GDI Annual Lecture by Prof Dani Rodrik

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#GDILecture
@GlobalDevInst, @rodrikdani
Global Development Institute
Annual Lecture

ECONOMICS OF POPULISM
Dani Rodrik
October 2017

Populism has been on the rise for some time
Source: Rodrik (2017)

Rise of populism is not a surprise…
• From perspective of either
• economic history, or
• economic theory

Long-term trends in globalization
Source: Chandy and Seidel (2016)

Long-term trends in globalization
U.S.
populism
Fascist and
communist
movements
Today’s populist
backlash

What economics says about impacts of
globalization
• Openness to trade
• Financial globalization

1. Distributional impacts of trade openness
• What economics says:
• reducing barriers at the border generally enlarges ov...

Stolper-Samuelson and generalizations
• In a 2x2 model with full inter-sectoral mobility of the factors, owners of
one of ...

How much redistribution? The political cost-benefit
ratio of globalization
• Let PCBR = ratio of redistribution to efficie...

The PCBR in partial equilibrium
• Ratio of redistribution to efficiency gains of removing trade barriers in
partial equili...

The PCBR in general equilibrium
initial tariff
being removed
change in
low-skill
wages
increase in
real income
of economy
...

What about the real world: effects of NAFTA
Large trade effects Small real income effects
Source: Caliendo and Parro (2015)

The political cost-benefit ratio of globalization in
the real world
• NAFTA
• small on average worker or economy as a whol...

2. It’s not just about incomes…
• Domestic market competition too creates losers in the process of generating
wider econom...

Trade and fairness: a thought experiment
Suppose Harry and John own two firms that compete with each other.
Ask yourself h...

3. Reduced governmental capacity to respond
• Traditionally, openness has been
accompanied by expansion of
government resp...

4. Trade agreements are no longer about free
trade
• Post-WTO: from reducing barriers at the border to
reducing/harmonizin...

The perils of financial globalization
• In principle financial globalization, like trade, generates important
economic ben...

Financial globalization and financial crises
Source: Reinhart and Rogoff (2008)

Redistributive effects of capital-account opening
Source: Furceri et al. (2017)

The global decline in corporate income taxes
Source: OECD

A summary: winners and losers of today’s
globalization
Source: Milanovic (2014), via http://therationalpessimist.com/2013/...

From economics to politics
• Demand-side of politics
• economic anxiety, discontent, loss of legitimacy, fairness concerns...

Varieties of populism: Europe vs. Latin America

From economics to politics
• Demand-side of politics
• economic anxiety, discontent, loss of legitimacy, fairness concerns...

Comparing France and Spain
host country
France Spain
Source country (only top 25 source countries
included)
share of migra...

A more direct test (on European data)
Left-salient factor: Gini coefficient
Right-salient factor: share of Muslim immigran...

Conclusion: three possible future paths
• The bad: 1930’s style collapse in global economic
cooperation and rise of hard-r...

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