Globalization Effects on the Distribution of Income

Joern Kleinert ()

No 2018-07, Graz Economics Papers from University of Graz, Department of Economics

Abstract: Changes in the distribution of income are one of the main challenges to social cohesion in OECD countries. In particular, empirical evidence points to a large share of growth accruing to the top 1% in the income distribution during the last three decades. The role of globalization in this process is hotly debated. In this paper, I present a theoretical mechanism to explain how globalization affects income distribution, which has not been studied extensively yet. I build my argument on the Melitz model, which I augment with a banking sector to replace the implicit complete financial market in the original paper. The generated rents thus become income-relevant and accrue by assumption to the firms top managers. This allows me to assess globalization s effect on the top end of the income distribution. I find that globalization has a strong effect on income distribution but I do not conclude that reversing globalization is the solution for the challenge to social cohesion.

Keywords: International trade; Firm heterogeneity; income distribution (search for similar items in EconPapers)
JEL-codes: F12 F62 J31 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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