Review of ‘Globalization and Inequality’ by Elhanan Helpman

Abstract

When trade comes up in conversation these days, a favorite talking point by people who oppose it is, “But it causes so much inequality, which outweighs the benefits.” The refrain has spread like wildfire through the left and the right, through key national and global institutions, even among people who should know better. The vitality of the phrase persists in part because the economics profession has struggled to come up with a coherent response. The literature has been evolving rapidly and sometimes we no longer feel we can say things we thought we knew without nuance. Elhanan Helpman, patron saint of the general equilibrium trade theory and, despite not (yet) having a Nobel, one of the most distinguished economists of our time, clears the fog for anyone worried they lack the authority to do so themselves. After a deep and meticulous examination of some of the most influential studies in the literature, he concludes that, “Globalization in the form of foreign trade and offshoring has not been a large contributor to rising inequality” (p.170).

Helpman does not shy away from evidence of the painful effects that import competition has had on many individuals and localities. On the contrary, if you read only one chapter of this book, let it be Chapter 7 where he reviews some of the literature on the local effects of the “China shock.” Rather, he reviews the existing evidence without fear or favor, taking care to consider both theory and data. He is unable to come up with any reliable estimate that points to trade-related activity as accounting for even one-quarter of the increase in wage inequality or the skill premium in any decade since the 1980s, with many estimates hovering around 10 percent.