What Impact Did Increasing Global Economic Integration Have on Inequality?

Introduction

In 1944, countries had an agreement encompassing monetary administration and created commercial and financial association rules.^[1]. The plan was a setoff unified regulations and policies that offered a framework necessary to develop fixed international currency exchange rates. However, the system collapsed in 1971, and there was an introduction of neoliberalism that intended to bring about trade reforms and allow countries to trade with each other freely.^[2]. From the 1980s, globalization and global economic integration fostered international trade. The result was economic growth that enhanced the living standards of people.^[3]. Therefore, it is essential to note that the recent wave of globalization has seen rapid growth in poverty reduction in developing countries, which has led to reduced global inequality. This paper describes how global integration has led to economic growth in developing economies, has minimized levels of poverty. It also explains how globalization has minimized global inequality and within-country wage inequality.

Global Integration led to Growth in Developing Economies

On August 15, 1971, the fall of Bretton Woods was one of the most anticipated major economic events in history. ^[4]. The main reason for the fall of the Bretton Woods was the inflationary monetary policy which was inappropriate for the primary currency country of the system. Notably, the plan ended after President Richard Nixon announced his new remunerative policy, a program that intended to establish new prosperity without war.^[5]. Nixon unhooked the dollar’s value from gold altogether.

The Bretton Woods system followed monetary and fiscal policies that required a currency peg to the U.S. dollar-pegged to gold prices^[6]. Notably, this made the USA dominant in the global economy. The agreement also led to the rise of the world bank and the IMF, U.S.-backed institutions that would monitor the new system.^[7]. Three decades after the Briton Woods agreement, the dollar began to augment relative to other currencies. This inconsistency in value initiated the beginning of the collapse of the Britton Wood system.

The fall of the Bretton woods system gave rise to neoliberalism, which supports globalization and aims to eliminate the gaps in the system’s operation.^[8]. Neoliberalism mainly focuses on vend-oriented reform policies like removing price controls, deregulating capital vends, minimizing trade hindrances, and limiting the country’s influence on the economy, mainly through privatization and austerity.^[9]. Economic neoliberalism is a remunerative approach and ideological perspective that supports maximizing the remunerative freedom of people and thus minimizing the amount of state intervention to the bare minimum. The neoliberal theories indicate that the well-being of individuals can be fostered by liberating personal entrepreneurial liberties and expertise in an institutional framework that has features of robust private property liberties, free vends, and free trade.^[10].

Essentially, globalization transformed the context of public policy in the 1970s, changing the global economic system.^[11]. It has equally boosted economies across the globe by making vends more efficient. Through globalization, states can interdepend on each other, something made possible by opening national borders and implementing free trade.^[12]. Developed nations have been able to expand the operations of their substantial firms into other countries across the globe.^[13]. Significantly, these benefits have helped boost and foster the economies of multiple countries worldwide. One of globalization’s main aims is to augment global trade, which leads to more competition, thus spreading wealth more equally.^[14].

Additionally, the exponential growth in developing countries has allowed them to catch up with the industrialized economies, which has minimized the remunerative inequalities between them.^[15]. The developing countries have been able to export highly processed products and services, which significantly boosts them through foreign exchange. Through good neoliberal policies, the developing nations can create facilities for the emergence of innovative startups and develop circumstances for entrepreneurship development. ^[16]. All of these have helped minimize poverty and remunerative inequalities. Through globalization, businesses have gained access to capital flows, robotics, human capital, cheaper imports and substantial export vends. These factors have contributed to the economic growth of developing countries and minimized the rates and aggregate of people living in poverty by boosting their living standards.^[17]. The result is a reduced economic gap between the developing and already developed nations across the globe. During the Bretton Woods period, the developing countries had difficulties tapping the world economy due to multiple trade hindrances.^[18]. The countries had high restrictions on imports in terms of taxes and tariffs, and they restricted imports quantitively by quotas and licenses. They could not share the same remunerative development that industrialized nations had.^[19]. However, after neoliberalism was introduced, it brought with its globalization that encouraged the developing nations to go through vend reforms radical transformations. Many countries resolved to drop the protectionist policies and implemented substantial-scale trade reforms.^[20]. Therefore, the economic gap that previously existed between the nations has declined.

