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Globalization and Human DevelopmentGlobalization is notthe only factor thataffects the demand forand incomes ofdifferent factors ofproduction.Globalization and InequalityIn principle, openness should reduce inequalitybetween developed and developingcountries. The rapid economic growth ofthose developing countries which openedtheir markets to free trade during the lastthree decades of the twentieth century hasstimulated a large empirical and theoreticalliterature on the impact of trade on growth.There seems to be much evidence of a linkbetween openness and growth during thelast part of the century. In fact, internationaltrade seems not only to have a positiveimpact on growth, but also seems tofacilitate convergence between economiesas predicted by neoclassical growth models(Williamson, 1996). This is becauseopenness increases the demand for thefactor of production that is relativelyabundant in the liberalizing country (laborin developing countries), but relativelyscarce in the rest of the world. Higherdemand for labor in developing countriesshould bring about pressure for price (wage)equalization across countries (according tothe Stolper-Samuelson theorem), therebyraising the standard of living in the poorercountries. Within rich countries, openness isexpected to increase income disparitybetween skilled and unskilled labor ascapital migrates to developing countries forcheaper unskilled labor.These predictions may not hold in practicefor several reasons. Because labor is lessmobile than capital, it is more vulnerable totaxation. Put differently, while capital canescape taxation, labor cannot. The relativemobility of capital and the relative fixity oflabor also tend to weaken the bargainingposition of trade unions for higher wages incountries where trade unions are strong.Finally, and perhaps more importantly,globalization is not the only factor thataffects the demand for and incomes ofdifferent factors of production. The patternof production, investment and technologyhas important effects on the demand forlabor with different skills, withunpredictable effects on income distributionwithin countries.In view of this ambiguity, it is important tolook at the evidence to see whether there isany association between globalization andequality across and within countries. As forinequality across countries, the data show asignificant increase in the average per capitaincome of the rich and poor countriesduring the twentieth century. However,progress has been uneven, with the richestcountries doing relatively better than thepoorest. According to the IMF (2000), therichest quarter of the population saw asix-fold increase in their per capita income,while the poorest quarter saw only anincrease of less than three-fold (Figure 1.7).In recent decades, which coincided withincreased globalization, data from theWorld Bank shows that the average percapita income in the richest twentycountries was fifteen times that of thepoorest twenty in 1960. This gap has sincedoubled to reach thirty times, with percapita incomes in the poorest twentycountries hardly changing, if not falling insome cases. It can therefore be concludedthat globalization is associated with greaterinequality across countries.As for inequality within countries, theevidence suggests that there is no simpleassociation between the changes in tradeopenness and the changes in inequality(Figure 1.7). There are, of course, countriesthat experienced increased inequality asthey integrated globally. In the developingworld, such countries include Argentina,Chile, Colombia, Costa Rica, Uruguay andChina. Similarly, trade liberalization inMexico in the mid-to-late 1980s led to arelatively higher increase in the wages ofhigh-skilled workers relative to unskilled.And in the US, the evidence shows thatwages of high school educated males fell 20per cent between the mid 1970s and mid1990s. But, as Figure 1.8 suggests, there arealso many countries where inequality fellwith more trade openness. Accordingly, itcan be concluded that changes in inequalitywill largely depend on the initial conditions(such as the distribution of human capital,land and capital) at the time ofglobalization, as well as government actionsto enable the poor and the unskilled tobenefit from more openness.Globalization and the Quality ofLifeIncomes do not tell the whole story, and it isindeed possible to find countries that did18 -Egypt Human Development Report 2000/2001