Friday, October 4, 2013

The end of second wave of globalization?

In response to Gawyn Davies' lament that protectionism may be responsible for the relative decline in global trade growth, Paul Krugman points to three trends to argue that the second wave of globalization may be a thing of the past.

He claims that the rapid growth in global trade since the sixties was facilitated by lowering of tariffs, first by developed countries and then by developing countries, and the advances made in transportation logistics with containerization and the construction of large container ships. The first two trends have certainly plateaued out and the benefits of logistics improvements may already be deeply internalized. Does this mean that the second unbundling led globalization is behind us? Krugman's are compelling arguments on the plateauing of global trade.

However, there are some uncertain elements in the game. For example, there may be more traction left in global services trade. Or has the information technology revolution played out fully? Further, there is a real possibility that demographic transitions in the developed world could lead to easing of restrictions on cross-border labor mobility. What will be its effect on global services trade? More specifically, will this lead to a shrinking of the non-tradeables or a rise in the "trade in tasks" sector? Finally, there is the logic of extending the flying-Geese model to countries of Africa. Who are we to say now, with any degree of conviction, that African countries cannot benefit from the dynamics of countries movement up the production value chain?

This highlights the difficult of prognosticating about such complex global trends which have long time horizons. We can at best talk in probabilistic tones about these issues, which may be not much different from coffee table speculation on such universal trends.  

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