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Unequal exchange and increasing global inequality. Effects of trade value transfers on world income distribution over 1995-2019

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Abstract

The growth in international trade between countries at very different levels of development has been one of the major drivers of economic globalization. This phenomenon is linked to the new international division of labor in which an emerging Periphery, hosting the offshoring and outsourcing of world manufacturing, is placed between a developed Center and a still backward poor Periphery. After an analysis of the world income distribution in the last 25 years, by estimating relative and absolute indices of global inequality among 175 countries grouped in 16 homogeneous regions, the role of unequal exchange is investigated on the basis of an original reconstruction of Marx's international law of value. The counterfactual empirical analysis shows that that value transfers in trade represent a significant source of revenue for the Center diverted from the Peripheries, thereby increasing world income gaps. The effect of international trade on global inequality should therefore be considered in redefining post-pandemic international economic rules.

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