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The challenge of market power under globalization

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  • David Arie Mayer-Foulkes

    () (Division of Economics, CIDE)

Abstract

The legacy of Adam Smith leads to a false confidence on the optimality of laissez faire policies for the global market economy. Instead, the polarized character of current globalization deeply affects both developed and underdeveloped economies. Current globalization is characterized by factor exchange between economies of persistently unequal development. This implies the existence of persistent extraordinary market power in transnational corporations, reflected in their disproportionate participation in income and policy. These are shown to be steady state features of globalization in a convergence club model of development and underdevelopment including trade and FDI. Moreover, results in tax competition explain how the increased share of transnational profits under globalization leads to lower corporate taxes, more conservative policies, and weaker institutions for balancing market power. The increased level of market power under globalization poses a serious challenge for national and global governance that deeply impacts economic development, distribution, sustainability and democracy everywhere.

Suggested Citation

  • David Arie Mayer-Foulkes, 2014. "The challenge of market power under globalization," Working papers DTE 571, CIDE, División de Economía.
  • Handle: RePEc:emc:wpaper:dte571
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    File URL: http://cide.edu/repec/economia/pdf/DTE571.pdf
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    References listed on IDEAS

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    1. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-177, February.
    2. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 1-41.
    3. Baldwin, Richard, 2012. "Global supply chains: Why they emerged, why they matter, and where they are going," CEPR Discussion Papers 9103, C.E.P.R. Discussion Papers.
    4. Conconi, Paola & Perroni, Carlo & Riezman, Raymond, 2008. "Is partial tax harmonization desirable," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 254-267, February.
    5. Michael P. Devereux & Simon Loretz, 2013. "What Do We Know About Corporate Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 745-774, September.
    6. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    7. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    8. Mayer-Foulkes David A, 2010. "Long-Term Fundamentals of the 2008 Economic Crisis," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-25, January.
    9. Michael Overesch & Johannes Rincke, 2011. "What Drives Corporate Tax Rates Down? A Reassessment of Globalization, Tax Competition, and Dynamic Adjustment to Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(3), pages 579-602, September.
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    Cited by:

    1. repec:eee:eecrev:v:94:y:2017:i:c:p:126-147 is not listed on IDEAS
    2. David Mayer-Foulkes & Kurt A. Hafner, 2017. "The technology Gradient in the Market Economy," Working papers DTE 606, CIDE, División de Economía.

    More about this item

    Keywords

    globalization; transnational corporations; underdevelopment; concentration; inequality; economic growth;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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