Towards an Analytic Framework for Studying Globalisation

Versions of this paper were presented to seminars of the Ministries of Economic Development and Foreign Affairs and Trade in May and June 2002.(1)


The original invitation for this paper involved my setting out my work on globalisation, for which I had applied for a Marsden research grant. Alas, the applications which went into the second round do not include my one. Perhaps there are 137 more significant issues than globalisation facing New Zealand – which is scary. Even so globalisation is important to New Zealand’s future, to its very survival. This paper argues that not only is the issue important, but that research can progress our understanding of it. Such research should not be focussed on policy issues, but attempt to develop an intellectual framework, which policy makers will find useful. By eschewing policy conclusions it can go deeper, more analytic, and ultimately be of greater value.

Defining Globalisation

The first task when seeking an analytical framework for globalisation is to define the phenomenon. What strikes a reader on the subject is that hardly anyone attempts to define it. Inevitably the term is associated with very different meanings. They may be referring to a particular phenomenon such as increasing trade, or capital flows, or logos, or international inequality; to particular international institutions such as the World Trade Organisation or the International Monetary Fund and the World Bank or the European Union, or multinational corporations; to particular policies such as free trade, liberalised capital movements, and so on. The London Economist described globalisation as ‘international capitalism’, and many anti-globalisers might agree, perhaps adding ‘US world hegemony’. But this is but a name for an outcome. It tells us little about the process which generate it. Labels have their uses, but an analytical framework needs to know what is going inside the brand.

Consider anti-globalisers who ordered books from, discussed the contents on the world wide web with their friends, and then flew to Seattle to protest one of the international pro-globalisation conferences. As it happens, Seattle is the headquarters of Amazon, of Microsoft, and Boeing, each potent parts of globalisation. So the anti-globalisers used the facilities that globalisation created to protest against globalisation. T he labels dont help us to resolve the apparent paradox.

So how to define ‘globalisation’ in a useful way? The scholarly literature talks about globalisation as a nineteenth century phenomenon, as well as a late twentieth century one. Some even argue that globalisation was then a more powerful force than it is today, partly because labour – European labour anyway – was more freely mobile. Their accounts of globalisation make frequent reference to distance: how in the nineteenth century railways, steamships, telegraph and a host of other technological changes, made the world smaller, increasing the flows of labour, capital goods and technology. A not unexpected outcome was an increasing convergence of prices of goods and returns to factors in different locations. It was not simply that as transport costs fell, the levels in different locations became more similar. The correlation between them also increased, indicating that the regional markets were integrating.

It was reductions in the costs of distance which made New Zealand possible. Until the 1880s the effective distance for transporting meat to Britain was near enough to infinite. Refrigeration, coupled with steamships and telegraph, reduced that distance cost to a fraction of its production costs or selling prices. The very existence of New Zealand is due to globalisation. One hundred and fifty years ago it took at least three months to sail from New Zealand to Britain. That applied for goods, passengers and mail. Today it takes about three weeks, so the distance has effectively decreased by three quarters for goods. A hundred and fifty years ago, the ship would probably be battling its way west of Cape Horn after three weeks of sailing. The travel distance for people is even closer, since one can fly to Britain in less than two days – a 98 percent reduction. A hundred and fifty years ago, it took about two days to sail from Wellington to New Plymouth. Today’s information moves even faster, zipping around the world in microseconds: a nineteenth century equivalent might be a line of sight.

This suggests it is useful to define globalisation as the consequence of the reductions in the costs of distance. The term ‘costs of distance’ is wider than transport costs, also encompassing inventory and additional production costs, the costs of time, and reliability and security. All of these have changed substantially in recent years.

The definition involves a standard economic modelling approach, examining the impact on a system from external change, phenomenon which my book In Stormy Seas models. The issue of modelling the innards of the economics of the system to capture proved to be easier than I expected. Let me draw out the story by telling you how I came to it.

Developing an Analytical Model for Changes in the Costs of Distance

At first I observed that transport costs can be treated as a transaction cost. This is a relatively new economic area – the seminal paper by Ronald Coase is about forty years old – but thus far there has been few clean analytic propositions arising from it. Even so, transaction cost analysis is a potentially powerful means of investigating some important economic issues. (The Ministry of Consumer Affairs articulates it as a central element of their economic approach.) I had thought that transactions cost might be useful to deal with the costs of distance, but I could not make much progress there. Eventually I fell back on one of the oldest interests of economists – the theory of international trade.

