The challenge of market power under globalization

Produced by: 
Centro de Investigación y Docencia Económicas CIDE
Available from: 
February 2014
Paper author(s): 
David A. Mayer Foulkes (CIDE)
Topic: 
Globalization - Trade
Year: 
2014

The legacy of Adam Smith leads to a false confidence on the optimality of laissez faire policies for the global market economy. Instead, the polarized character of curret globalization deeply affects both developed and underdeveloped economies. Current globalization is characterized by factor exchange between economies of persistently unequal development. This implies the existence of persistent extraordinary market power in transnational corporations, reflected in their disproportionate participation in income and policy. These are shown to be steady state features of globalization in a convergence club model of development and underdevelopment including trade and FDI. Moreover, results in tax competition explain how the increased share of transnational profits under globalization leads to lower corporate taxes, more conservative policies, and weaker institutions for balancing market power. The increased level of market power under globalization poses a serious challenge for national and global governance that deeply impacts economic development, distribution, sustainability and democracy everwhere.

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Research section: 
Latest Research
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