The aim of this paper is to study the relationship between globalization, government expenditure and credible commitments of the government.
Moreover, the hypothesis that states increase social spending to build support for increasing economic openness was tested. The study is deeply grounded in an extensive literature on the research works in the related area and on compensation hypothesis, efficiency hypothesis, and credible commitment hypothesis. An empirical analysis of economic and social data of twenty-three OECD countries was performed for the period between 1960 and 2013 to test the hypothesis.
The hypothesis, more government expenditure leads to greater globalization was not rejected. Hence, it was proved by empirical investigation that more social expenditure leads to more economic openness.
Table of Contents
Section 1: Introduction
Section 2: Literature review
2.1. Embedded Liberalism
2.2. Credible Commitment and the nature of government
Section 3: Theoretical Framework
3.1. Compensation Theory
3.2. Efficiency theory
3.3. Credible commitment theory
Section 4: Research design and methodology
4.1. Data Source
4.2. Data Operationalization
4.2.1. Independent variable: Social expenditure
4.2.2. Dependent variable: Openness of the economy
4.2.3. Control variables
4.3. Research Methodology
Section 5: Data Analysis and Results
5.1. Ordinary least square Regression analysis
5.2. Diagnostic tests
5.2.1. Test for normality
5.2.2. Regression output (Newey-West correction)
Section 6: Conclusion
Research Objectives and Themes
The primary objective of this study is to examine the relationship between globalization, government expenditure, and credible government commitments. Specifically, it tests the hypothesis that states increase social spending to foster public support for increased economic openness, thereby stabilizing the welfare state amidst global economic integration.
- The influence of the "compensation hypothesis" on government spending and trade openness.
- The role of credible commitments in maintaining political support for international economic integration.
- Empirical analysis of 23 OECD countries using data from 1960 to 2013.
- The impact of institutional variables, such as constitutional structure and proportional representation, on trade policy preferences.
Extract from the Book
2.1. Embedded Liberalism
Research scholars like Ruggie (1983), Cameron (1978), Katzenstein (1985), Rodrik (1997) and Garrett (1998), have long argued that the concerns about the relationship between trade liberalization and domestic economic inequality (and insecurity) are justified. However, such concerns do not necessarily turn the public that is exposed to more volatile labor markets against additional trade liberalization in the economy (Ruggie 1983: 261-285; Cameron 1978: 1243-1261; Katzenstein 1985; Rodrik 1997; Garrett 1998). As per this argument, trade liberalization and welfare expansion are in a mutually reinforcing relationship (a) trade liberalization is expected to increase demand on governments to cushion trade-induced insecurity and inequality by the expansion of the welfare state, (b) welfare state expansion as compensation could aid in maintaining public support for trade liberalization. In other words, a new grand domestic bargain or the new embedded liberalism compromise is likely to be made where public is urged to embrace the change and dislocation generated by trade liberalization; but governments will in return agree to protect those who are negatively affected by means of their social, economic policy positions (Ruggie 1983: 261-285; Ruggie 1996).
Summary of Chapters
Section 1: Introduction: Provides an overview of the interplay between international market integration and the expansion of the welfare state, setting the stage for the compensation hypothesis.
Section 2: Literature review: Analyzes existing academic discourse on economic globalization, trade preferences, and the theoretical underpinnings of the embedded liberalism compromise.
Section 3: Theoretical Framework: Details the core theories, including Compensation, Efficiency, and Credible Commitment, which explain how social spending facilitates economic openness.
Section 4: Research design and methodology: Outlines the data sources, variable operationalization for 23 OECD countries, and the econometric approach used for testing the hypothesis.
Section 5: Data Analysis and Results: Presents the regression analysis, diagnostic tests for robustness, and the empirical findings regarding the correlation between social expenditure and economic openness.
Section 6: Conclusion: Summarizes the study's findings, confirming that the hypothesis relating increased social expenditure to greater economic openness is not rejected.
Keywords
Economic openness, social expenditure, credible commitment, globalization, compensation hypothesis, welfare state, OECD, trade liberalization, economic integration, public spending, political economy, regression analysis, embedded liberalism, institutional structure, redistribution.
Frequently Asked Questions
What is the core focus of this research paper?
The paper primarily investigates the link between globalization, government social expenditure, and the government's ability to maintain credible commitments to its citizens to foster economic openness.
What are the central thematic fields covered in this study?
The study centers on political economy, specifically examining how welfare state policies function as a compensatory strategy for the social risks introduced by international market integration.
What is the main research question or objective?
The main objective is to determine if increased social spending by governments leads to higher levels of economic openness and globalization, testing the validity of the "compensation hypothesis."
Which scientific methodology is employed?
The study uses empirical econometric analysis, specifically Ordinary Least Squares (OLS) regressions, to analyze annual time-series data from 23 OECD countries between 1960 and 2013.
What is addressed in the main body of the work?
The main body covers the theoretical framework, the operationalization of data (including variables like social transfers and foreign trade), regression modeling, and diagnostic robustness tests, including the Newey-West correction.
Which keywords characterize this paper?
Key terms include economic openness, social expenditure, credible commitment, compensation hypothesis, welfare state, and embedded liberalism.
How do institutional variables influence the results in this model?
The study incorporates institutional variables such as constitutional structure, proportional representation, and bicameralism, suggesting that these mechanisms provide critical access points for interest groups that shape trade policy.
What did the author conclude regarding the compensation hypothesis?
The author concluded that the hypothesis is not rejected, finding a statistically significant, positive relationship between a country’s social expenditure and its level of economic openness.
- Quote paper
- Bele Krüger (Author), 2017, Economic Openness. Social Expenditure and Credible Commitments, Munich, GRIN Verlag, https://www.grin.com/document/383258
