Globalisation and government spending: evidence for the ‘hyper-globalisation’ of the 1990s and 2000s

Edward Anderson, Samuel Obeng

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Abstract

In this paper, we provide an up-to-date empirical assessment of the relationship between economic globalisation and government spending for the ‘hyper-globalisation’ period of the 1990s and 2000s. We use data on government consumption spending and more disaggregated spending components (e.g., social welfare). We also use a range of globalisation measures, including the most recent version of the KOF globalisation index, and a combination of econometric methods, including fixed-effects and instrumental variable (IV) estimation. The results suggest that hyper-globalisation has had divergent and conflicting effects on consumption spending: while de jure trade globalisation has tended to raise spending, de jure financial globalisation has tended to reduce it. We also find evidence that the positive effect of de facto trade globalisation on spending weakened significantly during the 1990s and 2000s, in comparison with earlier decades. These effects could have contributed to the growing political backlash witnessed against globalisation since the early 2000s.

Original languageEnglish
Pages (from-to)1144-1176
Number of pages33
JournalThe World Economy
Volume44
Issue number5
Early online date14 Sep 2020
DOIs
Publication statusPublished - May 2021

Keywords

  • globalisation
  • government spending
  • hyper-globalisation
  • instrumental variables

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