The Quest for Shared Prosperity: New Insights on Globalization, Inequality, and Growth
Type
applied research project
Start Date
September 1, 2016
End Date
August 31, 2018
Status
ongoing
Description
The promotion of shared prosperity is high on the agenda of policy makers around the globe. In this project, we seek to deepen our understanding of its foundations and paths for policy action by considering three aspects of the mutual interdependencies of globalization, inequality, and growth.
In Part I: `Globalization and the Concentration of Talent: Theory and Evidence from European Football' we begin with analyzing one potential mechanism of how globalization may impact on (top-) income inequality within countries: the concentration of talent. Globalization opens up new markets for the most productive firms and tightens competition for less productive firms, thereby increasing the gains from being a market leader. %\footnote{At least since \citet{Bernard1999}, there is ample evidence demonstrating that the most productive firms select into exporting. \citet{Melitz2003} and \citet{Bernard2003} provide the canonical theoretical foundations.}
We consider productivity differences that are based on the skill-level of a firm's workforce. Globalization will then impact the firm-level returns to talent. We study these forces in the polar case of a market environment with competition for rank. %\footnote{By competition for rank, we refer to a market environment where firms' payoffs depend solely on their achieved rank.}
In Part II: `Inequality, Demand for Quality, and Growth through Creative Destruction', we ask how a country's income distribution may affect its future growth prospects via the domestic demand for high-quality products. Depending on a country's openness to trade and its distance to the world technological frontier, this demand may or may not be satisfied through imports. This will feed back to the incentives for domestic firms to invest in quality upgrading. We will analyze these interdependencies in a general equilibrium framework. Our work will thus shed light on the interaction of income inequality within and between countries in shaping future growth prospects.
Finally, in Part III: `On Growth in Capabilities' we turn our attention to the inequality between countries and address the future potential of developing countries to converge to the world technological frontier. Motivated by empirical evidence on the connectedness of industries, we ask how a country's current position in the \emph{product space} impacts its future growth prospects. We will confront our theoretical predictions with the data and discuss their bearings for policies in the area of economic development.
In Part I: `Globalization and the Concentration of Talent: Theory and Evidence from European Football' we begin with analyzing one potential mechanism of how globalization may impact on (top-) income inequality within countries: the concentration of talent. Globalization opens up new markets for the most productive firms and tightens competition for less productive firms, thereby increasing the gains from being a market leader. %\footnote{At least since \citet{Bernard1999}, there is ample evidence demonstrating that the most productive firms select into exporting. \citet{Melitz2003} and \citet{Bernard2003} provide the canonical theoretical foundations.}
We consider productivity differences that are based on the skill-level of a firm's workforce. Globalization will then impact the firm-level returns to talent. We study these forces in the polar case of a market environment with competition for rank. %\footnote{By competition for rank, we refer to a market environment where firms' payoffs depend solely on their achieved rank.}
In Part II: `Inequality, Demand for Quality, and Growth through Creative Destruction', we ask how a country's income distribution may affect its future growth prospects via the domestic demand for high-quality products. Depending on a country's openness to trade and its distance to the world technological frontier, this demand may or may not be satisfied through imports. This will feed back to the incentives for domestic firms to invest in quality upgrading. We will analyze these interdependencies in a general equilibrium framework. Our work will thus shed light on the interaction of income inequality within and between countries in shaping future growth prospects.
Finally, in Part III: `On Growth in Capabilities' we turn our attention to the inequality between countries and address the future potential of developing countries to converge to the world technological frontier. Motivated by empirical evidence on the connectedness of industries, we ask how a country's current position in the \emph{product space} impacts its future growth prospects. We will confront our theoretical predictions with the data and discuss their bearings for policies in the area of economic development.
Leader contributor(s)
Funder
Division(s)
Eprints ID
247504