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Globalization Effects on the Distribution of Income

Author

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  • Joern Kleinert

    (University of Graz, Austria)

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.

Suggested Citation

  • Joern Kleinert, 2018. "Globalization Effects on the Distribution of Income," Graz Economics Papers 2018-07, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2018-07
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    Cited by:

    1. Somjit Barat, 2022. "Attitudes of the Indian Middle Class: A Theory of Planned Behavior Approach," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 8(1), pages 21-42, January.

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    More about this item

    Keywords

    International trade; Firm heterogeneity; income distribution;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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