Multinational companies have shifted manufacturing operations and research and development from West to East, taking advantage of low wages and huge Asian markets poised for growth. On the global trade front, countries like France feel battered, and political leaders increasingly toy with protectionism.
This YaleGlobal series offers ideas on how nations can optimize globalization’s benefits. In the first article, economist Pierre-Noel Giraud explains how the lack of regulations in international markets can lead to inefficiencies and uneven distribution of jobs. He argues that national policies address two categories of traded goods and services: the nomadic, which can cross borders, and the sedentary, which remain locked within domestic borders.
Giraud recommends that nations engage in a win-win strategy by cooperating on exchange rates and other monetary and industrial policies. Emerging economies must develop their domestic markets, wealthy countries must keep borders open, while all countries develop and maintain skills that remain in high demand. – YaleGlobal
It is widely recognized that financial markets are imperfect and require some public regulation. But what about markets for internationally traded goods and services? To question such trade is taboo among economists. The few who dare are immediately condemned as “protectionists.” And for economists, protectionism has been the epitome of evil in international economic affairs since the 1930s.
This is strange, as from a conceptual point of view, international goods and services markets are full of what economists call market failures, including:
1. increasing returns leading to global monopolies and oligopolies;
2. economies of agglomeration leading to large concentrations of exporting industries in areas like China’s Shenzhen Special Economic Zone or a concentration of financial services like Wall Street, the City of London, Singapore;
3. massive state interventions, particularly in emerging countries whose policies can approach neo-mercantilism.
As a result, in the last three decades of globalization, the jobs producing internationally traded goods and services have been unevenly distributed: Africa is dramatically short of such jobs. Europe and the US have lost too many of them. In China, they appear to be excessively concentrated in export-oriented firms.
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