Economic, social and political fragmentation: Linking knowledge-biased growth, identity, populism and protectionism

This paper examines how economic fragmentation (widening inequality of skills, income and education) gives rise to social (via incompatible identities), generating political policies). We consider three value-driven identities: individualism, focused on status concerns, communitarianism, affiliations, multi-affiliatedness, encompassing both objectives. Under endogenous identity formation high-skill people are drawn the lower-skilled those intermediate skill multi-affiliatedness. Skill- education-biased growth leads increasing polarisation, expanding individualistic communitarian groups at expense multi-affiliates. expands constituency for closed policies (such as protectionism, immigration controls nationalism), even when these reduce everyone's living standards. Our analysis thereby helps explain underpinnings populism.