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Welfare models, inequality and economic performance during globalisation

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  • Pasquale Tridico

Abstract

The objective of this paper is to explore whether “the efficiency thesis” concerning the relation between welfare states and globalisation is functional for economic growth or, alternatively, whether “the compensation thesis” produces better results in terms of economic growth. The current crisis (2007-12) was a test for many advanced economies to determine whether the socio-economic model that those countries built in the last several decades was able to cope with the challenges of globalisation. My hypothesis is that the efficiency thesis, according to which globalisation needs to be accompanied by the retrenchment of welfare states in order for firms to be competitive, does not causegrowth. The tests are conducted in a sample of 42 countries made up of OECD and EU members. On the contrary, our econometric exercises indicate that the “compensation thesis” (i.e.,regulated globalisation and an expanded welfare state) is better able to produce higher economic growth.

Suggested Citation

  • Pasquale Tridico, 2014. "Welfare models, inequality and economic performance during globalisation," Departmental Working Papers of Economics - University 'Roma Tre' 0191, Department of Economics - University Roma Tre.
  • Handle: RePEc:rtr:wpaper:0191
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    File URL: http://dipeco.uniroma3.it/db/docs/WP%20191.pdf
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    References listed on IDEAS

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    1. Lewis, W Arthur, 1980. "The Slowing Down of the Engine of Growth," American Economic Review, American Economic Association, vol. 70(4), pages 555-564, September.
    2. Pasquale TRIDICO, 2013. "The impact of the economic crisis on EU labour markets: A comparative perspective," International Labour Review, International Labour Organization, vol. 152(2), pages 175-190, June.
    3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    4. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    5. Willem Adema & Maxime Ladaique, 2009. "How Expensive is the Welfare State?: Gross and Net Indicators in the OECD Social Expenditure Database (SOCX)," OECD Social, Employment and Migration Working Papers 92, OECD Publishing.
    6. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-314, May.
    7. George J. Borjas & Valerie A. Ramey, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1075-1110.
    8. Pasquale Tridico, 2010. "Growth, Inequality and Poverty in Emerging and Transition Economies," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 16(4), pages 979-1001, February.
    9. Pasquale Tridico, 2012. "Financial crisis and global imbalances: its labour market origins and the aftermath," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 17-42.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    welfare states; inequality; globalisation; financialisation; economic crisis;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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