Decline in The Number of Extreme Poverty in The World

As earlier stated, globalization has made many countries, particularly developing ones, more open to trade^[21]. They have increasingly been able to export highly processed products and services to other countries globally. Equally, they have allowed the developed nations to invest in their countries, notably by expanding the operations of their multinational organizations^[22]. Through such activities, international organizations rely on developing countries for labor. In turn, the developing countries can have subsequent developments in their economies and a poverty reduction. The countries have realized a reduction in poverty through a fostered standard of living among their citizens^[23]. As such, the depreciation of the aggregate of persons living below the poverty level has led to the growth of GDP. Notably, the real wages for the low-skilled workers have augmented the GDP growth rate in developing countries and worldwide^[24]. Significantly, the accelerated growth in low-income nations due to trade associations with the developed countries is a high contributing factor to the unprecedented poverty depreciation, just as delineated before.

Significant Global Inequality Reduction

Before neoliberalism and globalization, the rates of inequities were relatively higher.^[25]. The gaps between the poor and rich countries were wide. Notably, for approximately 200 years, inequality among nations across the globe has been increasing.^[26]. Although some researchers indicate that globalization increases inequality in individual countries, the idea of richer countries transferring incomes to poorer countries implies that it minimizes the levels of inequality for the globe as a whole^[27].

Notably, during the Britt Wood period, there were more restrictions on trade, particularly in developing countries.^[28]. There was no openness for countries to trade freely with each other. However, after reforms in the 1980s and 1990s, there has been a practical change from inequality after neoliberalism and globalization.^[29]. Countries have an economic integration and interdependence such that some nations, such as China, are using the Keynesian model to benefit the developing nations. While applying the model, the country’s development finance enables it to allow loans and aid to other nations to serve as a stimulus to the economies while simultaneously minimizing tensions back at home.^[30].

Through such economic integrations, nations experience economic growth and development, thus minimizing the remunerative gaps. The governments support each other to grow.^[31]. Worldwide inequality is anticipated to continue to fall, and the nations with modest development rates will eventually have an augmentation in the ensuing years.^[32]. Significantly, this will further minimize the rates of global remunerative inequalities.^[33].

Reduced Within-Country Wage Inequality

Globalized developing economies have viewed global economic integration as a positive force that has improved people’s lives^[34]. Critically, the global economic integration has led to a reduction in costs for both producers and consumers and augmented trade between the nations in the agreement of having integrated economies. In most cases, global integration often occurs in regions, thus being referred to as regional integration^[35]. The global economic integration has minimized trade costs, augmented the availability of products and utilities, and a wide variety to select from. Also, countries have gained efficiency that enables them to have greater buying power^[36]. Significantly, this improves people’s lives because they can quickly get the products and services. They can get what they cannot produce from the neighboring nations through trade and importation^[37]. Significantly, trade liberalization has led to an expansion of the market, sharing of technology, and cross-border investment. These have led to an augmentation in employment opportunities^[38]. People in the member countries of the regional trade agreements have a chance to work in any national organizations that the countries established as an expansion of operations. An increase in employment guarantees that the people have sources of income, thus having improved living standards and lives in general^[39].

As earlier stated in the discussion, neoliberalism, globalization, and global economic integration have led to increased trade^[40]. Countries strived to eliminate trade barriers such as taxes and incentives and enabled and facilitated cross-border trading with other nations. As much as this has greatly benefited the already developed and industrialized countries, the developing nations have equally benefited since they have also experienced increased trade.^[41]. The companies can export the products and services they produce and process to other countries, some of which are developed nations. The countries can effectively participate in international trade, which is one essential factor contributing to their economic growth, development of infrastructure, and thus enhancing people’s lives.^[42].

