The Challenge of Market Power Under Globalization

21 Pages Posted: 20 Apr 2015

See all articles by David Mayer-Foulkes

David Mayer-Foulkes

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics; UCLA Blum Center on Poverty and Health in Latinamerica

Date Written: May 2015

Abstract

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 current 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 foreign direct investment (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 everywhere.

Suggested Citation

Mayer-Foulkes, David, The Challenge of Market Power Under Globalization (May 2015). Review of Development Economics, Vol. 19, Issue 2, pp. 244-264, 2015, Available at SSRN: https://ssrn.com/abstract=2595883 or http://dx.doi.org/10.1111/rode.12140

David Mayer-Foulkes (Contact Author)

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics ( email )

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