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Globalisation and the future of the welfare state

Author

Listed:
  • 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).
  • Handle: RePEc:zbw:ifwkpb:76
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    References listed on IDEAS

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    1. Casarico Alessandra, 2001. "Pension systems in integrated capital markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 1(1), pages 1-19, November.
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    1. repec:feu:wfedel:y:2016:m:2:d:0:i:11 is not listed on IDEAS
    2. repec:spr:qualqt:v:52:y:2018:i:3:d:10.1007_s11135-017-0501-z is not listed on IDEAS
    3. Karl Aiginger, 2016. "New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition. Synthesis Report Part I," WWWforEurope Deliverables series 11, WWWforEurope.
    4. 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).

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    JEL classification:

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

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