Channels from Globalization to Inequality: Productivity World versus Factor World

Globalization and inequality are on the minds of many these days. To antiglob-alization protesters, “transnational corporations... expand, invest and grow, concentrating ever more wealth in a limited number of hands. ” 1 Sinister agents such as the International Monetary Fund and World Bank are aiming at an out-come “in which all productive assets are owned by foreign corporations producing for export.”2 Recently, “‘globalization from above’ ” has shifted “toward a more destructive phase, marked by increased militarization, worldwide recession, and increased economic inequality.”3 The protesters usually believe globalization is a disaster for the workers, throwing them into “downward wage spirals in both the North and the South. ” They point out that the total income of the poorest half of humanity is less than the worth of just 475 billionaires.4 Apart from such extreme rhetoric, what are the facts on globalization and inequality? Through what channels does globalization affect inequality between and within countries? Globalization is the movement across international bor-ders of goods and factors of production. Conventional analysis of the effects of globalization on inequality looks at the effect of trade and factor flows on return