The crisis of globalization – The role of global value chains

Reservations against the internationalization of economic activities have increased in the policy debate. The critical assessment is backed, among others, on rising fears in substantial parts of the population about the costs and benefits of globalization. The last decades have been characterized by a rapid expansion of the global division of labor. Improved transportation, information and communication infrastructure, lower trade, investment and business barriers, and the integration of large low-wage emerging markets into the world economy have fragmented production activities and contributed via specialization gains to lower production costs and goods prices. Cross-border trade increased at a much faster pace than overall production. Especially, trade in intermediates has increased substantially. The shifts in the international division of labor may have steepened the distribution of income in the Western economies, as wages of low-skilled workers became under more pressure.

Globalization fears have contributed to the policy change in the United States and the Brexit decision in the United Kingdom. The rise of parties with a national orientation can be observed in many countries. Disintegration tendencies put a threat on further European integration prospects. The idea that integrated markets and free trade foster prosperity and security has lost political support. Instead, trade-restrictive measures are on the rise and might cause lower economic growth at a global scale. The disintegration of markets will have far reaching consequences. However, declining export activities due to the restrictions represent only one side of the medal. Due to the outsourcing of production activities the domestic component of exports has declined. To assess the overall effect for the economy, value added indicators should be considered instead of the final products. In the intended project, we will investigate the impact of globalization on the economy by focusing on one major aspect of the process, i.e. the emergence of global value chains and how they have contributed to the economic performance. Global input-output tables report the production linkages at the individual country and sectoral level. Based on this information, a sectoral index for globalization will be developed. It is used as an additional regressor in a panel model to explain the development of productivity and wages.

Participating Institutes

German Institute for Economic Research (DIW)

Halle Institute for Economic Research (IWH)


Hoffmann, M., und O. Holtemöller. 2010. Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy. Scandinavian Journal of Economics 112, 127-161.

Holtemöller, O., and G. Zeddies. 2013. Has the Euro Increased International Price Elasticities? Empirica 40, 197-214.


Prof. Dr. Christian Dreger (ehem. DIW)

Prof. Dr. Oliver Holtemöller (IWH)

Project term

04/2017 - 12/2017