October 13, 2003

The Exaggerated Impact of Trade

Trade Wars: The Exaggerated Impact of Trade in Economic Debate a paper byRichard Freeman examines how both protesters and financial institutions alike are focusing on the wrong thing. WTO policies have minimal impact on the welfare of citizens in developing countries; more important are technology transfer, international migration and financial crisis.

You can almost hear the Nike machines cranking into overdrive. But he makes a good, and true, point.

---- Abstract -----

The rules governing trade and capital flows have been at the center of controversy as globalization has proceeded. One reason is the belief that trade and capital flows have massive effects on the labor market -- either positive, per the claims of international financial institutions and free trade enthusiasts, or negative, per the ubiquitous protestors at WTO, IMF, and World Bank meetings demanding global labor standards. Comparing the claims made in this debate with the outcomes of trade agreements, this paper finds that the debate has exaggerated the effects of trade on economies and the labor market. Changes in trade policy have had modest impacts on labour market. Other aspects of globalization -- immigration, capital flows, and technology transfer -- have greater impacts, with volatile capital flows creating great risk for the well-being of workers. As for labor standards, global standards do not threaten the comparative advantage of developing countries nor do poor labor standards create a race to the bottom'.

Posted by richard at October 13, 2003 10:10 PM