Globalization and Technological Change Have Increased Spatial Inequality Free Essay

In this paper I will argue that technological and globalization changes in advanced democracies have led to increased spatial inequality. Technological and globalization changes are significantly considered to be the major propagators of economic growth. Technological changes tend to be considered as the advancement and dispersal of new ideas as well as techniques of enhancing efficiency and productivity, while globalization is considered as a catalyst to technology facilitating diffusing of its ideas and ways of spreading the ideas across the world (Echeverri-Carroll & Ayala, 2010). For instance, openness to trade. High levels of technological and globalization changes happen in advanced democracies (Echeverri-Carroll & Ayala, 2010). According to the World Bank report on Global Economic Prospects 2008, it reports that rapid technological changes in developed countries have assisted in raising incomes as well as reducing the number of people who are poor from 29% to 18% (Lee & Rodríguez-Pose, 2013). Globalization has disbanded the trade barriers which has significantly increased the exposure of advanced democracies to more advanced technologies. Even though globalization and technology might be the pillar of the rapid economic growth in advanced democracies, they have caused an unequal distributional effect of resources thus leading to increased spatial inequality (Lee & Rodríguez-Pose, 2013). Consequentially, the increasing spatial inequality across most advanced democracies is posing the biggest challenge, especially to the economic policymakers.

Even with technological improvements, changes in globalization including liberal market-oriented reforms have led to significant integration of the world economy bringing increased incomes as well as aggregate GDP growth rates connected with globalization and technological changes that appear to be unequally shared across all populations in advanced democracies (Iammarino et al., 2019). Spatial and income inequality has increased in most advanced democracies within the last two decades that have experienced significant technological and globalization changes yet they were expected to have reached prosperity levels whereby both economic and spatial inequality would level according to the prediction made by Kuznets hypothesis (Storper, 2018). Essentially, globalization changes have been found to play a big role in causing the inequality patterns especially through trade which is evident in the unprecedented trade and also the more financial integration that has occurred recently (Iammarino et al., 2019).

There is sufficient evidence suggesting that spatial inequality has increased in the most advanced country especially in the past two decades. However, the average real income for the poor population has risen in most parts of the advanced democracies. This implies that spatial and also economic inequality has increased due to the changes in technology and globalization within the upper parts of distribution in the advanced democracies (Storper, 2018). This is a fact that is in line with the current evidence depicted in the United States as well as the United Kingdom (Iammarino et al., 2019). It is found that the rising financial and trade globalization has made a substantial effect on income distribution. Essentially, trade liberalization and financial openness are identified to be linked with low spatial inequality. Nonetheless, the joint contribution of globalization change to the increasing inequality has been quite low than the spatial inequality of technological change, globally and mostly in the advanced democracies. In essence, the spread of technology is linked with increased globalization, though technological changes are found to have a different unique impact on spatial inequality. Nevertheless, the inequality effect of financial openness that is mostly felt through technological and globalization change seems to work through raising the premium on high skills as well as high returns to capital invested instead of restraining opportunities of economic development. Similarly, high accessibility to education is linked with more equivalent income distributions averagely.

It is noteworthy that income growth has positively increased in advanced democracies for all groups of income during the current globalization change period. More so, inequality is still present in advanced democracies though it is extremely high in underdeveloped countries.

Note: Regional comparison of inequality trends.

Source: (Jain-Chandra et al., 2018)

The current experience appears to be a rapid change from low inequality to increased inequality. Financial globalization has undergone substantial changes rapidly (Bloom et al., 2016). This has experienced doubled total cross-border financial assets. The advanced democracies remain to be more financially integrated, but inequality keeps increasing because of the increasing gap between the rich and poor. According to the de jure measures of capital account openness, depict that advanced democracies are liberal. Due to technological and globalization change, the Foreign Direct Investment (FDI) share for the total liabilities has increased in advanced democracies markets. Concurrently, technological changes have increased significantly over the last two decades in all countries. However, there has been a rapidly increased Information and Communication Technology (ICT) capital which is usually driven by advanced democracies. Whereas other underdeveloped democracies depict a rise in technology, it is not largely considered (Bloom et al., 2016). Essentially technology changes play a critical role in spatial inequality. Moreover, trade is likely to induce technological changes triggering more ICT investment thus tend to depict the wrong impacts of trade to impacts of technology.

