Reasons countries together with globalization (Goldberg and Pavcnik, 2007).

Reasons of
inequality of income:

Several theoretical
explanations have been presented about rising income inequality in developing
countries together with globalization (Goldberg and Pavcnik, 2007).

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First, developing
countries are facing fierce international competition with other countries
after the 1980s when almost all countries started to participate in the
globalization process. This makes the results predicted by international trade
theory not hold (Wood, 1999).

 

Others focus on the
differences in initial endowments related with global outsourcing and trade for
intermediate goods. Relatively high-skilled and richer workers in developing
countries produce goods that were produced by low-skilled workers in developed countries
before.

 

Then, the growth of
international trade and outsourcing could worsen the situation of low skilled
workers in developed countries, while it could do opposite to high-skilled
workers in developing countries, leading to rising income inequality in both countries.

More FDI and more
import of capital goods in developing countries generate the same result since
these are related with production that needs relatively high-skilled workers.

Moreover, developing country governments protected vulnerable industries with
mainly low-skilled workers, and thus liberalization and opening may exert
negative effects on these poor workers.

 

Increased penetration
of foreign direct investment which is a product of globalization has continued
to widen the gap of inequality among the developing nations. The issue being
that besides multinational companies outsourcing activities that rely heavily
on low qualified cheap labor, they also introduce new technologies that
previously never existed in the developing nations.

Initially, the
introduction of these new technologies
will create a demand for highly skilled workers to operate these machines
leading to an increase in their
wage levels, and consequently this creates inequality as well as market
segmentation.