The precipitant was The Importance of Being Enormous, a paper written by Treasury official David Skilling. The argument is a frustrating one because the underlying economic model is not clearly expounded. It is also empirically wrong because it treats the relative decline of the postwar New Zealand as continuous, whereas the decline appears to be the result of external two shocks. For most of the era New Zealand grew at about the same rate as the rest of the (rich) OECD, something I comprehensively investigate in In Stormy Seas. But even if Skilling’s facts were correct, his thesis that size and location are the main explanations of the relative decline faces a serious problem for they do not explain how well New Zealand was doing before 1950. The economy was smaller then than it is now, and it was effectively more distant. Yet New Zealand was relatively richer then. Skilling’s theory about postwar behaviour is contradicted by what happened earlier.

I constructed a model in which a fall in the costs of distance damaged a small economy’s performance. Initially I looked at a single sector model in which each economy had the same available technologies which were subject to strong economies of scale. However domestic market sizes (fixed for simplicity) are markedly different, so the large economy (say Europe) was producing at a larger scale and therefore lower cost than the smaller economy (say New Zealand). However the costs of transport meant that Europe could not undercut New Zealand production so each economy was self sufficient. But when transport costs fall the larger economy uses its superiority in production scale to sell at a lower cost to the smaller economy and destroy the local industry.

While fooling around with this model – it needs some supplementary assumptions to work properly and in any case it needs to be transformed into a multi-sector model – it struck me I was mimicking a standard trade theory model. Of course. Costs of distance such as transport costs can be thought of as a tariff: economists talk about them as ‘natural protection’. In elementary trade theory we usually keep transport costs constant and ignore them. But generally, and subject to some caveats which as far as I can see are not important, we can use standard models of international trade to analyse changes in the costs of distance as if they were changes in tariffs.

(The most important caveat might be that transport costs and the like involve resources but, on the whole, tariffs do not. However when both are at prohibitive levels so they result in domestic production and no imports or exports, the effects are identical. However what happens when there is some external supply? A reduction in transport costs is a direct gain in resources – a productivity gain. A reduction in the tariff involves no such reduction – although there are problems about what happens to the revenue which goes into the government coffers, which may or may not ameliorate to some degree this effect.)

The Standard Model: Costs of Distance as an Analogue of a Tariff

Recall the standard general equilibrium model of an economy which underpins trade theory, and then consider the implications of non-standard assumptions. Basically the model involves a number of economic actors who have a certain amount of labour and capital resources and production technologies available to them. In its simplest static form the model concludes that if each actor uses their resources to maximise their own ends, the ‘efficient’ outcome will be a market equilibrium in which prices equate to the relative marginal utilities of consumption and the relative marginal costs of production. The equilibrium is ‘Pareto’ efficient insofar as one actor’s welfare can only be improved at the expense of reducing another’s. In summary, a market system generates a Pareto optimum if it is allowed to operate without interventions, but of course the theorem requires a number of key assumptions to be valid.

A crucial, if policy limiting, generalisation of this analysis was identified in 1956 by Dick Lipsey and Kelvin Lancaster. Their pseudonymous theorem, also know as ‘the general theory of the second best’, says that if something prevents equality between marginal cost and marginal utility in one market, it may not be optimal to apply pure market solutions in the rest of the economy. The theorem does not have any automatic policy conclusion for despite a lot of theoretical effort, it has not normally been possible to get any clear cut conclusions.

There is one extraordinary exception. Suppose an economy is split into two (or more) parts between which the factors are prohibited from migrating. That would mean the same factor is likely to be paid at different rates in the different parts of the economy. That is the sort of restriction in factor mobility which the second best theorem appears pessimistic about. However, there is a very well established theoretical conclusion, that both parts of the economy benefit from free trade in goods and services between them. Treating the parts as of a world economy – that is two or more countries between which there is factor immobility – the policy prescription is that free trade gives the optimal outcome for both countries (caveats to be added). In particular tariffs or other protective devises reduce the welfare of the inhabitants of both countries and the elimination of this protection raises welfare in both countries. In the swamp of second best analysis the free trade result is extraordinary, and possibly unique, for the clarity of its conclusions.

