Making Sense of Globalization: A Guide to the Economic Issues

Francois Bourguignon (DELTA, Paris) Diane Coyle (Enlightenment Economics) Raquel Fernàndez (New York University and CEPR) Francesco Giavazzi (Bocconi University and CEPR) Dalia Marin (Universität München and CEPR) Kevin O'Rourke (Trinity College, Dublin and CEPR) Richard Portes (London Business School and CEPR) Paul Seabright (Université des Sciences Sociales de Toulouse and CEPR) Anthony Venables (London School of Economics and CEPR) Thierry Verdier (DELTA, Paris and CEPR) L.Alan Winters (University of Sussex and CEPR)

Funded by the European Commission Group of Policy Advisors and introduced by the President of the European Commission, Romano Prodi, Making Sense of Globalization: A Guide to the Economic Issues was written by a team of internationally renowned economists. The critics of globalization say that it increases inequality, pollutes the environment, causes economic instability, exploits workers and undermines the ability of governments to raise the taxes that finance public spending and welfare. In contrast the authors of the new CEPR Report find that many of the charges levelled against globalization are misguided:

• There is a wealth of economic evidence that demonstrates that globalization brings great benefits as well as costs. It offers the opportunity for a higher rate of sustainable growth - growth that translates into longer, healthier lives and improved living standards.

• On average, economic growth is good for the poor, and trade is good for growth. Trade is also associated with lower inflation and less corruption. A significant degree of openness to trade, financial liberalization, and global financial integration are necessary conditions for sustained economic growth. Even sceptics of trade liberalization recognize that no country can afford to turn its back on international trade.

• The increasing integration of the world's economies does not inevitably increase the inequality of incomes. The 19th century saw an explosion of inequality but by the middle of the 20th century it had stopped rising. The proportion of the world's population in absolute poverty is now lower than it has ever been. The number of those living on less than 1$ a day, adjusted for inflation, has declined from around half in 1950 to less than a quarter in 1992.

• Many of the apparent costs of globalization reflect domestic policy failures, to the extent that they would be better tackled through domestic policy reform than through seeking to halt the forces driving globalization. The effects of economic liberalization depend critically on the circumstances of individual countries.

• There is little evidence that governments are losing power to multinational corporations or that there is 'a race to the bottom' in environmental standards or taxation.

• Overall 40% trade liberalization in agriculture would generate the same gains as 40% liberalization in the much bigger manufacturing sector or about $70 billion a year. Most of the gains would accrue to developed countries but big agricultural exporters such as Brazil and Argentina as well as sub-Saharan African countries would enjoy a significant share

• EU resistance to trade liberalization, especially in the key areas of agriculture and textiles, adds around 300 euros a year to the food bill of each EU citizen.

• Where true international policy spillovers exist, such as the regulation of international financial markets, the EU should take the lead in developing policy proposals.

CEPR is a network of 600 Research Fellows based throughout Europe, who collaborate through the Centre in research and its dissemination. CEPR helps its Research Fellows to develop projects, obtain their funding, administer them and disseminate their results. The Centre's research ranges from open economy macroeconomics to trade policy, from the economic transformation of Central and Eastern Europe to regionalism in the world economy.

CEPR Policy Paper 8

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