Open trade and investment policies can be a powerful force for raising living standards. Economists have long emphasised this point and it is confirmed by much research. For example, the OECD’s Growth Study estimated that a 10 percentage point increase in trade openness translates over time into an increase of around 4% in per capita income in the OECD area. The recent dynamism of China and India demonstrates how trade and investment liberalisation can make a major contribution to raising incomes and reducing poverty in developing countries.
But while trade raises overall income and welfare, some workers may lose from globalisation. This is most evident in the case of workers displaced from sectors that contract in the face of import competition. And it is little consolation to someone who has just lost their job that overall living standards are rising in their country, or that new jobs are being created in other sectors.
This may help explain the marked contrast between the overwhelmingly positive assessment of globalisation by economists and the ambivalence revealed by public opinion polls. While a substantial majority of the public typically agree that freer trade yields benefits to business and consumers, many also endorse statements such as, “freer trade costs more jobs than it creates” or “the relocation of jobs to countries where wages are lower is a major economic problem”. Globalisation also appears to serve as a flashpoint for concerns that inequality is rising.
Such doubts suggest that continuing political support for trade and investment liberalisation cannot be taken for granted. These doubts also indicate that it is timely to reassess whether there is anything about the current phase of globalisation which could increase the vulnerability of workers to foreign competition and, if so, how governments should react.
The OECD has just conducted such a reassessment and this Policy Brief summarises the main lessons from that exercise.