Distributional Effects of Globalization

In this memo, I am going to discuss the effects of globalization on the distribution of income. While the term “globalization ” encompasses the various economic, political, cultural and social aspects of the many different types of international integration such as trade, capital mobility, labor migration etc, I will focus on what I consider the main component of globalization, namely freer trade. As I will argue in this memo, the predicted effects of trade on income distribution are dependent on the assumptions we make about intersectoral factor mobility in our models. In presence of costly intersectoral factor adjustments, the popular support for trade liberalization (or the opposition to it) in a country depends, among many things, on the degree to which people discount their future and on their perceived uncertainty about the future. How the support for reforms actually gets transformed into actual reforms depends on the political process. In this memo, I try to discuss all these issues and their implications for the nature of questions that should figure in the proposed survey. I start my discussion here with the staple model of international trade theory, namely the Heckscher-Ohlin model. In this model, we assume perfect, intersectoral factor mobility along with perfect competition in all markets and constant returns to scale in production. Trade in this model help