Globalisation dividends

The European Union could add 8 per cent to its gross domestic product (GDP) per capita, or €5,000 (US $6,442) per household by embracing free trade and open markets, according to the authors of a European Commission report.

The recent rise in protectionist sentiment in Europe ignores the gains globalisation has made in recent history, says the Commission:

The opening of trade after World War II contributed greatly to annual growth rates, which averaged close to 2.5 per cent for the United States, 3 per cent for the European Union and over 5 per cent in Japan.

At least 20 per cent of Europe's gains in economic growth over that period can be linked to globalisation.

More recently, greater price competition has contributed to a doubling of real purchasing power growth in the 1990s in the United States and the European Union.

One of the main reasons for Europe's protectionist stance is its relatively high share of low technology and labour-intensive sectors, compared with the United States and Japan, which makes it more vulnerable to competition from India or China, says the Commission.

But instead of blocking markets, the European Union needs to follow the United States in using and producing information and communications technologies, says the Commission. Job losses as a result of global competition are "transition costs," it adds, and will be temporary if the European Union focuses on innovation and liberalises its markets for products, services and, above all, labour.

Source: Editorial, Global Dividends, Wall Street Journal, August 9, 2006; based upon: Cécile Denis et al., Globalisation: Trends, Issues and Macro Implications for the EU, European Economy, Economic Papers No. 254, July 2006.

For text (subscription required): http://online.wsj.com/article/SB115507137486830288.html

For European Commission Study: http://ec.europa.eu/economy_finance/publications/economic_papers/2006/ecp254en.pdf

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 15 August 2006