The international trade domain is a competitive labor market. The players try to develop new commodities and ways to outshine their competitors.^[43]. The same has been the case for the traders from developing countries^[44]. Many more traders from these countries are striving to get involved in the aggressive labor vend. They also try to create new strategies and tactics to augment the demand for their commodities, thus effectively competing with their counterparts from other countries, particularly the developed ones ^[45]. The increase in trade and involvement in international associations due to global economic integration has led to a decline in the gender gap. The traditionally prejudiced group of individuals, such as women, now have equal opportunities as men in the competitive global labor market^[46]. Critically, this has helped minimize the inequalities in the income capacity between men and women. Women, just like men, are also becoming empowered economically, thus helping reduce the within-country income inequalities that previously existed^[47]. Generally, the trade reforms undertaken in developing countries have been accompanied by extra remunerative growth resulting in a decline in income gaps^[48]; this has also been facilitated by the countries’ involvement in rapid and profound trade reforms and rapid integration into the global vends vends^[49]. Although, various stakeholders in international trade, such as UNCTAD, indicate that business also has a hand in increasing income inequality. Because while the people get wages through the provision of low-skilled labor, the wealthier individuals continue to be more affluent from the benefits they get from trade trade^[50]. As such, this makes the poor poorer and the rich richer. However, it is essential to note that, while wages are a source of income, wage inequality does not always lead to income inequality.^[51].

Conclusion

Generally, neoliberalism brought a new dawn for economies all over the globe. It got with its globalization has seen many countries and economies around the world, particularly the developing economies, witness tremendous economic growth and development. The globalization era has led to a somewhat minimization of worldwide inequality. It has helped to depreciation the aggregate per capita gap between developed and developing nations. The collapse of the Bretton Woods system led to neoliberalism, a proponent of globalization and aimed at eliminating the gaps and inequalities in the operating systems. In the last 20 years, there has been an integration in the global economy whereby countries have worked to implement trade reforms and remove the trade barriers that might hinder them from having cross-border associations in trade with other nations. Such Integration in the economies has led to an augmentation in the employment opportunities as the developing countries can easily offer their unskilled labor; this, in turn, increases the wages and income that the people earn, thus improving their living standards. All these have been efforts that have seen a relative decline in the levels and rates of poverty in developing countries.

Similarly, governments across the globe have had a change in foreign direct investments, something that has made them have tremendous economic development, which in turn leads to increased growth in the global economy. Although, pressure on low-skilled workers in wealthy nations has sparked discussions concerning the effect of global remunerative Integration on industrialized nations. People indicate that globalization can make developing countries poorer and rich countries richer. Also, some stakeholders in international trade suggest that as much as it minimizes within-country income inequalities, it has the potential of equally augmenting the gap by making rich people more affluent and the poor ones poorer. Essentially, by creating and executing the appropriate policies that guarantee the Integration of industrialized and developing nations, global remunerative integration will result in high growth and poverty minimization.

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[1] Dollar, David. “Globalization, poverty, and inequality since 1980.” The World Bank Research Observer 20.2 (2005): p.147.

[2] Wolf, Martin. Why globalization works. Vol. 3. Yale University Press, 2004: p.140.

[3]Ganti, Tejaswini. “Neoliberalism.” Annual Review of Anthropology 43 (2014): p.92.

[4] Bordo, Michael D. The operation and demise of the Bretton Woods system; 1958 to 1971. No. w23189. National Bureau of Economic Research, 2017: p.6.

[5] Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.52.

[6] Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.50.

[7] Wolf, Martin. Why globalization works. Vol. 3. Yale University Press, 2004: p.142.

[8] Ganti, Tejaswini. “Neoliberalism.” Annual Review of Anthropology 43 (2014): p.92.

[9] Venugopal, Rajesh. “Neoliberalism as concept.” Economy and Society 44, no. 2 (2015): p.167.

[10] Ganti, Tejaswini. “Neoliberalism.” Annual Review of Anthropology 43 (2014): p.93.

[11]Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.59.

[12] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.2.

[13] Samimi, Parisa, and Hashem Salarzadeh Jenatabadi. “Globalization and economic growth: Empirical evidence on the role of complementarities.” PloS one 9, no. 4 (2014): e87824: p.2.

[14] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.5.

