Luís Catão - Meeting Globalizations Challenges: Policies to Make Trade Work for All

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Policies to Make Trade Work for All

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LUS A. V. CATO AND
MAURICE OBSTFELD, EDITORS

with a foreword by Christine Lagarde

PRINCETON UNIVERSITY PRESS
PRINCETON AND OXFORD

Copyright 2019 by International Monetary Fund and Princeton University Press

Published by Princeton University Press
41 William Street, Princeton, New Jersey 08540
6 Oxford Street, Woodstock, Oxfordshire OX20 1TR

press.princeton.edu

All Rights Reserved

ISBN 978-0-691-18893-5
ISBN (ebook) 978-0-691-19886-6
Version 1.0

British Library Cataloging-in-Publication Data is available

Editorial: Joe Jackson and Jacqueline Delaney
Production Editorial: Brigitte Pelner
Text and Cover Design: C. Alvarez-Gaffin
Jacket Art: Shutterstock
Production: Erin Suydam
Publicity: Tayler Lord

Nothing contained in this book should be reported as
representing the views of the IMF, its Executive Board, member
governments, or any other entity mentioned herein. The views
expressed in this book belong solely to the authors.

For Elza and Jennifer

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xi

xiii

xv

1

Lus A. V. Cato and Maurice Obstfeld

PART I
TRADE AND THE GAINS FROM GLOBALIZATION

43

Andrs Rodrguez-Clare

52

Ufuk Akcigit

PART II
GLOBALIZATION, DEVELOPMENT, AND INEQUALITY

69

Dani Rodrik

77

Keyu Jin

94

Franois Bourguignon

PART III
GLOBALIZATION, DEINDUSTRIALIZATION, AND LABOR MARKET ADJUSTMENT

113

Paul Krugman

121

Gordon H. Hanson

129

Nina Pavcnik

143

Rafael Dix-Carneiro

PART IV
ADJUSTMENT POLICIES

157

Anne Krueger

166

Lori G. Kletzer

PART V
THE POLITICAL ECONOMY OF TRADE BACKLASH

181

Jeffry Frieden

197

Edward Alden

208

Michael Trebilcock

PART VI
CHALLENGES AHEAD

221

Angus Deaton

229

Laura D. Tyson

237

Martin Wolf

261

Ernesto Zedillo

275

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This book collects and expands the various contributions to a conference on Meeting Globalizations Challenges that took place at the headquarters of the International Monetary Fund (IMF) in Washington, DC, on October 11, 2017. We take this opportunity to thank all conference participants and, in particular, the staff involved in the organization of that event. That group includes Felicia Belostecinic, Lucia Buono, Tracey Lookadoo, Begoa Nuez, and Olga Stankova as well as staff from the IMF audiovisual team. We also thank Florian Gimbel, Jeffrey Hayden, Linda Griffin Kean, and Patricia Loo from the IMF communications department, Mahnaz Hemmati and Evgenia Pugacheva from the IMF research department, and James A. John and Alfred Krammer from the office of the IMFs managing director for extensive support in the various phases of this project.

Several academic colleagues helped us track down some of the historical data on globalization trends that this books introduction uses. We are especially grateful to Laurence Chandy, Michael Clemens, Giovanni Federico, Antonio Tena Junguito, Jonathan Moses, Brina Seidel, Alan Taylor, and Jeff Williamson.

Last but not least, we would like to thank Joe Jackson at Princeton University Press for his consistent encouragement and support of this project as well as Brigitte Pelner, Jacqueline Delaney, and Stephanie Rojas for editorial and marketing work on the book.

Naturally, the usual disclaimers apply. In particular, the views expressed in this books chapters are those of the respective authors, and not necessarily those of the IMF, its executive board, or its management.

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Ufuk Akcigit, University of Chicago

Edward Alden, Council on Foreign Relations

Franois Bourguignon, Paris School of Economics

Lus A. V. Cato, University of Lisbon

Angus Deaton, Princeton University

Rafael Dix-Carneiro, Duke University

Jeffry Frieden, Harvard University

Gordon H. Hanson, University of California, San Diego

Keyu Jin, London School of Economics

Lori G. Kletzer, University of California, Santa Cruz

Anne Krueger, Johns Hopkins University

Paul Krugman, City University of New York

Maurice Obstfeld, University of California, Berkeley

Nina Pavcnik, Dartmouth College

Andrs Rodrguez-Clare, University of California, Berkeley

Dani Rodrik, Harvard University

Michael Trebilcock, University of Toronto

Laura D. Tyson, University of California, Berkeley

Martin Wolf, Financial Times

Ernesto Zedillo, Yale University

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The increasing interconnection between the worlds economies has led to something that is truly remarkable: more progress for more people than at any time in human history. This is, in many ways, the story of globalization.

At the heart of this story lies the spirit of openness to trade and technological innovation, which in turn have underpinned the cross-border flow of products, capital, talent, and ideas.

These interconnections have transformed our world, especially over the past generation. They helped reduce by half the proportion of the global population living in extreme poverty. They have boosted per capita incomes and living standards across a broad set of countries, and created millions of new jobs with higher wages.

In addition to being more prosperous, human lives are longer and healthier. Back in 1900, the average life expectancy around the world was thirty-one years. It is now seventy-two years, and this reflects in part our ability to harness the power of trade and innovation.

Communities around the world have felt these gains. According to international opinion surveys, most citizens in both advanced and developing economies perceive global trade as good for themselves and their countries.

But that is not the whole story. While the overall gains to society are large and growing, trade and technological change have come with negative side effects: from job losses in shrinking sectors to social challenges in some communities.

Indeed, many countries are experiencing high economic inequality, and some are facing increased political polarization. These problems are not new, nor are they solely due to trade, but trade openness can bring them into sharper relief. The current trade disputes are, in fact, a symptom of these underlying challenges.