For immediate release: April 11, 2006
Dallas Fed: Global Competition Encourages Better Economic Policies
DALLAS—Highly globalized countries are more likely to adopt policies that promote faster economic growth, lower inflation, higher incomes and greater economic freedom, according to the Federal Reserve Bank of Dallas’ 2005 annual report essay.
The essay is part of the Bank’s initiative to better understand how the economy behaves in an interconnected, globalized world, Dallas Fed President and CEO Richard W. Fisher states in an opening letter.
“The Dallas Fed’s work on globalization is only beginning. Over the next few years, we will devote much attention to the benefits and challenges of a world where national borders are becoming less significant as economic barriers,” he writes.
“Racing to the Top: How Global Competition Disciplines Public Policy”—the 2005 annual report essay—asserts that when capital, labor and business know-how are free to move across borders, governments have a greater incentive to pursue policies that attract and retain those valuable resources.
The most globalized nations enjoy higher living standards, stronger economic growth and more robust job creation than countries with fewer ties to the world economy, according to the essay’s authors, Senior Vice President and Chief Economist W. Michael Cox and economics writer Richard Alm.
“In a globalizing world, countries win by instituting better policies and lose by overburdening their economies with taxes, regulations, trade barriers and policy instability,” they write. Nations successfully operating in the global economy have low inflation, strong property rights, political stability and effective legal systems.
However, globalization has been less effective in disciplining fiscal policy, the authors find, pointing out that “the public sector is expanding in many countries, the most globalized as well as the least.”
The labor market also remains highly regulated in many globalized nations because immigration laws, affinity for home and political measures designed to protect jobs often restrict the flow of some labor overseas.
The 2005 annual report can be found on the Dallas Fed web site at www.dallasfed.org.
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