Why large American gains from globalisation are plausible

This paper is written to re-enforce the notion introduced by the Peterson Institute that globalisation has been good for America and will continue to be so.

The authors contend that the US economy was approximately $1 trillion richer in 2003 due to past globalisation – the payoff both from technological innovation and from policy liberalisation – and could gain another $500 billion annually from future liberalisation policy. Critics, driven by their instinctive beliefs that $1 trillion is simply too large to be realistic, have attacked the Peterson Institute estimates.

Key points include:

• the World Bank and critic Dani Rodrik represent two challenges to the Peterson Institute’s estimates suggesting that it only accounts for 0.25%of US national income as opposed to the 0.41% of US national income suggested by the Peterson institute
  
• the authors argue that Rodrik and the World Bank authors disregard services, which account for a substantial share of total US trade and therefore a large part of the globalisation story
  
• more importantly, by virtue of the methodologies adopted, both Rodrik’s quick calculation and the World Bank study ignore powerful forces (such as monopolistic competition, economies of scale, and productivity gains) that enormously expand the payoff from policy liberalisation and technological innovation for a country that participates in the global economy.