Who Supports Globalization and Why the Formal-Informal Worker Divide

• In Event: Political Economy of Globalization in South Asia

Abstract

Are citizens in the developing world convinced about the benefits of globalization? By leveraging their comparative advantage in low labor costs, economists predict poor citizens will be better off with open markets. Yet, surprisingly little rigorous research exists on if and how workers in developing countries actually experience the benefits of increasing trade and foreign direct investment (FDI), particularly in era of rapidly expanding global supply chains. To answer this question, we focus on the largest cluster of laborers in developing countries, informal workers, and develop hypotheses about the effects of FDI on their mobility prospects to the formal sector. Using observational and experimental data, we find that formal workers in India support foreign investment far more than their informal counterparts, particularly when it involves an American firm. The latter are skeptical that the benefits of FDI will ever trickle down to themselves or their future generations. India’s much smaller population of formal workers, by contrast, are more confident that they have privileged access to coveted jobs associated with US firms – regardless of their skill level- and believe that their inter-generational social mobility prospects will improve. Our findings provide new insights on (macro and micro-level) factors contributing to rising inequality, and call for caution amongst scholars, policymakers, the international business community, and all those who anticipate that globalization is lifting all boats.

Authors

• Nita Rudra, Georgetown University

• Helen V. Milner, Princeton University

• Harish S.P., College of William & Mary