2010 October 26 Tuesday
Globalization Makes Recessions More Severe?

Does globalization make economies recover more slowly from recessions?

By applying the same rules that explain how genomes evolve, Rice University physicists have shown that the world economy is more sensitive to recessionary shocks and recovers more slowly from recessions now than it did 40 years ago, due to increased trade globalization.

Their findings are available online and will appear in an upcoming issue of the Physical Review Letters.

"Standard economic theory suggests that trade networks with a more modular structure tend to recover more slowly from recessions, but using evolutionary theory we predicted the opposite, and U.N. trade data indicate we were right," said Michael Deem, the John W. Cox Professor in Biochemical and Genetic Engineering and professor of physics and astronomy at Rice.

Deem and co-author Jiankui He, a graduate student in physics and astronomy, studied United Nations trade data from the past 40 years and found the global economy has tended to react more sharply to recessions and to recover more slowly from them as globalization has increased.

One problem I see with global trade: As countries become more specialized if their specialties decline they are much harder hit. A highly diversified economy that satisfies a larger fraction of its internal demand can shift workers between industries as specific industries decline. But with higher specialization of each national economy there are fewer alternative industries for laid off workers to move into. Therefore an argument can be made for maintaining a larger number of industries so that restructurings away from declining industries can happen more easily.

Share |      By Randall Parker at 2010 October 26 11:57 PM  Economics Globalization


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