IMF Research Bulletin, September 2009

Abstract

The integration of the world economy through the progressive globalization of trade and finance has reached unprecedented levels, surpassing the previous peak prior to World War I. This new wave of globalization is having far-reaching implications for the economic well-being of citizens in all regions and among all income groups, and is the subject of active public debate. This article provides an overview of the latest research about the effects of trade and financial globalization on income inequality.The global economy has changed dramatically over the past two decades. World trade has grown fivefold since 1980, and its share of world output has risen from 36 to 55 percent. Trade integration accelerated in the 1990s as the former Eastern bloc countries entered the global trading system and developing countries in Asia progressively dismantled trade barriers. The globalization of financial flows has also been rapid. Total cross-border financial assets more than doubled as a share of output between 1990 and 2004, from 58 percent to 131 percent of global GDP. The advanced economies continue to