Globalisation and Industrial Policy: The Case of China

After a quarter of a century of industrial policy, China's objective of nurturing a group of globally competitive state‐owned enterprises appears to have succeeded beyond most expectations. However, China's SOEs are far from catching up with the world's leading firms. Protection through state ownership in a massive, fast‐growing economy has permitted China's SOEs to earn large profits and achieve high market capitalisations, but this is not the same thing as building globally competitive firms. The fact that China's industrial policy has been unsuccessful after a quarter of a century of intense effort demonstrates how difficult it is to construct an industrial policy in the era of capitalist globalisation, which has produced intense global industrial concentration across large parts of the global value chain. Although the detailed content of the next stage of reform of China's large state‐owned enterprises is unclear, China's determination to build a group of globally competitive large companies remains undimmed.     

Globalisation and Obesity

The WHO has recently announced the global obesity epidemic. An economic model is developed in which globalisation factors generate health externalities and contribute to global obesity growth. The unbalanced panel data set contains the information for 79 countries over the period 1986–2008. Fixed‐effects panel data estimation and quantile regression analysis were used to analyse the data. The fixed‐effects panel model results indicate that the impact of trade openness and the globalisation social index (GSI) on global obesity rates is positive and significant, which is consistent with prior expectations, while surprisingly the foreign direct investments (FDI) has no impact on global obesity. While these results are interesting, they are hiding the effect of globalisation processes across the conditional distribution of the obesity variable. The use of quantile regression uncovered that the impact of the FDI and the GSI on low and average quantiles (low and average obesity rates in our sample) is positive and significant, while high quantiles are not affected. Since low and average quantiles (low and average obesity rates) are representative of the less‐ and medium‐developed countries, this result implies that social globalisation and FDI adversely impact obesity in less‐to‐medium developed countries. Trade openness generally has no impact on changes in obesity rates across quantiles.     

Governance and Globalisation

Unlike the large literature on ‘democracy and trade’, there is a much smaller literature on the effect of the level of democracy in a nation on the level of its foreign direct investment (FDI) inflow. These few studies reveal mixed empirical results, and surprisingly only one study has examined bilateral FDI flows. Moreover, few of these studies use multiple governance indicators separating the ‘pluralism’ effect of democratic institutions from the ‘good governance’ effect, there are no studies on democratic institutions’ various effects on the level of FDI relative to trade, and there are no studies of democratic institutions’ various effects on the selection of countries into FDI. We focus on three contributions. First, we examine the simultaneous effects of the World Bank's (six) Worldwide Governance Indicators (WGIs) – which allow separating the effects of pluralism from those of five other good governance measures – on bilateral trade, FDI and FDI relative to trade using state‐of‐the‐art gravity specifications. Second, we find strong evidence that – after accounting for host governments’ effectiveness in various roles of good governance – a higher level of pluralism as measured by the WGIs’ Voice and Accountability Index reduces trade levels, likely by increasing the ‘voice’ of more protectionist less‐skilled workers, but not FDI levels. Moreover, we find qualitatively different effects of other WGIs – such as political stability – on trade versus FDI flows. Third, we account for firm heterogeneity alongside a large number of zeros in bilateral FDI flows using recent advances in gravity modelling. We distinguish between the (country) intensive and extensive margins and show that pluralism affects FDI inflows negatively at the intensive margin, but positively at the extensive margin.     

Defining Globalisation

A clear and precise definition of globalisation is crucial to advance contemporary knowledge and policy. When taken to mean internationalisation, liberalisation, universalisation or westernisation, ideas of globalisation reveal little new. Important novel insight is opened when globalisation is understood as the spread of transplanetary – and in recent times also increasingly supraterritorial – connections between people. That said, this conception needs to be carefully qualified in order to avoid globalist excesses.     

Globalisation and Corruption,Revisited

This paper presents new empirical evidence on the determinants of corruption, focussing on the role of globalisation and inequality. The estimates for a panel of 102 countries over the period 1995–2005 point to three main results: (i) Detection technologies, reflected in a high level of development, human capital and political rights reduce corruption, whereas natural resource rents increase corruption; (ii) Globalisation (in terms of both trade and financial openness) has a negative effect on corruption, which is more pronounced in developing countries; (iii) Inequality increases corruption, and once the role of inequality is accounted for, the impact of globalisation on corruption is halved. In line with recent theory, this suggests that globalisation – besides reducing corruption through enhanced competition – affects corruption also by reducing inequality.     

Globalisation and its policy repercussions

The increasing cross-border flows of information, trade, capital and technology have profoundly changed the macroeconomic fabric of nations. In the emergent borderless world macroeconomic theories and policy-making confront new challenges. This paper identifies and evaluates some of these challenges.     

Globalisation,Growth and Convergence

This paper, devoted to the study of globalisation, analyses two distinct but closely related issues: First, it aims at evaluating disparities in the degree of globalisation observed in a sample of 101 countries over the period 1970–2005. Second, the paper tries to shed some light to the much debated issue of whether globalisation affects economic growth and, in so doing, whether convergence in globalisation brings about convergence in per capita income. The results obtained are both encouraging: on the one side, as it is shown that there has been a clear process of globalisation convergence; on the other, the paper concludes that globalisation has been one of the main drivers of economic growth, thus fostering convergence in per capita income.     

