The payoff from globalisation

Next door to us at the Center for Global Development is our sister institution, the Institute for International Economics. Gary Clyde Hufbauer and Paul L. E. Grieco have published some very interesting analysis which finds that:

Using four different methods, we estimate that the combination of shrinking distances … and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year (measured in 2003 dollars), or about 10 percent of gross domestic product. This translates to a gain in annual income of about $10,000 per household.

These benefits are much larger than the losses faced by people who work in the industries that would be adversely affected:

we estimate that the lifetime costs of a year’s worth of trade-related job losses is roughly $54 billion, about $240,000 per affected worker. This is a huge loss on a personal level, but only about 5 percent of the annual national gains from liberalization. Moreover, a rough estimate of the adjustment costs to agricultural landowners suggests that the progressive removal of trade barriers and farm subsidies over a decade could lower agricultural land values by $27 billion a year … lower property values are a one-time private loss and a fraction of national gains.

This provides useful quantitative estimates which back up my view on the benefits of globalization:

  • there is no question that the world as a whole is better off with free trade – the gains far outweigh the losses
  • but the distribution of those gains will depend on how the liberalisation is managed
  • if we want to acclerate trade liberalisation – and so reap those benefits sooner – we should be more creative about redistributing the benefits to compensate the losers. These gains are so large that, even if we provide generous benefits to the losers, we are still better off as a whole.
  • we should use the benefits of global trade liberalisation to offset short term losses in developing countries – both to ensure that the poor get a large proportion of the benefits of trade liberalisation, and to ensure that the impact on poor countries does not become an obstacle to further trade liberalisation

1 thought on “The payoff from globalisation”

  1. “If we want to acclerate trade liberalisation – and so reap those benefits sooner – we should be more creative about redistributing the benefits to compensate the losers.”

    If only that ever actually happened, I’d be a lot less sceptical about the benefits of free trade. And if the ‘winners’ ever really had to pay ‘generous compensation’ to the losers on a national or international level they’d be a lot less enthusiastic about it too.

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