It might seem then that a reduction in the costs of distance, analogous to a reduction in a tariff which moves the economies closer to the pure free trading position, ought to be a benefit. Skilling and anti-globalisers apparently dissent, although probably for rather different reasons. What are the various assumptions in the model, which might explain their opposition? I skip over the assumption of rapid redeployment of released resources which clearly concern anti-globalisers, merely noting that as in the case of all economic shocks there is an adaption problem.

Economies of Scale

‘Economies of scale’, of particular concern to Skilling, matters. They may exist for a particular production process, for an industry, or for an economy as a whole. Before we jump to policy conclusions we need also to add there may be diseconomies of scale too, particularly in economic and political management. A small country New Zealand may have advantages over larger economies.

The optimality of free trade, indeed of every market solutions, may not occur if economies of scale exist to any great practical extent. Recent developments in trade theory suggest that a world of significant economies of scale has multiple equilibria, unlike that which occurs in standard international trade theory. New Trade Theory is not some interesting theoretical twist. Rather it responds to a growing anomaly in the old trade theory, which predicts inter-industry trade but has little explanatory power on the causes of intra-industry trade, where two countries trade the same products, rather than each specialising in different products. New Trade Theory emphasises the role of economies of scale. But they can only be reaped if the costs of distance are not too onerous. Growing intra-industry trade is a response to reductions in the costs of distance.

The exact configuration of the resulting economies – which firm industries locate where – may be the result of history or accident. Or perhaps – anti-globalisers might emphasise this – the result of political or military outcomes. Most of the theoretical analyses I have seen involve models with two countries of similar size, so how a small country functions and what options it has is unclear. However the experience of Nokia in Finland suggests that small countries may possess large manufacturing businesses with strong economies of scale.

The role of intra-industry trade is crucial for the future of New Zealand. Since it has been growing substantially faster than inter-industry trade in the world economy, the implication is that to bet on the latter is to bet on slow and stagnant markets. In Stormy Seas notes that our export structure is more based on the specialisation of inter-industry trade. In the late 1980s we had a normal intra-industry trade relationship only with Australia. Even then the level was low by the standards of rich OECD countries, and it is fairly recent. (Table 1: The Grubel-Lloyd index ranges from 0 to 100 percent. If 0 the trade between the two countries is totally inter-industry, if 100 it is totally intra-industry.)

Table 1: Intra-industry Trade: New Zealand Australia 1964-1987.

Year Grubel-Lloyd Index
1964 11.2
1968 16.8
1972 20.1
1976 26.1
1980 29.6
1984 33.0
1987 43.7

Source: Bano & Lane (1989)

And while the index suggests that on this commodity classification, the level between Australia and New Zealand was almost 50 percent, for trade between most mature economies it would exceed 60 percent. For all other countries it has been far less: trade has been a couple of specialist economies exchanging quite different products, a situation reminiscent of the allegations of the 1960s debate that New Zealand was an immature economy. (Table 2)

Table 2: Intra-industry Trade: New Zealand World 1987. (3)

Country Grubel-Lloyd Index Per Cent of All
Australia 51.9 17.7
Singapore 28.3 1.3
(World) 26.4 100.0
Thailand 19.8 0.4
USA 18.5 15.8
Canada 17.0 1.7
Malaysia 13.5 0.8
Fiji 11.6 0.4
Hong Kong 11.5 1.6
Cook Islands 11.1 0.1
Denmark 9.2 0.5
Sweden 8.3 0.7
UK 7.8 9.6
(EU) 7.4 22.8
Philippines 6.3 0.5
Japan 5.5 17.7
Switzerland 4.1 0.7
S.Korea 3.8 2.0
France 3.4 1.8
Italy 3.3 2.2
Index below 2 per cent: Belgium-Luxembourg, Brazil, Iraq*, Iran*, Kuwait*, Pakistan, Peru. (Each less than 1.3 per cent of total trade.) Asterisks indicate the index level is zero.

Source: Bano & Lane (1989)

It is doubtful that things have improved much since the late 1980s – indeed it is possible that the hollowing out of the manufacturing sector after 1987 may have reduced the degree of intra-industry trade. New Zealand has been trapped into an old trade theory and old trade structure. Almost certainly its survival involves the transformation to the new one.

Differential Diminishing of Distance

Additionally, and possibly reinforcing by the economies of scale problem, the free trade theorem does not say that a reduction in a tariff rate necessarily increases economic welfare. That only occurs when all border protection is eliminated. James Meade finishes his chapter on the second best options under a partial freeing of trade with the gloomy ‘it is very difficult to reach any general conclusions on the subject’. The parallel it that seems likely that a reduction in the costs of distance may not be necessarily beneficial to an economy, if the other costs of distance do not reduce.

