Productivity Could Be a Loser in Globalization Backlash

Pundits have characterized the populist wave sweeping Britain, the U.S. and much of Europe as a backlash led by victims of globalization. If research tells us one thing about world integration, however, it's that it doesn't create a simple story of winners and losers.

Several new studies that we've summarized below dig into how globalized trade networks impact economies, particularly in areas such as productivity, inflation and crisis risk. Another report takes a look at the threat that China's credit growth poses to the rest of the world. Finally, new findings quantify the link between local increases in unemployment and opioid-related hospital visits and death.

Check this roundup every Tuesday morning for the latest in economic research from around the world.

Participation in global value chains is a big driver of labor productivity, World Bank researchers found by examining 13 sectors in 40 countries over 15 years. A 10 percent increase in participation increased average productivity by 1.7 percent, and the effect was strongest for countries that relied more on imported goods to produce exports.

Why does this matter so much? It might help explain why productivity is slumping in so many countries. The expansion of global value chains was robust during the 1990s, eased during the 2000s and is currently slowing further or even reversing course.

"Global value chains boost productivity," according to the study. "While there are many other factors that determine the rate of productivity growth, this evidence suggests that the slower pace of global value chain expansion is also contributing to the slower growth of world productivity."

Does Vertical Specialization Increase Productivity?
Published February 2017
Available on the World Bank website