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The Globalization–Welfare State Nexus Reconsidered

  • Stephanie Meinhard
  • Niklas Potrafke

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. The evidence is re-examined by investigating a yearly panel dataset of 186 countries for the 1970-2004 period. This paper uses data compiled by the Penn World Tables on government sector size and employs the Konjunkturforschungsstelle (KOF-Swiss Economic Institute) 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 Organisation for Economic Co-operation and Development (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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File URL: http://hdl.handle.net/10.1111/j.1467-9396.2012.01021.x
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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 20 (2012)
Issue (Month): 2 (05)
Pages: 271-287

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Handle: RePEc:bla:reviec:v:20:y:2012:i:2:p:271-287
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