Saturday, June 1, 2013

Globalization and Democracy

Globalization has been demonized by many economists. Globalization is considered to be the cause of unemployment rise, degradation of democracy and to be a force opposed to welfare estate.

Barry Eichengreen wrote in 2006 a paper where he argued that there´s a positive relation between globalization and democracy. Causality, he states, works both ways from more democracy to more globalization and from more globalization to more democracy. He applied several econometric models.



So far so good. However, Eichengreen warns that “as in any case where positive feedbacks are present, there is the possibility of dynamic instability – that is, a positive or negative shock may send the system off in the positive or negative direction without limit”.


If the negative economic situation in Europe is not solved it will have negative feedbacks as more nationalism raises custom duties and at the same time deteriorates European democracies. It wouldn´t be the first time “If the system is dynamically unstable, then we can perhaps understand how in the 1930s negative shocks to trade and democracy could send the system down toward progressively lower values of both variables”

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