While this is analytically disappointing, there is some comfort because it provides a rigorous underpinning to the problem of globalisation: if globalisation is the consequence of reductions in the costs of distance, the problem of globalisation arises because distances diminish at different rates for different products and for different places. If all costs of distances were to diminish in the same proportion – if the world were just to shrink – then most globalisation problems would be unimportant. But the world has shrunk more for information than for individual travel, and more for travel than for goods, and least for the networks which make up our human cultures. The second best theorems suggest that the reduction in some of the costs of distance need not be of benefit – at least in the medium run.

Even so, I would want to be cautious rather than pessimistic. The modelling issue is complicated by reductions in the costs of distance involves simultaneous tariff-type reductions by both parties. For instance, while the inbound tourist industry has benefited from the ease with which tourists may come here, the same domestic industry suffers from it also being cheaper for New Zealanders to go overseas. On the other hand we know that a reduction of tariffs on the inputs of a protected industry reduces welfare because resources are attracted into the inefficient industry. A similar possibility may apply for transport costs. Some of the big reductions in the costs of distance have been in telecommunications which have created possibilities such as off-location call centres, which are an industry input.

Perhaps the mathematics is too gloomy and we will have to use a computable general equilibrium model after careful measurement of the costs. I am not as pessimistic as Skilling seems to be. Reductions in the costs of international distance ought to be mainly on New Zealand’s side (although economies of scale may not). But we need to rigorously formulate why we could be optimistic.

Distributional Issues

Anti-globalisers are also concerned with distributional issues and not just the production concerns of Skilling’s papers. These can be easily illustrated by considering the extreme case of an economy which moves from autarchy to total free trade. The shift moves the economy to a higher level of welfare. However, the theorem does not say that under the shift, everyone is better off (that is it is a Pareto improvement in welfare), since some specific factors will have reductions in their remuneration (even after full redeployment). An example might be that were there to be free access of New Zealand dairy products to the United States, the US would be better off, but those US owners of dairy specific capital in the short to medium run, and dairy specific land in the long run, would be worse off.

The economic theory is straightforward. The endpoint of the shift to free trade is Pareto efficient – that is nobody can be made better off without making someone worse off – and so is the beginning point of autarchy under the model assumptions. However the theorem does not say that the shift between the two points makes everybody better off.

The standard welfare analysis says that following the opening of trade, the gains are such that everyone who is worse off could be compensated back to where they were, and there would still be a surplus for some people to be better off. Anti-globalisers may say ‘that may be true but the compensation rarely happen’.

There is a practical reason. Calculations of the gains from trade from existing protective regimes almost always suggests the gains from the total elimination of protection are small. For instance in the 1970s, when there was careful measurement on the New Zealand economy, the typical estimates suggested gains from removing what by today’s standards were onerous border protection were less than 1 percent of GNP. The implication is the gains are so small that the costs of administration would make effective compensation impractical.

(One need not leap to the policy conclusion that there was no case for eliminating protection. In my view free trade is not a policy strategy in itself, but a part of a wider strategy, which I wrote about in my book Open Growth, which argues that the growth process in New Zealand starts primarily in the external sector and feeds into the domestic one. Eliminating border protection may be a part of the policy mix to generate an open growth strategy. On this argument the static gains from trade are not particularly relevant.)

The anti-globalisers often make a further general point. They claim that globalisation raises the profit rate at the expense of reductions in wages, and thus the income distribution becomes less equal. This is much disputed. It is not obvious that wage earners should always be worse off under changes such as a reduction in the costs of distance. However the empirical models do suggest that while the gains from trade are small the redistribution from the change in factor prices is a magnitude larger. It is an illustration of one of the most general rules in policy analysis: the impact of a policy change usually affects distribution more than it affects efficiency. (Perhaps that is why economists focus on efficiency.)

More generally we should take the anti-globalisers seriously (just as we should take David Skilling seriously). It is easy to dismiss them as ignorant, misguided, selective or self-centred, but first that is not always true, and second we can as easily dismiss the pro-globalisers for the same deficiencies.

