Globalisation and Growth

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Globalisation and Growth

• Richard Kneller
• Leverhulme Centre for Research on Globalisation
  and Economic Policy

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Globalisation for Growth
Pro-Globalisers

• Richard Kneller
• Leverhulme Centre for Research on Globalisation
  and Economic Policy

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Globalisation versus Growth
Anti-globalisers

• Richard Kneller
• Leverhulme Centre for Research on Globalisation
  and Economic Policy

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Globalisation
Economy
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Growth of What?

• Gross Domestic Product (2006)
• Japan 3,946,090 million India 3,729,533
  million
• Population
• Japan 120 million India 998 million
• GDP per capita (per person) (2006)
• Japan 32,647 India 3,737

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THE WEALTH OF NATIONS
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Two methods for countries to get rich
Steal Empire Building
Buy - Invest
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GDP per capita - World Income Distribution
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GDP per capita - World Income Distribution
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GDP per capita - World Income Distribution
Industrial Revolution
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GDP per capita - World Income Distribution
US over takes UK
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GDP per capita - World Income Distribution
Rapid growth begins in Japan and spreads to the
other South East Asian economies and eventually
China
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GDP per capita - World Income Distribution
Incomes in Africa are stagnant
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• Historically Successful (US, Europe)
• high income levels, but slow growth
• Newly Successful (S.E.Asia, Ireland)
• low initial income, rapid growth
• Were Successful, No longer (Latin America)
• high initial income, slow often volatile growth
• Never Successful (Sub-Saharan Africa)
• low initial income, slow often negative growth
• Together these lead to a world income
  distribution that has widened over time.

The World Income Distribution can be summarised
by four types of country
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Globalisation and Growth

• Does globalisation explain why GDP per person has
  grown quickly in some countries and why they are
  therefore rich?
• Has globalisation mattered more for growth in
• US Ireland
• Argentina Cote dIvoire

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Globalisation rank GDPpc rank
Luxembourg 1 1
Singapore 2 17
Ireland 3 2
Belgium 4 13
Estonia 5 42

Senegal 89 147
Rwanda 90 161
India 91 118
Niger 92 172
Bangladesh 93 138
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Do countries grow faster if they become more
globalised?
Ireland
YES
UK
Greece
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Do countries grow faster if they become more
globalised?
China
YES
Cote dIvoire
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Do countries grow more slowly if they close
themselves off from the rest of the world?
South Korea
YES
North Korea
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Globalisation and Growth

• The Evidence looks convincing enough to suggest
  that globalisation matters.
• If you globalise faster than others you grow
  faster
• If you stop global engagement you grow more
  slowly
• But are we just picking winners countries that
  have been successful
• What happens if we choose a different set of
  countries

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US growth has been constant since 1870
Ln(GDPpc)
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Does globalisation matter in the US?
International trade
NO
Growth
If globalisation mattered in a simple way, growth
should trend up
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Does globalisation matter in the US?
YES
Smoot-Hawley tariff of 1930 raised import tarrifs
on 20,000 goods.
Ln(GDPpc)
By 1933 income levels had dropped to where they
were 28 years earlier
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Does globalisation always work? Argentina has
moved from anti to pro-globalisation policies.
Some have suggested that now too exposed to the
world economy.
NO
Europe
Argentina
Anti-globalisation policies
Pro-globalisation policies
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Globalisation and Growth
What about the very poor Sub Saharan
Africa They are as rich now as the UK/Italy were
in 1500
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Globalisation and Growth
According to the data they would not have seen
many differences in income levels in Malawi?
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Globalisation and Growth
What about the very poor Sub Saharan
Africa They are as rich now as the UK/Italy were
in 1500 Did they attempt to globalise? Yes and it
was economists who told them they should. Indeed
it was imposed upon them
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Growth in the average developing country
Actual
Predicted
Economists asked what policies (including
globalisation) have worked in the past and in
Asian Tigers
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Growth in the average developing country
Predicted
Actual
They then imposed policy reform and predicted
growth would rise
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Growth in the average developing country
Predicted
In fact it fell
Actual
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Growth and Globalisation

• Initial response by economists was to blame
  developing countries
• Response now more measured, recognition that
  other factors matter
• Together explains the position of
  anti-globalisers in US, France, Latin America,
  Africa

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Is globalisation good for growth?

• It matters for countries that are rich (the
  income frontier)
• It can lead to fast growth for countries behind
  the frontier
• Globalisation is no magic bullet
• There are deeper problems that globalisation are
  not obviously the cause or cure of

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Is globalisation good for growth?

• "Yeah but no but yeah but no but...",

Economists need to be more like Vicky Pollard
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Questions