The link between globalization change and spatial inequality as per the economic theory arises from Stoler-Samuelson theorem arising from the Heckscher-Ohlin model implying that in a two-country two-factor framework, alleviated trade openness in form of tariff minimization within a developing democracy whereby low-skilled workers, as well as reduced compensation for the highly-skilled workers, leads to the declined in highly-skilled workers’ compensations which further results in reduction in both spatial and income inequality (Autor et al., 2015). After reducing the import tariffs, high skill products’ prices reduce as well as the compensation rate for the high-skilled workers, whereas the low-skill products’ price increases together with the low-skill workers’ compensation increases (Autor et al., 2015). In the case of an advanced democracy, it tends to have high skill elements that are plentiful, holding the reverse characterized by a rise in openness resulting in increased spatial inequality.

Moreover, an essential addition of the basic model weakening the dichotomy between advanced democracies as well as developing democracies with regards to the distributional effects of globalization is by including noncompeting traded goods. Reducing tariff on these products tend to minimize their prices and thus increasing the actual income of the households and do not impact the prices of other goods (Autor et al., 2015). However, in advanced democracies, large portions of noncompeting goods are availed more to the rich and middle-class population while the poor population receives scarce noncompeting goods because the rich and the middle class population are consider the target market because they afford the goods, even by reducing the tariff on these products, the spatial inequality still increases.

Technological change in advanced democracies tends to favor those having higher skills as well as exacerbating the skills gaps, which significantly impact income distribution through minimizing the low-skill activities demand as well as alleviating the high-skill activities premium as well as returns on capital (Lee & Rodríguez-Pose, 2013). Technological change has triggered increased ICT capital in advanced democracies. Indeed, every level of technology grants greater accessibility of education which tends to minimize income inequality by enabling a wider population to take part in high-skill activities. But, in reality, spatial inequality is high and prevails in advanced democracies. Even with increased ICT capital and technological change, the distribution of technology is not equal as the poor tend to be provided with less or inadequate technologies, therefore, reducing their access to education and further leading to increased spatial inequality.

Knowledge diffusion entails the transfer of knowledge among innovators and imitators. Globalization and technological change have increased knowledge diffusion. They act as knowledge transfer which have helped in diffusing knowledge among workers in a country. And the knowledge intensity networks have impacted knowledge pattern diffusion. Knowledge diffusion by workers has a significant impact on the earnings of their earnings, productivity as well as the firm’s profitability (Różewski & Jankowski, 2015). As workers learn, the whole knowledge distribution in the country changes. In advanced democracies, they have experienced significant globalization and technological changes thus facilitating rapid knowledge diffusion. However, inequality arises based on the spread of technology within the country.

Globalization has made a significant impact on the economies of developed nations. The rise of China as well as other emerging economies like Brazil, India and also Mexico have experienced a growth in wage inequality like that of the United States and also other developed countries. Several researchers have linked the two trends and changes, since the basic trade theory projects that integrating a low skill developing economy together with a high skill abundant developed economy shall result in the rise of process for the skills in the developed economy (2016).  Though this is compelling, the economists’ consensus is that trade is not that important more than technology in triggering the inequality in the United States wage and other developed nations.

To sum up, globalization change and technological change have resulted in increased spatial inequality in advanced democracies. The changes have caused an unequal distributional effect of resources thus leading to increased spatial inequality. Indeed, spatial and income inequality has accelerated in most advanced democracies over the past years that have experienced significant technological and globalization changes yet they were expected to have reached prosperity levels whereby spatial inequality would level off as according to the prediction made by Kuznets hypothesis (Autor et al., 2015). It is also clear that rising financial and trade globalization has made a significant impact on income distribution. . Several researchers have linked the two trends and changes, since the basic trade theory projects that integrating a low skill developing economy together with a high skill abundant developed economy shall result in the rise of process for the skills in the developed economy.  Additionally, technological change in advanced democracies appears to be in favor of those having higher skills and also exacerbating the skills gaps, which substantially affect income distribution by minimizing the low-skill activities demand and also increasing the high-skill activities premium as well as returns on capital. In essence, changes in technology more than changes in globalization or trade, has made more impact on increased inequality in advanced democracies.