Productivity Could Be a Loser in Globalization Backlash

(Bloomberg) -- Pundits have characterized the populist wave sweeping Britain, the U.S. and much of Europe as a backlash led by victims of globalization. If research tells us one thing about world integration, however, it's that it doesn't create a simple story of winners and losers. 

Several new studies that we've summarized below dig into how globalized trade networks impact economies, particularly in areas such as productivity, inflation and crisis risk. Another report takes a look at the threat that China's credit growth poses to the rest of the world. Finally, new findings quantify the link between local increases in unemployment and opioid-related hospital visits and death.  

Check this roundup every Tuesday morning for the latest in economic research from around the world. 

How trade boosts productivity

Participation in global value chains is a big driver of labor productivity, World Bank researchers found by examining 13 sectors in 40 countries over 15 years. A 10 percent increase in participation increased average productivity by 1.7 percent, and the effect was strongest for countries that relied more on imported goods to produce exports. 

Why does this matter so much? It might help explain why productivity is slumping in so many countries. The expansion of global value chains was robust during the 1990s, eased during the 2000s and is currently slowing further or even reversing course.

"Global value chains boost productivity," according to the study. "While there are many other factors that determine the rate of productivity growth, this evidence suggests that the slower pace of global value chain expansion is also contributing to the slower growth of world productivity."

Does Vertical Specialization Increase Productivity?
Published February 2017
Available on the World Bank website

The global face of inflation

Global factors play a major role in shaping inflation rates, especially in developed nations, European Central Bank researchers conclude after looking at consumer prices for 223 countries between 1980 and 2012. Wealthier countries are better at minimizing domestic sources of inflation, meaning global factors play a bigger relative role in consumer price increases, the researchers write. 

International pressure most notably impacts energy prices, based on the study, although it also has a significant influence on food. Housing prices, on the other hand, aren't driven much by global trends. 

Global Inflation: The Role of Food, Housing and Energy Prices
Published February 2017
Available at the European Central Bank website

Crises at home often come from abroad

Inflation isn't alone in transcending borders these days. Foreign financial developments are key drivers of domestic banking crises, a Bank of England blog post argues.

Market sentiment and cross-border portfolio flows are at work here: they allow problems in one country to flow through the financial system to another.

"Elevated credit growth abroad is linked to the occurrence of banking crises at home," according the researchers, who looked at a group of 38 advanced and emerging economies between 1970 and 2011 and 14 advanced economies between 1870 and 2008. 

Foreign Booms, Domestic Busts: The Global Dimension of Banking Crises
Published Feb. 23, 2017
Available at the Bank of England website

Should you be worried about Chinese credit? 

On that note, it's worth paying attention to a massive upswing in Chinese credit, which accounted for roughly one-half of all new credit created globally since 2005. 

By some measures, China's credit boom has reached a level where countries typically encounter financial stress, which could spill over to other economies, New York Fed researchers write in a new report. To make matters more worrying, the increasing complexity of China’s financial system has made it difficult to estimate the true growth rate of credit. 

On the bright side, researchers give several reasons why the rest of the world shouldn't panic. For one thing, high levels of domestic savings have primarily fueled credit growth, with bank deposits supporting loans. In addition, Chinese authorities have "ample liquidity tools," according to the report. What's more, China has major fiscal resources to deal with the fallout of any financial system issues.

"Still, the speed and increasing complexity of the country’s credit growth suggest that there could be significant benefits for China in addressing its banking system and financial reforms," according to the study. 

China’s Continuing Credit Boom
Published Feb. 27, 2017
Available on the New York Fed website

Macroeconomic conditions and opioid abuse

When local unemployment rates rise in the U.S., so do deaths and emergency room visits related to opioid use in those areas, new research shows. 

A one percentage-point increase in a county's unemployment rate causes the opioid death rate to climb by about 3.6 percent, and emergency department visits increase by 7 percent, based on the study by Indiana University Bloomington's Alex Hollingsworth and Kosali Simon, as well as University of Virginia professor Christopher Ruhm. 

The findings are relevant as the U.S. deals with an opioid abuse crisis, especially among white Americans. The problem has become both a public health issue and a workplace concern, and has concentrated most intensely in states that are former manufacturing and mining strongholds, including West Virginia, Kentucky and Ohio. 

Macroeconomic Conditions and Opioid Abuse
Published February 2017
Available at the NBER website

To contact the author of this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net.

To contact the editor responsible for this story: Sarah McGregor at smcgregor5@bloomberg.net, Randy Woods