Becker: Globalization’s Skill Bias

We came across economist Gary Becker’s summary of the recent IMF study on globalization and inequality, which we also ruminated on recently. Here are some of his most salient insights:

…a careful evaluation of the report’s findings on income and inequality provides in most respects an optimistic assessment of the effects of globalization on developing nations…

…The report’s evidence quite strongly supports this building block of trade theory: greater trade…[decreases] earnings inequality within developing countries…

…The IMF report clearly shows that generally the poorer and less educated in developing nations also became better off…This improvement in wellbeing at the lower end of the income distribution surely should count as a benefit of globalization.  

The increased earnings gap…[with]in developing countries reflects that the earnings of more educated individuals rose faster than the earnings of the less educated…[which] essentially means that the returns on investments in schooling increased.

…how can one complain that globalization is bad because it raises the returns on the education of local human capital investors? Higher returns to human capital investments…mean that the economy is more productive, which should be a welcome development to poorer as well as richer countries.

…developing countries in which the criticisms are strongest are generally countries that have done a bad job of educating its [sic] population…The lesson…is that globalization is not the source of these serious problems. Rather…many developing countries have to do much more to open up access to better and greater education for children coming from lower income families. Only then would these families be able to take advantage of the higher returns to education produced by greater trade and the inflow into their economies of modern technologies and foreign capital.

Richard Posner, Becker’s blogging partner, also offers some interesting thoughts on the study and the larger issues it raised.