Friday, January 20, 2017
Jonathan Ostry writes: “Economists tend to be advocates of globalization. The benefits of specialization and exchange are evident within a country’s borders: no one would seriously suggest that impeding the flows of goods, labour and capital within a country would raise national welfare. Globalization extends the possibilities of specialization beyond national boundaries. Recent work suggests, however, that while globalization is great in theory, vigilance is needed about it in practice.
The three main components of globalization – goods, labour, and capital – are associated with different costs and benefits. The preponderance of the evidence suggests that trade has positive impacts on aggregate incomes, but many people do lose out. The economic benefits of migration are very high, but it too has distributional consequences and impacts on social cohesion.
The case for globalization is weakest when it comes to free flows of capital across national boundaries (“financial globalization”). The growth benefits claimed for these policies have proven elusive. At the same time, they are associated with an increase in inequality. Hence they pose a dilemma for proponents of globalization.
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