markets and inequality. In these poor countries with extremely limited resources it is hard for people to make a living.
ReplyDeleteBilly makes a valid point. About how if you are living in struggling country you don't get the some chances as we do in America. Countries can't grow with out resources to do so.
ReplyDelete