Differential Factor Mobility

Recall how the standard free trade analysis can be interpreted as a special case of the second best, where there are prohibition of movements on all factors between the two parts of the economy, or in the international trade example, between two economies. What happens if we allow a particular labour skill to migrate, say from New Zealand to Europe, because its factor return is higher in Europe than New Zealand? Because they have chosen to move, the New Zealanders with the skill are better off, while those in Europe with the skills will experience a depression in their wages from the additional supply and be worse off. (This assumes that economies of scale are not significant.) But what about the rest of those involved?

We can rejig the standard trade model by pretending that the migrants still live in New Zealand and simply sell their labour skills in Europe. In this context the permission to migrate could be treated as the elimination of an infinite tariff on the skilled labour service. Second best theorems warn us this may not result in an improvement in world welfare. But suppose it did. There would not be necessarily an increase in the welfare of the New Zealanders who did not migrate, even if there was an increase in the aggregate welfare of all New Zealanders, for the gains to the migrants may exceed the national gains, as we have observed in other cases of the freeing of trade.

This differential migration problem applies to regional policy too, and is compounded by economy wide economies of scale. (This approach has much to contribute to regional analysis.) There are parallel analyses of capital flows and technology flows, which in each case involve differences from the other factors. The inability of land like resources makes that different again.

The migration of labour, capital/savings and technology are all facilitated by the falling costs of distance. There is a tendency to assume that such migration is necessarily a good thing, but it is not always clear what are the assumptions that are being used to justify the conclusion. To give some simple examples. An increase in the supply of foreign capital presumably decrease the domestic profit rate. Why then do local capitalists generally applaud capital inflows? What assumptions are we making about the substitution elasticity between labour and capital if we think capital inflows benefit works, or if – as in the case of anti-globalisers – we think the inflows are a detriment to workers? In the case of the international technology transfer, what are our underlying assumptions if we think that it is profitable to New Zealand? And if we believe that technology does not conform to the private property standard rules of the market, what does that say about domestic technology policy and market strategies generally? Policy discussions seem to ignore such questions. What is clear from the trade issues where we have a better analytic understanding, is that often the answers require attention to second best phenomenon, to distributional impacts, and to production structures, and also possibly to factor endowments such as the quality and skills of the workforce.

Extensions of the Analysis

We need not stop merely at this generalisation of trade theory to cover the costs of distance. Some of the salient potential extensions of the analysis include.

New Economic Structures and Locations
Historically agriculture and other resource based industries were located near their resources, service industries were located near their customers, and manufacturing traded off the transport costs between the resources they used, the labour and other costs available, and the markets they served. Some new technologies, especially telecommunications, which reduce the costs of distance mean that some service industries are now as footloose as manufacturing. We need to revise our notions of the nature of the economic structure and where and how it is located.

Endogenous Policy
While in politics policy, is seen as something over which policy makers have control, in the world of political economy and history, policy development has a far more endogenous element, as policy makers respond to problems outside their control which arise. It seems likely that the post war regime of increasingly free trade of manufacturers and latterly of services reflects a response to the possibilities that falling costs of distance generated, together with some other technological and social changes which arose in the postwar era. An endogenous theory of the freeing of trade may contribute to our understanding to why agricultural liberalisation has been so disappointing, for land cannot migrate like other factors.

International Regulation
The endogenous policy approach suggests the reasons for the creation of overarching international institutions, of which the World Trade Organisation is currently the most prominent. Historically, nations created the various institutions which regulate domestic markets as the falling costs of distance integrated their markets. (The Australian Federation is a good example.) These international agencies are today’s global equivalents, a regulatory response to globalisation as a consequence of the falling costs of distance, rather than as the drivers as they are often depicted, especially by anti-globalisers. (I have done a little work on the political economy response to the globalisation of the nineteenth century, which has some relevance to the understanding of current political responses.) Another example of the broadening of market is what is the intra-industry trade between Australia and New Zealand, which is leading to trans-Tasman market regulatory mechanisms. Tax regimes also have to modified as markets integrate across fiscal boundaries and factors migrate.

Nationalism and Culture
A third issue general issue central to the globalisation debate is that of nationalism. In Europe, in particular, nationalism was a nineteenth century response to the falling costs of distance in regions. (Twentieth century nationalism in ex-colonies may be a different story.) A recent paper suggests that freeing trade makes countries possible, the intuition being that trade reduces the economic costs of international boundaries. ( Alesina et al, AER December 2000) Anti-globalisers would go on to argue that the boundaries become less effective in other ways too, but issue of why and how nation-states exist has to be addressed. It is possible the nation-state is a temporary phase, although perhaps it is significant the Kyoto agreement is being implemented via nations rather than an international regime. But nations are not just economic entities, they are also cultural ones – a theme in my latest book, The Nationbuilders. This destiny of nationalism might be explored via the cultural experiences of migratory groups, such as Jews, Irish, Chinese and Pacific Islanders (whose experiences may be a microcosm of those which larger nations face under the falling costs of distance).

