Economics3403InternationalEconomicsandPolicyKeith.doc

Economics 3403 International Economics and Policy Keith Maskus Spring, 2001 Policy Paper One: Trade, Technology, and Wage Inequality Probably the most important economic and political force of the current era is globalization of production, trade, and investment. Political success today is determined (scandals aside) by an ability to manage pressures that arise from globalization. One of the great intellectual challenges for economists and international legal scholars is to devise international rules for promoting the benefits of globalization and ensuring that those benefits are widespread, while minimizing its costs. These are complex issues that do not lend themselves to easy solutions, and you should be skeptical of anyone (scholars, politicians, columnists, neighbors,...) who claim to know how to resolve them without deep thought and sustained policy effort. To define the basic term, globalization is the reduction in natural barriers and policy restrictions that segment national and regional markets, leading to market integration. These markets include those for goods and services, productive factors (capital and labor), and technology and information. Moreover, we can think of markets for national policies, in which governments choose policies to compete for business, protect domestic interests, or promote social goals. Globalization can also be a force for reducing differences in policies. Natural barriers to market integration include transport costs, communication costs, and so on. Clearly there have been significant improvements in communication technologies, promoting international diffusion of production. In particular this trend has made services more tradable. Lower transport costs also promote more trade. Policy restrictions include taxes on trade (eg, tariffs), investment barriers, and a host of non-tariff barriers to trade and investment. These restrictions apply to goods but even more so to trade and investment in se