What began as a celebration of globalisation’s growth-enhancing potential has now evolved into a deeper inquiry into its impact on inequality—both within and across nations. And yet, thanks to globalisation, today we are in a deeply and dynamically interconnected world. It is a phenomenon that has redefined the way goods and services move across borders, emboldened the extent of economic, cultural, and political integration between nations, delivered greater distributive welfare, and amplified cross-national flow of innovation and capital. But the burden of the regressive effects of externalities that come with it must be strategically controlled.
Most importantly, what started as a response to the Great Recession of 2008 is today witnessing a prospect reversal—from globalisation to localisation, from integration with all to connectedness with a few. Think tanks and country heads alike appear to spread the idea that local clusters, rather than the global one, can help mitigate supply chain vulnerabilities amid accelerating geopolitical risks. It is no wonder then that more and more nations are embracing a patchwork of regional blocs, adopting selective decoupling strategies and shifting toward a more conscious and realistic approach of maximising resilience over economic and efficiency gains as global trade dynamics play out in the world today.
It is not that world leaders have shied away from the responsibility of minimising, if not completely mitigating, the negative externalities that globalisation entails. However, what is clear, in view of the numerous challenges we have been facing lately—whether it be capital flight or the monopolisation of business controls through aggressive innovations by a few—is that this has resulted in an imbalance in the leader-laggard relationship within the competition-innovation paradigm. Consequently, the persistent skew in our tastes and dynamic prospect of living is further creating discomfort towards globalisation.
However, the relationship between globalisation and inequality is far from being atomistic and linear. There is a clear moderating role of competition and innovation, especially the lack of proper controls and channelisation of regressive effects, that calls for a rethinking of the traditional philosophy of globalisation. There was a time when globalisation looked like destiny. China was rising, India was reforming, and America was leading. But somewhere along the way, it stopped feeling like shared progress and started looking like a lottery—with very few winning tickets. And this visible crack is what appears to dictate the most challenging trade integration dynamics of our time—Trump’s tariff dynamics. Whether we accept it or not, this tariff phenomenon will lead to the formation of strategic clusters among nations to sustain their economies, which were enjoying the boons of globalisation. The recent free trade agreement between India and the UK is a leading example.
Innovation and competition
Societies have not kept pace in redistributing their dividends. Education, welfare, and taxation policies have often lagged behind, leaving globalisation’s gains unevenly shared. Without these buffers, globalisation becomes less of a rising tide and more of a storm, lifting some while drowning others.
Global inequality encompasses two dimensions: Inequality between countries and inequality within countries. Scholars such as François Bourguignon and Branko Milanovic have shown that the mid-twentieth century witnessed a “Great Levelling” in advanced economies, with falling domestic inequalities. Yet, by the late twentieth century, the trajectory shifted: Income gaps between countries narrowed, largely due to the rise of emerging economies, even as internal disparities within nations widened. Bourguignon’s analysis using the Theil index revealed a marked decline in global inequality during the 2000s, driven chiefly by falling inter-country disparities. By 2020, however, the World Inequality Report found that one-third of global inequality stemmed from differences between nations, with the remainder explained by intra-national divides—underscoring the dual channels through which globalisation reshapes income distribution. Globalisation is not inherently unequal. Its legacy depends on how nations manage the competition and innovation it ignites. If these forces are harnessed inclusively, globalisation can still be a powerful equaliser. If not, it risks becoming a fault line—deepening divides in an already fractured world. The chaos we see these days in the world order of international trade is a definite reflection of the divides.
So as the world confronts rising inequality, the challenge lies not in halting global integration but in harnessing its competitive and innovative energies to foster inclusivity rather than divergence. Thus, competition and innovation are not villains. They are the engines of growth.
The two forces are inseparable from the globalisation project. Global integration has lowered barriers, intensified market rivalry, and incentivised technological advances. Yet, these very dynamics, while driving efficiency and productivity, have also produced new progenies of inequality. Researchers increasingly acknowledge that globalisation and inequality share “at least some relationship,” but disentangling this nexus is complicated by additional drivers, notably technological progress, institutional reforms, and national policy choices. The theoretical roots of this relationship can be traced back to the Stolper-Samuelson theorem, which predicted that trade would benefit unskilled workers in developing economies while increasing inequality in developed nations. Reality, however, proved more complex. In countries such as Mexico, Brazil, India, and China, trade liberalisation was paradoxically accompanied by rising domestic inequality. The missing link was competition and innovation: Global exposure spurred productivity gains and technological upgrading, but these disproportionately favoured skilled workers, entrepreneurs, and capital owners, leaving others behind.
India offers a striking illustration. Since the 1991 reforms, the country has transformed. Market liberalisation, foreign investment, and tariff reductions unleashed waves of competition across industries. Poverty rates fell, consumer choice expanded, and entire sectors—such as aviation—shifted from state monopolies to dynamic, competitive ecosystems. The new environment fostered entrepreneurial innovation, improved efficiency, and boosted growth from 4 per cent in the 1980s to over 7 per cent in subsequent decades. Yet, prosperity was unevenly shared. The top 1 per cent of Indians now command over 23 per cent of the national income, compared to just 10 per cent at the dawn of liberalisation. Globalisation created wealth, but competition and innovation, while engines of progress, also magnified inequality by rewarding those best equipped to harness these forces.
The story is not unique to India. In advanced economies, the rise of skill-biased technological change—itself a by-product of global competition—has widened wage gaps. Innovation, far from being independent of globalisation, often emerges as a response to international rivalry. Tax reforms, deregulation, and market liberalisation can similarly be interpreted as policy adaptations to competitive global pressures. Thus, globalisation influences inequality both directly, through trade and capital flows, and indirectly, by compelling nations to innovate, deregulate, and restructure. Nevertheless, country-specific factors matter. Education policies, welfare systems, and political regimes mediate how globalisation and innovation translate into inequality. To generalise the effects of globalisation on income distribution is to risk oversimplification.
As geopolitical tensions prompt serious calls for “de-globalisation” and reduced import dependence, a more measured path may lie in regional globalisation: Strengthening regional supply chains, balancing competitive pressures, and ensuring more equitable distribution of economic gains while still engaging with the global economy. It is creating the dynamics of the world within a newly created world. The new age mantra would be that by redefining and refining our goals of growth, survivability, and sustainability, we can create a new narrative of globalisation that empowers the majority, restrains the few, and sustains all in both the short and long term.
Arijit Dash is a PhD Scholar at the University of Cambridge, UK. Tapas Mishra is a Chaired Professor of Financial Economics at the University of Southampton, UK. Views are personal.
(Edited by Theres Sudeep)