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Rising Inequality As a Threat to the Liberal International Order

Published online by Cambridge University Press:  12 April 2021

Thomas M. Flaherty  and
Ronald Rogowski
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Abstract

The rise of top-heavy inequality—earnings concentration in a very thin layer of elites—calls into question our understanding of the distributional effects of the Liberal International Order. Far more people lose from globalization, and fewer gain, than traditional economic models suggest. We review three modern trade theories (neo-Heckscher-Ohlin-Stolper-Samuelson or H-O-S-S, new new trade theory, and economic geography) that each arrive at the conclusion of top-heavy inequality by introducing some form of unit heterogeneity—an assumption that the actors we once treated as identical actually differ from one another in important ways. Heterogeneity allows the gains from globalization to concentrate in a narrow segment of workers with superlative talents, extraordinarily productive firms, or heavily agglomerated cities. An analysis of European voting data shows that shocks from trade and migration elicit populist opposition only where the top 1 percent have gained the most. With few politically feasible alternatives to protectionism, most notably the failure of democracies to redistribute income, our analysis predicts a persistence of public support for antiglobalization parties, especially those on the Right.

Keywords

Inequalityglobalizationpopulismimmigration
Type
Internal Challenges to the Liberal International Order: Economic
Information
International Organization , Volume 75 , Special Issue 2: Challenges to the Liberal International Order: International Organization at 75 , Spring 2021 , pp. 495 - 523
Copyright
Copyright © The IO Foundation, 2021

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