Revisiting the globalisation-welfare state Nexus: what about the quality of the social welfare?

Abstract

A large amount of literature examines the effects of globalisation on the size of the welfare state. Unlike previous papers, this article studies globalisation’s effects on the quality of social welfare. For this purpose, we use the annual panel dataset of 169 countries from 1970 to 2018. The findings indicate that a higher level of globalisation leads to a higher quality of the welfare state. This evidence is valid when the countries are divided according to their income levels, such as low-income, middle-income, and high-income economies. In addition, these results remain robust when various sensitivity analyses are implemented, such as using different indicators of globalisation, utilising different estimation techniques, including various controls, and excluding outliers.

Keywords:

• Size of the welfare state
• quality of the welfare state
• globalisation
• the compensation hypothesis
• the efficiency hypothesis
• panel data estimation techniques

JEL Codes:

• H53
• I38
• F68
• C33

Disclosure statement

No conflict of interest has been reported by the authors.

Notes

1 According to Garrett (2001), the compensation hypothesis should be traced to the political science works in the 1970s and the 1980s, such as Cameron (1978), Katzenstein (1985), Lindbeck (1975), and Ruggie (1982).

2 As an earlier work, the panel analysis of Cameron (1978) also considers the data from 1960 to 1975 in 18 industrialised countries. The author observes that more open economies often experience the expansion of government spending than closed economies.

3 Refer to Anderson and Obeng (2021), Gräbner et al. (2021), and Heimberger (2021) on the recent literature surveys of the different empirical results on the relationship between economic globalisation and government spending indicators.

4 Refer to Dreher (2006) and Gozgor (2018) for the traditional measures of the KOF globalisation index.

5 Visit https://www.kof.ethz.ch/en/forecasts-and-indicators/indicators/kof-globalisation-index.html for details.

6 A higher value of the labour market regulations index indicates more flexible regulations, thus greater deregulation of the labour market.

7 We consider the lagged measures of globalisation and control variables to address the potential issue of reverse causality.

8 Following Gozgor (2018)’s suggestion, we use the globalisation measures in the natural logarithmic form.

Additional information

Funding

We acknowledge the research support by the Fundamental Research Funds for the Provincial Universities of Zhejiang (GB201902003; GB202002002), the National Social Science Fund of China (16BJY052), and the Major Humanities and Social Sciences Research Projects in Zhejiang Province (2021QN050) and Zhejiang Soft Science Research Program (2022C25015).