Non-economic Issues
There are also some globalisation issues which are not primarily economic, even though like terrorism they could impact on the world economy. These include international political relations where diminishing distance – including for military logistics, the speed at which diplomats can move around, and the public’s awareness of foreign tragedies – are transforming the nature of the world politics. Another non-economic issue is once New Zealand’s first line of defence against the international spread of plant, animal and human disease was the voyage times from other countries. Today their transmission is much faster.

Policy Issues
Once an analysis of some breadth and depth is developed, there will undoubtedly be policy insights. But we can learn from the globalisation analysis of the dangers of being too precipitant in pursuing policy. The economics used in this paper is very orthodox, but standard texts on international trade have surprising little attention given to transport costs. (For instance the major US text, International Economics: Theory and Policy by Paul Krugman and Maurice Obstfield, devotes just over a page to transport costs in a 750 page textbook.) This is partly because the United States has not been tyrannised by distance in the same way Australasia has been, but it also reflects that tariffs and other border protection are policy instruments which can be managed. The passion for policy has obscured the relevance of exogenous productivity changes, which probably have a greater impact on output, growth, and welfare.

The Future of Globalisation

To what extent we can forecast the future of globalisation? Even if there are no further major reductions in the costs of distance, the momentum generated by those of the last fifty years is likely to impact on the world economy for a number of decades to come. Major innovations of the late nineteenth century – for example the internal combustion engine – were still substantially changing economies and societies a hundred years later. One issue here is whether we are near a limit to reductions in the costs of distance. It is hard to see major reductions in times for information and air travel, given the physical limits set by the speed light and the speed of sound. Would it be possible to substantially increase sea travel speeds or is there some physical limit there too? It is also likely that there will be reductions in some resource costs, and it is not inconceivable that smallish changes, say of the order of twenty percent, could dramatically change choice of mode. The air cargo industry may expand, with substantial implications for New Zealand. But should we assume that costs will continue to fall? Security against terrorism may raise distance costs. A long run rise in the price of liquid fuels would raise the costs of physical transport. It is not inconceivable that we could end up with a world in which the costs of distance for information remained near zero, but transportation of goods became very limited.

Conclusion: Globalisation and the Future of New Zealand

My interest in globalisation is driven by a policy passion as well as my passion for a scientific understanding of the world. An ultimate question which underpins the study is whether, or in what form, New Zealand can survive. Globalisation may end the nation state, at the very least it will dramatically modify it. We cannot rule out the possibility in New Zealand’s case that not only will be there be a lost of national sovereignty but the nation will suffer the relative or absolute depopulation we observe in some Pacific Islands, and which has already happened in some other regions of the world if disguised by international population expansion.

In a monograph written in 1984 Elhanan Helpman and Paul Krugman remark that ‘In a world that deviates from the perfect competition/constant-returns norm of traditional trade theory, there are increased potential gains from trade in the sense that even identical countries can be made better off by opening trade. Unfortunately the imperfections of markets simultaneously creates the risk that a national economy will not only fail to take advantage [from] potential gains from trade but may actually lose.’ Eighteen years later New Zealand has still not grasped the significance of this, or of the subsequent developments in New Trade Theory. That seems to be a recipe for joining the losers.

This suggests that New Zealand ought to be putting some effort into the analysis of globalisation using systematic economic models. Unless we understand the phenomenon better, we are likely to miss opportunities, make mistakes, and ultimately pursue policies which could have the gloomy outcomes of stagnation and depopulation. New Zealand’s survival probably depends on its response to globalisation, more than any other single phenomenon. But that has always been true.


1. I am grateful to Sayeeda Bano, Rob Bowie and Bill Rosenberg for assistance with earlier drafts, and for comments from various persons at the two seminars. .

2. The Grubel-Lloyd index is defined by I = 100-∑│Xi – Yi│/(Xi + Mi), where i represents each commodity group.

3. Note that because each table uses a different level of aggregation, the concentration indices between the two tables cannot be compared. Within tables they can be.