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Globalization and the welfare state

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Abstract

This paper analyzes the impact of globalization on the Welfare State (WS). Some argue that globalization poses a serious threat to WS and therefore questions its sustainability. On the other hand, some others suggest that WS has to expand more as economies are integrating. After reviewing different hypothesis on the relationship between globalization and WS, we empirically examine the relationship by using 32 countries covering 1980 through 2010. According to the estimation results, there is no direct linkage between globalization and the WS. However the reaction of the WS against globalization is found to vary dramatically depending on welfare regimes. We find evidence in favor of compensation hypothesis in Social Democrat, Conservative and Mediterranean Welfare State regimes, whereas efficiency effect is in place in liberal Welfare States.

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Fig. 1

Source CPDS; Armingeon et al. (2015)

Fig. 2

Source KOF indices of globalization; Dreher (2006), Dreher et al. (2008)

Fig. 3

Source KOF indices of globalization; Dreher (2006), Dreher et al. (2008) and CPDS; Armingeon et al. (2015)

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Notes

  1. "Interventionist Capitalism" refers to the period of capitalism between 1950 and 1973, shaped by changing world conditions after World War II and supported by Keynesian ideas, which Angus Maddison (1982) describes as the "Golden Age". The definition amounts to the capitalism period of which WS constituted an important lower segment. This period (described as "etatism, “embedded liberalism" by some or "Affluent Society” by Kenneth Galbraith (Galbraith 1985) witnessed state-industrial sector solidarity and heavy government interventions into the economy. However, the scope of the WS in this period significantly differed across developed and developing economies (Porket 1998 ).

  2. See among others Bowles and Wagman (1997), Garrett and Mitchell (2001) and Kaufman and Segura-Ubiergo (2001).

  3. Data for transition economies start from 1995.

  4. Since time-invariant (culture, history, political system etc.) and time variant (an oil price shock, a world economic crisis) characteristics are likely to be correlated with both globalization and the WS, we employ fixed effect estimation strategy by including country and year fixed effects into the regression. In each specification, Hausman test rejects the null hypothesis that the errors are not correlated with the regressors. Therefore regression diagnostics also support fixed effect estimation.

  5. We perform two additional robustness tests. We first check whether our results are robust to including additional control variables. For this reason, we replace real GDP per capita with industrial value added, include current account balance into the regression. Second we probe whether partisan politics affect the relationship between economic globalization and the WS. To that end, we add the interaction of economic globalization and government color dummies into our estimations. Results which are presented in Tables 10 and 11 in Appendix show that baseline results are robust to these two additional checks.

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Authors and Affiliations

  1. Department of Economics, Yıldız Technical University, Davutpasa Campus, Esenler, 34220, Istanbul, Turkey

    Gülsün Gürkan Yay & Tolga Aksoy

Authors
  1. Gülsün Gürkan Yay
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  2. Tolga Aksoy
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Correspondence to Gülsün Gürkan Yay.

Appendix

Appendix

See Tables 6, 7, 8, 9, 10, 11.

Table 6 List of countries
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Table 7 Summary statistics
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Table 8 Correlation matrix
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Table 9 Summary of extant literature on globalization and the WS
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Table 10 Economic globalization and the WS: additional controls
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Table 11 Economic globalization and the welfare state: partisan politics
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Yay, G.G., Aksoy, T. Globalization and the welfare state. Qual Quant 52, 1015–1040 (2018). https://doi.org/10.1007/s11135-017-0501-z

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