Globalisation and Policy Effects in Africa

Globalisation or market integration in Sub‐Saharan Africa is closely linked to the structural adjustment programmes. In this paper we focus on their dependence on the politics and institutional characteristics of the countries concerned. In particular, we argue that one important explanation for the dismal performance of many African countries, in spite of all the measures taken towards market liberalisation, is the combination of, first, a magnification of the effects of policy and, second, a lack of willingness or ability on the part of politicians to respect the restrictions imposed on their behaviour and policy choices by the liberalised markets. We look at how the increased exposure to international prices and returns on assets make the economic equilibrium relations – the law of one price and uncovered interest parity – relevant guidelines for economic policy. The argument is illustrated by the case of Zimbabwe, where lack of respect for the restrictions imposed by international markets has led to an economic crisis with negative growth rates and a departure from globalisation.     

The Evidence on Globalisation

Globalisation is blamed for many socioeconomic shortcomings. I discuss the consequences of globalisation by surveying the empirical globalisation literature. My focus is on the KOF indices of globalisation that have been used in more than 100 studies. Early studies using the KOF index reported correlations between globalisation and several outcome variables. Studies published more recently identify causal effects. The evidence shows that globalisation has spurred economic growth, promoted gender equality and improved human rights. Moreover, globalisation did not erode welfare state activities, did not have any significant effect on labour market interaction and hardly influenced market deregulation. It increased, however, within‐country income inequality. The consequences of globalisation thus turn out to be overall much more favourable than often conjectured in the public discourse.     

Globalisation: Recent traits and challenges

This special issue gathers together twelve papers that revisit a range of core topics in the field of international economics. These papers were presented at the XIX Conference on International Economics (CIE) held in Vila-Real (Spain) on 28th–29th June 2018. The Conference was co-organized by researchers from the Spanish Association of International Economics and Finance (AEEFI) and the Institute of International Economics (IEI). The selected papers are stimulating pieces that shed new light on recent trends in globalization as well as some of the main challenges that need to be faced in the presence of the multiple yield curves that emerged after the credit crunch. The CIE also included two keynote lectures by Laura Alfaro (Harvard Business School) and Gabriel Quirós (IMF) as well as 64 selected contributions.     

Financial Globalisation and Emerging Markets Volatility

The volatility of capital flows to emerging market (EM) countries and frequency of financial crises have imposed high welfare costs on the countries involved. The empirical literature provides, at best, a mixed picture on the relationship between long‐run EM country growth and financial integration. Meanwhile, the prevailing policy discourse regarding reform of the international financial system remains incomplete: the focus has largely been on either institutional and policy measures required of EM countries or international crisis‐resolution procedures. The role played by private financial markets and institutions in the developed world has not received adequate attention. This paper describes some of the structural features inherent in today's financial markets that directly contribute to the instability in EM capital flows.     

Globalisation and union opposition to technological change

Trade unions have a rational incentive to oppose the adoption of labour-saving technology when labour demand is inelastic and unions care much for employment relative to wages. Trade liberalisation typically increases trade union technology opposition. These conclusions are reached in a model of unionised international duopoly with two-way trade. We also find that the incentive for technology opposition is stronger in the more technologically advanced country and in the country with the larger home market, complementing earlier explanations for technological catch-up and leapfrogging.     

Globalisation and the competitiveness of regional blocs

Both globalisation and regionalisation have gained momentum in the last two decades in every part of the world, involving economies at all levels of development. The following article examines the major determinants affecting the competitive position of selected regional blocs and suggests some policy stances which promise to support both further regional integration and improved competitiveness at a global level.     

Globalisation and the Spatial Concentration of Production

(1240) Friederike Niepmann and Gabriel J. Felbermayr In new trade theory (NTT) models, freer trade tends to increase the spatial concentration of industrial production across countries. While nations with large home markets and central geographical location become increasingly attractive business locations, small peripheral countries gradually deindustrialise. Using data for 26 industries, 20 OECD countries and 20 years, we investigate the empirical validity of this claim. Separating out the role of home market size from geographical factors, and using various panel methods, we find robust evidence in line with theory. Freer trade has indeed magnified the importance of domestic demand and geographical location for the pattern of industrial production across the globe and has therefore exacerbated spatial disparities.     

Globalisation and factor returns in competitive markets

The standard competitive trade model, extended to include many goods and factors, is used to analyze the effect of goods and factor market integration on average international disparities in the real returns of internationally immobile factors. It is shown that goods market integration decreases international real return differentials for all factors. We derive sufficient conditions for this result to hold for the subgroup of internationally immobile factors as well. While there is a presumption for similar results to hold with international factor market integration, we show that this is true for international migration but in general not for international investment.     

Heterogeneous Firms,Globalisation and the Distance Puzzle

Despite the strong pace of globalisation, the distance effect on trade is persistent or even growing over time (Disdier and Head, 2008). To solve this distance puzzle, we use the recently developed gravity equation estimator from Helpman et al. (2008) (HMR henceforth). Using three different data sets, we find that the distance coefficient increases over time when ordinary least squares (OLS) is used, while the non‐linear estimation of HMR leads to a decline in the distance coefficient over time. The distance puzzle, thus, arises from a growing bias of OLS estimates. The latter is explained by an increase in the importance of the bias from omitting the number of heterogeneous exporting firms relative to the bias from omitting zero trade flows. Furthermore, we show that including zero trade flows cannot solve the distance puzzle when using HMR. The HMR estimates are strongly correlated with the time pattern in freight costs reported by Hummels (2007).