Globalization and the state Jaume Ventura Bojos per lEconomia! 2017 - PowerPoint PPT Presentation

Globalization and the state Jaume Ventura Bojos per l’Economia! 2017 Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 1 / 27

Globalization and the size of government Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 2 / 27

Globalization and the size of government Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 3 / 27

Globalization and the size of government Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 4 / 27

The Newbery-Stiglitz 1984 model Apple and orange growers in autarky Production: 1 Apples Oranges S 1 150 100 S 2 100 150 Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 5 / 27

The Newbery-Stiglitz 1984 model Apple and orange growers in autarky Production: 1 Apples Oranges S 1 150 100 S 2 100 150 Prices: 2 Apples Oranges S 1 0 . 8 1 . 2 S 2 1 . 2 0 . 8 Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 6 / 27

The Newbery-Stiglitz 1984 model Apple and orange growers in autarky Production: 1 Apples Oranges S 1 150 100 S 2 100 150 Prices: 2 Apples Oranges S 1 0 . 8 1 . 2 S 2 1 . 2 0 . 8 Consumptions: 3 Apple growers Orange growers S 1 ( 75 , 50 ) ( 75 , 50 ) S 2 ( 50 , 75 ) ( 50 , 75 ) Price fluctuations provide risk sharing! Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 7 / 27

The Newbery-Stiglitz 1984 model Apple and orange growers in a globalized world Production: 1 Apples Oranges S 1 150 100 S 2 100 150 Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 8 / 27

The Newbery-Stiglitz 1984 model Apple and orange growers in a globalized world Production: 1 Apples Oranges S 1 150 100 S 2 100 150 Prices: 2 Apples Oranges S 1 1 1 S 2 1 1 Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 9 / 27

The Newbery-Stiglitz 1984 model Apple and orange growers in a globalized world Production: 1 Apples Oranges S 1 150 100 S 2 100 150 Prices: 2 Apples Oranges S 1 1 1 S 2 1 1 Consumptions: 3 Apple growers Orange growers S 1 ( 75 , 75 ) ( 50 , 50 ) S 2 ( 50 , 50 ) ( 75 , 75 ) Globalization eliminates price fluctuations and destroys risk sharing! Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 10 / 27

The Epifani-Gancia 2009 model An increase in the size of government in autarky Private production: 1 Home goods Foreign goods SG 150 150 LG 100 150 Consumptions: 2 Home residents Foreign residents SG ( 150 , 0 ) ( 0 , 150 ) LG ( 100 , 0 ) ( 0 , 150 ) An increase in the size of the government reduces the consumption of domestic residents one-to-one. Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 11 / 27

The Epifani-Gancia 2009 model An increase in the size of government in a globalized world Private production: 1 Home goods Foreign goods SG 150 150 LG 100 150 Prices: 2 Home goods Foreign goods SG 1 1 LG 1 . 2 0 . 8 Consumptions: 3 Home residents Foreign residents S 1 ( 75 , 75 ) ( 75 , 75 ) S 2 ( 50 , 75 ) ( 50 , 75 ) An increase in the size of the government reduces private consumption one-to-0 . 5. Thus, globalization reduces the cost of expanding the government! Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 12 / 27

Globalization and the size of government Rodrik (1998) argues that the increase in government is good because it provides insurance. Epifani-Gancia (2009) argue that the increase in government is bad and reflects bad policymaking due to externalities. Questions: Why does the government need to provide insurance? Is the private sector not 1 able to do so? Dixit (1992) and Broner-Ventura (2011) What is the evidence on the composition of government spending? Public 2 employment is what is growing, while transfers are not growing that much. Externalities and the Coase theorem. Should we have a market for policies? 3 Do we have one already? (assigning property rights, monopoly and lack of commitment) Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 13 / 27

Two waves of globalization ❋✐❣✉r❡ ✶✿ ●❧♦❜❛❧✐③❛t✐♦♥ ✐♥ ♣❤❛s❡s Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 14 / 27 ✶

Globalization and the number of countries ❋✐❣✉r❡ ✷✿ ●❧♦❜❛❧✐③❛t✐♦♥ ❛♥❞ ❡①♣❛♥s✐♦♥ ✐♥ ◆✉♠❜❡r ♦❢ ❈♦✉♥tr✐❡s ✭✶✾✺✵✲✷✵✶✵✮ Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 15 / 27 ✷

Globalization and the number of countries ❋✐❣✉r❡ ✸✿ ●❧♦❜❛❧✐③❛t✐♦♥ ❛♥❞ ❡①♣❛♥s✐♦♥ ✐♥ ◆✉♠❜❡r ♦❢ ❈♦✉♥tr✐❡s ✭✶✽✷✵✲✷✵✶✵✮ Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 16 / 27 ✸

Globalization, countries and free-trade agreements ❋✐❣✉r❡ ✻✿ ●❧♦❜❛❧✐③❛t✐♦♥ ❛♥❞ ❡①♣❛♥s✐♦♥ ✐♥ ❋r❡❡ ❚r❛❞❡ ❆❣r❡❡♠❡♥ts Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 17 / 27 ✻

The Gancia-Ponzetto-Ventura 2016 model Locality: Primitive geographic unit with homogeneous population Government functions � Regulate markets: common regulation enables trade � Provide public services: uniformly to all residents Costs of government � Economies of scale: fixed costs of government � Economies of scope: costs of multi-level governance Geographical and cultural distances � A geometric model: Figure: The (M-1)-simplex Globalization: Shrinking geographical distances Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 18 / 27

Globalization and the Size of Countries and Unions Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 19 / 27

Changing the state’s structure A single-level state for the XIXth century Markets Defense Law and order Welfare state Infraestructures A two-level state for the XXIst century Markets Defense Law and order Welfare state Culture Thus, globalization leads to smaller states and larger unions � The XIXth century nation state is being transformed � A parsimonious explanation for two seemingly opposed forces: the creation of supra-national unions and growth of separatist movements Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 20 / 27

Countries, Empires and Unions Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 21 / 27

Suggestive Evidence % of peaceful changes of border 1816-1900 1901-1950 1951-2008 70% 62% 89% Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 22 / 27

The Rise and Fall of Empires Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 23 / 27

Globalization, Countries and Regional Unions Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 24 / 27

Europe after the Congress of Vienna Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 25 / 27

Europe before World War I Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 26 / 27

Europe today Jaume Ventura ( ) Bojos per l’Economia! Bojos per l’Economia! 2017 27 / 27