This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

« Back to Results

Making Globalization More Inclusive

Paper Session

Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 204-C
Hosted By: American Economic Association
  • Chair: James K. Galbraith, University of Texas-Austin

Making Trade Globalization Inclusive

Joseph E. Stiglitz
,
Columbia University

Abstract

Under standard neoclassical assumptions, trade globalization was predicted to lower incomes of unskilled workers in advanced countries, in the absence of government intervention. It is not a Pareto improvement. Making matters worse, trade agreements have included intellectual property rights provisions and investment agreements which too have distributional effects, in some cases compounding the effects which arise from trade liberalization directly. (All of these effects arise and can be important even if most of the adverse impacts on unskilled workers are associated with changes in technology.) This paper seeks to analyze the design of Pareto improving trade liberalization packages, both the design of the trade agreements themselves and accompanying policy measures. It explores how the design of such trade packages may depend on the underlying assumptions about the functioning of the economy, e.g. the absence of certain risk markets and the presence of certain rigidities impairing the ability of the economy to maintain full employment. This theoretical analysis sets the state for an examination of current trade policies. The current Administration has proposed renegotiating trade agreements. Protectionism was at the core of his agenda. At this juncture, it appears that the post World War II global economic and political order may be under attack. As we approach the end of the first year of the Trump Administration, the question is: to what extent has he in fact up-ended the old order? What are the consequences? What has (or will) replace it? What will be the effects on living standards in the US and around the world? Will the new trade regime succeed in raising living standards? Will it making trade globalization more inclusive?

Making Financial Globalization More Inclusive

Jonathan D. Ostry
,
International Monetary Fund
Davide Furceri
,
International Monetary Fund
Prakash Loungani
,
International Monetary Fund

Abstract

The distributional effects of financial globalization, unlike those of trade, have gone largely unrecognized. In fact, however, episodes of capital account liberalization are followed by an increase in the Gini coefficient and top income shares and declines in the labor share of income. These distributional effects hold with a de jure measure of liberalization and only get stronger when this measure is scaled by the extent of the capital flows that ensue in the aftermath of liberalization. Financial globalization emerges as a robust determinant of inequality, even after accounting for the effects of trade, technology and other drivers. At the same time, the output effects of financial globalization remain elusive and appear to be restricted to cases where financial depth and inclusion are high and where liberalization is not followed by a crisis. Financial globalization thus poses very difficult equity-efficiency tradeoffs and making it more inclusive requires, as a start, recognition of this fact.

The politics of the globalization backlash: Sources and implications

Jeffry A. Frieden
,
Harvard University

Abstract

A backlash against globalization has led to widespread political movements hostile both to economic integration and to existing political institutions throughout the advanced industrial world. Openness to the movement of goods, capital, and people has had important distributional effects. These effects have been particularly marked in communities dependent upon traditional manufacturing, some of which have experienced a downward spiral from the direct economic effects of foreign competition through broader economic decline to serious social problems. Those harmed by globalization have lashed out both at economic integration, and at the elites they hold responsible for their troubles. Political discontent is in part due to failures of compensation – insufficient provision of social safety nets for those harmed by economic trends. It is also due to failures of representation – the belief that prevailing political parties and politicians have not paid adequate attention to the problems faced by large groups of voters. Countries vary on both dimensions, as do national experiences with the populist upsurge. Previously dominant socio-economic interests and political actors may act to try to address this dissatisfaction, but the path faces serious economic and political obstacles.

Making Globalization More Inclusive: When Compensation Is Not Enough

Dani Rodrik
,
Harvard University

Abstract

According to many economists, the globalization backlash is the result of governments’ failure to redistribute the gains from globalization adequately – to compensate the losers. This paper argues that this is too narrow a perspective on the backlash and, in particular, fails to understand the limitations of the compensation hypothesis. First, the political equilibrium that produces intensified globalization is unlikely to favor redistribution. Second, even if compensation is politically feasible, the deadweight loss of compensatory redistribution becomes very large once the barriers to trade become low. Third, many of globalization’s downsides are the result of market failures, for which compensation provides no help. Finally, compensation cannot credibly address the longer-term erosion of distributional bargains entailed in trade agreements and financial globalization.
Discussant(s)
Adam Posen
,
Peterson Institute for International Economics
Linda L. Tesar
,
University of Michigan
Matilde Bombardini
,
University of British Columbia
Pol Antras
,
Harvard University
JEL Classifications
  • F4 - Macroeconomic Aspects of International Trade and Finance