Identify two mechanisms by which globalization influences inequality.

Identify two mechanisms by which globalization influences inequality.

• A. Trade liberalization and capital flows
• B. Technology transfer and global supply chains
• C. Both A and B
• D. Reduced international trade

Answer: (C)

Globalization affects inequality through the ways economies connect—how freely goods, capital, and ideas move across borders—and how that connectivity reshapes who earns what. One major channel is trade liberalization paired with capital flows. Lower barriers to trade expose domestic workers to international competition and can push wages down in industries that rely on competition or outsourcing, while those who own capital or work in more globally integrated, high-value sectors may see bigger gains. At the same time, freer capital movements allow profits and investment to flow across borders, often widening the gap between those who own capital and those who depend on wages, and can also affect how wages respond to global demand. A second key channel comes from technology transfer and the growth of global supply chains. When technology and knowledge move internationally, productivity often rises, but the gains tend to favor skilled workers who can work with advanced technologies, expanding skill-based wage differentials. Global supply chains reallocate production across countries, changing employment opportunities and wages in both advanced and developing economies. This reshaping can raise income in some regions while compressing it in others, and it often increases within-country inequality as high-skilled, high-wage jobs benefit more than routine or low-skill roles. These two broad mechanisms together capture how globalization can influence inequality, both between countries and within them. A reduction in international trade wouldn’t align with how globalization typically operates, so it’s not a mechanism for its inequality effects.

Globalization affects inequality through the ways economies connect—how freely goods, capital, and ideas move across borders—and how that connectivity reshapes who earns what. One major channel is trade liberalization paired with capital flows. Lower barriers to trade expose domestic workers to international competition and can push wages down in industries that rely on competition or outsourcing, while those who own capital or work in more globally integrated, high-value sectors may see bigger gains. At the same time, freer capital movements allow profits and investment to flow across borders, often widening the gap between those who own capital and those who depend on wages, and can also affect how wages respond to global demand.

A second key channel comes from technology transfer and the growth of global supply chains. When technology and knowledge move internationally, productivity often rises, but the gains tend to favor skilled workers who can work with advanced technologies, expanding skill-based wage differentials. Global supply chains reallocate production across countries, changing employment opportunities and wages in both advanced and developing economies. This reshaping can raise income in some regions while compressing it in others, and it often increases within-country inequality as high-skilled, high-wage jobs benefit more than routine or low-skill roles.

These two broad mechanisms together capture how globalization can influence inequality, both between countries and within them. A reduction in international trade wouldn’t align with how globalization typically operates, so it’s not a mechanism for its inequality effects.