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Globalisation and the future of the welfare state

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  • Chen, Yu-Fu
  • Görg, Holger
  • Görlich, Dennis
  • Molana, Hassan
  • Montagna, Catia
  • Temouri, Yama

Abstract

[Conclusion] Taken together, the analysis in this paper does not support the conventional wisdom that the welfare state hinders country competitiveness, or that social expenditure (financed through corporate taxation) deters inward foreign direct investment. Instead, we find that welfare expenditure is positively associated with country competetiveness if vertical linkages (leading to aggregate scale economies) are high. In such a case, as argued theoretically by Molana and Montagna (2006), there may be a virtuous cycle of higher social protection, aggregate productivity and welfare. Also, updating and extending Görg, Molana and Montagna (2009) with an analysis using firm level data on the relocation decisions of multinational firms, we find that social expenditure may be attractive to inward FDI and may also act to anchor firms in the home country. Overall, the theoretical and empirical analysis in this paper suggests that the relationship between globalization, international competitiveness and the welfare state is far more complex than what is implied by the conventional wisdom. Further research is warranted to examine exactly the channels through which WS policies affect microeconomic adjustments to globalisation and, through these, countries' competitiveness and aggregate performance.

Suggested Citation

  • Chen, Yu-Fu & Görg, Holger & Görlich, Dennis & Molana, Hassan & Montagna, Catia & Temouri, Yama, 2014. "Globalisation and the future of the welfare state," Kiel Policy Brief 76, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkpb:76
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    References listed on IDEAS

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    Cited by:

    1. Gülsün Gürkan Yay & Tolga Aksoy, 2018. "Globalization and the welfare state," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(3), pages 1015-1040, May.
    2. Deniz Sevinc & Edgar Mata Flores & Simon Collinson, 2020. "Are there inequality spillovers? Evidence through a modified inequality measure and European dynamics of inequality," Working Papers 545, ECINEQ, Society for the Study of Economic Inequality.
    3. Marcelo Santos & Marta Simões, 2021. "Globalisation, Welfare Models and Social Expenditure in OECD Countries," Open Economies Review, Springer, vol. 32(5), pages 1063-1088, November.
    4. Javier Bilbao-Ubillos, 2021. "The Crisis of the European Social Model in the Adverse Environment of Globalization," Review of Radical Political Economics, Union for Radical Political Economics, vol. 53(3), pages 478-500, September.
    5. Friedl, Andreas & Görlich, Dennis & Horn, Sebastian & Krieger-Boden, Christiane & Lücke, Matthias, 2015. "How to deal with inequality: Welfare system challenges and European responses," Kiel Policy Brief 85, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    JEL classification:

    • F6 - International Economics - - Economic Impacts of Globalization
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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