[15] Ezcurra, Roberto, and Alba Del Villar. “Globalization and spatial inequality: Do economic integration affect regional disparities?” The Annals of Regional Science 67, no. 2 (2021): p.337.

[16] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.5.

[17] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.3.

[18] Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.53.

[19] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.7.

[20] Springer, Simon, Kean Birch, and Julie MacLeavy, eds. The handbook of neoliberalism. Vol. 2. New York: Routledge, 2016: p.12.

[21] Wolf, Martin. Why globalization works. Vol. 3. Yale University Press, 2004: p.145.

[22] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.10.

[23] Samimi, Parisa, and Hashem Salarzadeh Jenatabadi. “Globalization and economic growth: Empirical evidence on the role of complementarities.” PloS one 9, no. 4 (2014): e87824: p.4.

[24] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.17.

[25] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.6.

[26] Springer, Simon, Kean Birch, and Julie MacLeavy, eds. The handbook of neoliberalism. Vol. 2. New York: Routledge, 2016: p.32.

[27] Wolf, Martin. Why globalization works. Vol. 3. Yale University Press, 2004: p.150.

[28] Dollar, David. “Globalization, poverty, and inequality since 1980.” The World Bank Research Observer 20.2 (2005): p.153.

[29] Springer, Simon, Kean Birch, and Julie MacLeavy, eds. The handbook of neoliberalism. Vol. 2. New York: Routledge, 2016: p.34.

[30] Wu, Jing Cynthia, and Ji Zhang. “A shadow rate New Keynesian model.” Journal of Economic Dynamics and Control 107 (2019): 103728.:p.18.

[31] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.50.

[32] Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.58.

[33] Dollar, David. “Globalization, poverty, and inequality since 1980.” The World Bank Research Observer 20.2 (2005): p.156.

[34] Ibid, p.158

[35] Wolf, Martin. Why globalization works. Vol. 3. Yale University Press, 2004:p.200.

[36] Ezcurra, Roberto, and Alba Del Villar. “Globalization and spatial inequality: Do economic integration affect regional disparities?” The Annals of Regional Science 67, no. 2 (2021): p.340.

[37] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.9)

[38] Samimi, Parisa, and Hashem Salarzadeh Jenatabadi. “Globalization and economic growth: Empirical evidence on the role of complementarities.” PloS one 9, no. 4 (2014): e87824: p.5.

[39] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.6.

[40] Springer, Simon, Kean Birch, and Julie MacLeavy, eds. The handbook of neoliberalism. Vol. 2. New York: Routledge, 2016: p.24.

[41] Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.61.

[42] Sargent, Daniel J. “The United States and globalization in the 1970s.” The shock of the global: the 1970s in perspective (2010): p.61.

[43] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.10.

[44] Ezcurra, Roberto, and Alba Del Villar. “Globalization and spatial inequality: Do economic integration affect regional disparities?” The Annals of Regional Science 67, no. 2 (2021): p.351.

[45] Samimi, Parisa, and Hashem Salarzadeh Jenatabadi. “Globalization and economic growth: Empirical evidence on the role of complementarities.” PloS one 9, no. 4 (2014): e87824: p.7.

[46] Springer, Simon, Kean Birch, and Julie MacLeavy, eds. The handbook of neoliberalism. Vol. 2. New York: Routledge, 2016: p.41.

[47] Foghani, Sara, Batiah Mahadi, and Rosmini Omar. “Promoting clusters and networks for small and medium enterprises to economic development in the globalization era.” Sage Open 7, no. 1 (2017): 2158244017697152: p.23.

[48] Li, Nan, and Recep Ulucak. “Turning points for environmental sustainability: the potential role of income inequality, human capital, and globalization.” Environmental Science and Pollution Research (2022): p.12.

[49] Dollar, David. “Globalization, poverty, and inequality since 1980.” The World Bank Research Observer 20.2 (2005): p.170.

[50] Ezcurra, Roberto, and Alba Del Villar. “Globalization and spatial inequality: Do economic integration affect regional disparities?” The Annals of Regional Science 67, no. 2 (2021): p.352.

[51] Wolf, Martin. Why globalization works. Vol. 3. Yale University Press, 2004:p.266.