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The Globalization-welfare State Nexus Reconsidered

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  • Stephanie Meinhard

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Niklas Potrafke

    ()
    (Department of Economics, University of Konstanz, Germany)

Abstract

Two hypotheses relate to the globalization-welfare state nexus: The efficiency hypothesis predicts that globalization reduces government sector size and governments’ capacity to finance the welfare state. The compensation hypothesis, in contrast, predicts that globalization induces a higher demand for social insurance which results in an extended welfare state. Empirical evidence on the globalization-welfare state nexus is mixed. We re-examine the evidence by investigating a yearly panel dataset of 186 countries for the 1970-2004 period. We use data compiled by the Penn World Tables on government sector size and employ the KOF index of globalization. The results show that globalization increased government sectors around the world. Social globalization especially had a positive influence. Globalization-induced effects were stronger in OECD countries. Overall globalization and economic globalization reduced the relative price of government expenditures. These findings suggest that globalization does not jeopardize the welfare state at all.

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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-27.

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Length: 61 pages
Date of creation: 28 Jul 2011
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Handle: RePEc:knz:dpteco:1127

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Keywords: globalization; size of government; welfare state;

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Cited by:
  1. Christoph Schinke, 2014. "Government Ideology, Globalization, and Top Income Shares in OECD Countries," Ifo Working Paper Series Ifo Working Paper No. 181, Ifo Institute for Economic Research at the University of Munich.
  2. Potrafke, Niklas & Ursprung, Heinrich W., 2012. "Globalization and gender equality in the course of development," European Journal of Political Economy, Elsevier, vol. 28(4), pages 399-413.
  3. Potrafke, Niklas, 2013. "Globalization and labor market institutions: International empirical evidence," Munich Reprints in Economics 19288, University of Munich, Department of Economics.
  4. Thibault Darcillon, 2013. "What Causes Labor-Market Volatility? The Role of Finance and Welfare State Institutions," Documents de travail du Centre d'Economie de la Sorbonne 13070, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Vincenzo Bove & Georgios Efthyvoulou, 2013. "Political Cycles in Public Expenditure: Butter vs. Guns," Working Papers 2013016, The University of Sheffield, Department of Economics.
  6. Thibault Darcillon, 2013. "What Causes Labor-Market Volatility? The Role of Finance and Welfare State Institutions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881198, HAL.
  7. Gaston, Noel & Rajaguru, Gulasekaran, 2013. "International migration and the welfare state revisited," European Journal of Political Economy, Elsevier, vol. 29(C), pages 90-101.
  8. Berggren, Niclas & Nilsson, Therese, 2014. "Globalization and the Transmission of Social Values: The Case of Tolerance," Working Paper Series 1007, Research Institute of Industrial Economics.

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