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The Globalization-welfare State Nexus Reconsidered

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  • Stephanie Meinhard

    (Department of Economics, University of Konstanz, Germany)

  • Niklas Potrafke

    (Department of Economics, University of Konstanz, Germany)

Abstract

Two hypotheses relate to the globalization-welfare state nexus: The efficiency hypothesis predicts that globalization reduces government sector size and governments’ capacity to finance the welfare state. The compensation hypothesis, in contrast, predicts that globalization induces a higher demand for social insurance which results in an extended welfare state. Empirical evidence on the globalization-welfare state nexus is mixed. We re-examine the evidence by investigating a yearly panel dataset of 186 countries for the 1970-2004 period. We use data compiled by the Penn World Tables on government sector size and employ the KOF index of globalization. The results show that globalization increased government sectors around the world. Social globalization especially had a positive influence. Globalization-induced effects were stronger in OECD countries. Overall globalization and economic globalization reduced the relative price of government expenditures. These findings suggest that globalization does not jeopardize the welfare state at all.

Suggested Citation

  • Stephanie Meinhard & Niklas Potrafke, 2011. "The Globalization-welfare State Nexus Reconsidered," Working Paper Series of the Department of Economics, University of Konstanz 2011-27, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1127
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    More about this item

    Keywords

    globalization; size of government; welfare state;
    All these keywords.

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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