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Globalisation and
Growth
Richard Kneller
Leverhulme Centre for Research on Globalisation and Economic Policy
Globalisation for
Growth
Richard Kneller
Leverhulme Centre for Research on Globalisation and Economic Policy
Pro-Globalisers
Globalisation versus Growth
Richard Kneller
Leverhulme Centre for Research on Globalisation and Economic Policy
Anti-globalisers
Globalisation
Economy
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
Two methods for countries to get rich
Steal Steal – Empire – Empire BuildingBuildingBuy Buy - Invest- Invest
GDP per capita - World Income Distribution
5.7
6.2
6.7
7.2
7.7
8.2
8.7
9.2
9.7
10.2
10.7
1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000
US
UK
Singapore
Argentina
China
Japan
Burkina Faso
Malawi
GDP per capita - World Income Distribution
5.7
6.2
6.7
7.2
7.7
8.2
8.7
9.2
9.7
10.2
10.7
1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000
US
UK
Singapore
Argentina
China
Japan
Burkina Faso
Malawi
GDP per capita - World Income Distribution
Industrial Revolution
5.7
6.2
6.7
7.2
7.7
8.2
8.7
9.2
9.7
10.2
10.7
1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000
US
UK
Singapore
Argentina
China
Japan
Burkina Faso
Malawi
GDP per capita - World Income Distribution
US over takes UK
5.7
6.2
6.7
7.2
7.7
8.2
8.7
9.2
9.7
10.2
10.7
1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000
US
UK
Singapore
Argentina
China
Japan
Burkina Faso
Malawi
GDP per capita - World Income Distribution
Rapid growth begins in Japan and spreads to the other South East Asian economies and eventually China
5.7
6.2
6.7
7.2
7.7
8.2
8.7
9.2
9.7
10.2
10.7
1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000
US
UK
Singapore
Argentina
China
Japan
Burkina Faso
Malawi
GDP per capita - World Income Distribution
Incomes in Africa are stagnant
• 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
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 d’Ivoire
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
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
21,000
23,000
25,000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
Ireland
Greece
UK
Do countries grow faster if they become more globalised?
Ireland
Greece
YESUK
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
China
Côte d'Ivoire
Do countries grow faster if they become more globalised?
China
Cote d’Ivoire
YES
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
South Korea
North Korea
South Korea
North Korea
YES
Do countries grow more slowly if they close themselves off from the rest of the world?
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
y = 0.0187x + 7.7097
7.5
8
8.5
9
9.5
10
10.5
1870 1895 1920 1945 1970 1995
US growth has been constant since 1870
Ln(GDPpc)
Does globalisation matter in the US?Does globalisation matter in the US?
-12
-7
-2
3
8
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
5
10
15
20
25
30
If globalisation mattered in a simple way,
growth should trend up
Growth
International
tradeNO
y = 0.0187x + 7.7097
7.5
8
8.5
9
9.5
10
10.5
1870 1895 1920 1945 1970 1995
Ln(GDPpc)Smoot-Hawley tariff of 1930 raised import tarrifs on 20,000 goods.
By 1933 income levels had dropped to where they were 28 years earlier
-20
-15
-10
-5
0
5
10
15
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
Does globalisation matter in the US?Does globalisation matter in the US?
YES
0
5,000
10,000
15,000
20,000
25,000
1925 1945 1965 1985
France
Germany
Italy - Italie
Argentina
Does globalisation always work?Argentina has moved from anti to pro-globalisation policies. Some have suggested that now too exposed to the world economy.
Anti-globalisation policies
Pro-globalisation policies
Argentina
Europe
NO
Globalisation and Growth
What about the very poor – Sub Saharan Africa
They are as rich now as the UK/Italy were in 1500
Globalisation and GrowthAccording to the data they would
not have seen many differences in income levels in Malawi?
Globalisation and Growth
What about the very poor – Sub Saharan AfricaThey are as rich now as the UK/Italy were in 1500Did they attempt to globalise?Yes and it was economists who told them they
should.Indeed it was imposed upon them
0
0.5
1
1.5
2
2.5
3
1960s 1970s 1980s 1990s
actual
predictedEconomists asked what policies (including globalisation) have worked in the past and in Asian Tigers
Growth in the average developing country
Predicted
Actual
0
0.5
1
1.5
2
2.5
3
3.5
4
1960s 1970s 1980s 1990s
actual
predicted
They then imposed policy reform and predicted growth would rise
Actual
Predicted
Growth in the average developing country
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
1960s 1970s 1980s 1990s
actual
predicted
In fact it fell
Predicted
Actual
Growth in the average developing country
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
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
"Yeah but no but yeah but no but...",
Is globalisation good for growth?
Economists need to be more like Vicky Pollard
Questions