The New Global Political Economy

The New Global Political Economy

From Crisis to Supranational Integration

New Directions in Modern Economics series

Riccardo Fiorentini and Guido Montani

The expert authors provide an in-depth analysis of the causes of the financial crisis and the political economy measures required to build a safer and more stable international order. They show how the financial crisis is deeply rooted in the flaws of the dollar standard and explain why the dollar and globalization should be considered together to understand the present challenges. By way of conclusion, the authors propose the creation of a ‘World Eco-Monetary Union’ with the power to regulate the global economy and to promote sustainable development.

Chapter 3: Globalization and income inequalities

Riccardo Fiorentini and Guido Montani

Subjects: economics and finance, financial economics and regulation, international economics, money and banking, political economy, radical and feminist economics


Since the Industrial Revolution, the history of the world economy has been characterized by a general rise in global inequality. This lengthy trend is the result of the interaction of two types of inequality: growing differences in GDP levels between countries (horizontal or inter-country inequality) and large differences in the income of individuals within each country (vertical or within-country inequality). During the first wave of globalization (1820–1914), although vertical inequality was high, horizontal inequality grew at a faster rate because industrialization in few core European countries initiated an uneven world development process leaving most of the other regions in the world behind. After the ‘first globalization’ period, in 1914–1945, inter-country inequality continued to increase while income distribution inside countries was more even (Lindert and Williamson, 2001). After World War II, in the Bretton Woods period (1944–1971), in equality between countries continued to rise, albeit at a slower pace because of post-war reconstruction and growth in Japan and Western Europe, off set by the gradual inclusion in the core of the world economy of a group of new industrialized Asian countries, the so- called ‘Asian tigers’. These countries were able to increase their per-capita income and reduce poverty through export-led strategies supported by controls on capital flows and domestic investments in capital goods, infrastructure and education. In the same period, within-country inequality remained stable overall with improvements in several advanced and Asian countries.

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