lecture11 - Lecture 11 (Feb 19) Globalization and...

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Lecture 11 (Feb 19) z Globalization and nation-state
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Globalization and nation-state z Globalization has forced states to roll back social insurance benefits and implement efficiency-oriented reforms for social services. z If the government does not interfere, the market will select the most efficient institutional solutions among existing alternatives, and that most types of government intervention, except for those related to the provision of public goods, law and order, and property rights, are inimical to the operation of markets. z As market integration increases and the national economy merges into the world market, government intervention produces harmful effects and thus, governments feel pressure to scale back their redistributive policies.
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z Expansion in trade and capital mobility in the globalized world market limits the ability of governments to maintain generous and comprehensive social protection. 1. As the national market is more deeply integrated into the world market, manufacturers in advanced industrial countries have to compete with those in LDCs. -> If investors and producers operate under more generous welfare regimes, they cannot compete as effectively with their counterparts in LDCs because of higher tax burdens, more regulatory barriers, labor-market rigidities, and less docile labor movements. -> As trade openness increases competitive pressures on exposed sectors, states have to pay more policy attention to the competitive needs of investors and producers in the tradable sectors. -> Policy makers in open economies encounter pressures for reducing social security tax burdens on domestic producers to lower labor costs and facilitate price competitiveness of exports.
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2. As capital mobility increases, states have to compete to retain and attract internationally fluid investment. -> Because mobile asset holders can move their assets across national borders pursuing the most profitable rate of return on investment, support-maximizing and revenue-seeking governments have to increase business confidence and produce investment incentives. -> With international capital mobility, governments encourage international firms and financial institutions to remain in the domestic economy by alleviating the burdens of high labor costs or corporate taxes, inflationary pressures, and economic inefficiency under welfare states.
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Virtual state 1. The virtual state--a state that has downsized its territorially based production capability--is the logical consequence of this emancipation from the land. 2. The virtual state is a country whose economy is reliant on mobile factors of production. z As capital has become increasingly mobile, advanced nations have come to recognize that exporting is no longer the only means to economic growth; one can instead produce goods overseas for the foreign market. z
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lecture11 - Lecture 11 (Feb 19) Globalization and...

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