Does and How Does Globalization Matter?

33 Pages Posted: 17 Apr 1999

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: January 1999

Abstract

In this paper we develop a new concept of globalization defined as the exposure of a productivity follower industry in one country to the productivity leader in another country. Globalization is measured by the intensity of contacts through trade and foreign direct investment. In a simple model and empirically we show that the exposure of a productivity follower to competition with the leader is highly correlated with the productivity gap of this industry. Competition restricted to one region such as Europe, or North America, or the Far East, is not sufficient to achieve highest productivity levels. Moreover, it turns out that FDI has a weight in the globalization index at least equal to trade. FDI can contribute directly to higher levels of domestic productivity by transferring the best production practices, and put pressur on other domestic producers to improve. The impact of trade on globalization can be weakened by tariffs and non-tariffs.

JEL Classification: F12, F23

Suggested Citation

Gersbach, Hans, Does and How Does Globalization Matter? (January 1999). Available at SSRN: https://ssrn.com/abstract=156768 or http://dx.doi.org/10.2139/ssrn.156768

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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