International and Domestic Income Distribution Inequalities in the Age of Globalization : A General Equilibrium Simulation

The rising inequality of income distribution has attracted world’s attention since Krugman [2007] criticized the rising inequality in the U.S. especially after the 1980s. This phenomenon became well known worldwide when “Occupy Wall Street” movement broke out in 2011, and has been discussed in Stiglitz [2012] and Piketty [2013]. It must be noted, first, that their analysis is econometric or political one in essence, rather than economic one with model building. The model building in terms of general equilibrium theory was attempted in Fukiharu [2013]. Second, it must be noted that the rising inequality, they point out, is the domestic one, the one in the US, France, or any particular country. International inequality of the whole world incomes appears to have declined. Indeed, computing the Gini coefficients for 1990, 1995, 2000, 2005, 2010, and 2012 in terms of the statistical data, provided in The World Statistics (Japan Ministry of Internal Affairs and Communications, Statistical Bureau, http://www.stat.go.jp/data/sekai/0116.htm#c03), we have 0.783084, 0.782885, 0.788768, 0.759581, 0.732477, and 0.73022, respectively. Computing Gini coefficients, in terms of per capita whole world incomes, we have 0.588654, 0.58692, 0.574216, 0.579776, 0.549931, and 0.550984, respectively. Fukiharu [2013] attempted to examine the phenomenon of rising domestic income inequality from the viewpoint of globalization and innovation utilizing (modified) Heckscher-Ohlin trade model. The aim of this paper is to examine this phenomenon of rising domestic income inequality and declining international income inequality from the viewpoint of globalization. We start with a simulation on primitive 2-country IS trade mode. Proceeding to the simulation analysis of somewhat more sophisticated Heckscher-Ohlin trade model, we examine if the phenomenon on the income inequality is consistent with the pure economic theory.