Income distribution inequality, globalization, and innovation: A general equilibrium simulation

Utilizing simulation approach, this paper examines if the income distribution inequality of a country expands through globalization and/or innovation, somewhat modifying the traditional Heckscher–Ohlin model. First, independently of innovation, the globalization is examined for a country A with two industries (commodities) and four consumers: the (aggregate) worker, the (aggregate) capitalist, and two entrepreneurs. It is shown that there is a clear tendency for the inequality to expand by globalization. Furthermore, when country A is small, the inequality-promoting tendency is stronger. Second, the innovation is examined independently of globalization, by the procedure in which the new-third industry (commodity) and the new-third entrepreneur are introduced, so that there are five consumers. When innovation emerges in country A in autarky, it is shown that the innovation has tendency to cause inequality expansion. Finally, the innovation and globalization are examined in an integrated manner. We start with the country in the second case. It is shown that when the new-third commodity is produced only in country A and is a non-traded commodity, inequality tends to expand through the globalization. It is shown, furthermore, that when the third commodity is produced in both countries and is a traded commodity, we have stronger tendency. Thus, there is a clear tendency for the inequality to expand through the globalization and/or innovation. © 2012 IMACS. Published by Elsevier B.V. All rights reserved.