it is wrong to assume that globalization has purely economic dimensions? clarify this
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ExplanatioConcerns about adverse effects from globalization aren’t new. As U.S. income inequality began rising in the 1980s, many commentators were quick to link this new phenomenon to another new phenomenon: the rise of manufactured exports from newly industrializing economies.
Economists took these concerns seriously. Standard models of international trade say that trade can have large effects on income distribution: A famous 1941 paper showed how trading with a labor-abundant economy can reduce wages, even if national income grows.
And so during the 1990s, a number of economists, myself included, tried to figure out how much the changing trade landscape was contributing to rising inequality. They generally concluded that the effect was relatively modest and not the central factor in the widening income gap. So academic interest in the possible adverse effects of trade, while it never went away, waned.
In the past few years, however, worries about globalization have shot back to the top of the agenda, partly due to new research and partly due to the political shocks of Brexit and U.S. President Donald Trump. And as one of the people who helped shape the 1990s consensus — that the contribution of rising trade to rising inequality was real but modest — it seems appropriate for me to ask now what we missed.
The 1990s Consensus
There was confusion and debate during the mid-1990s over how to use data on trade to assess wage impacts. Most studies focused on the volume of trade and the amount of labor and other resources embedded in imports and exports. Some economists objected to this approach, preferring to focus on prices rather than quantities.
What eventually emerged was a “but for” approach: asking how different wages would have been but for the rise of manufactured exports from developing countries — increases that were minimal in 1970 but higher by the mid-1990s. It turned out that imports of manufactured goods from developing countries, while much larger than in the past, were still small relative to the size of advanced economies — around 2% of their gross domestic products. This wasn’t enough to cause more than a modest change in relative wages. The effect wasn’t trivial, but it wasn’t big enough to be a central economic story, either.n:
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