Quality, Trade and the Moving Window: The Globalization Process

This paper analyses the globalization process by reference to a model in which firms and countries differ both in productivity and quality. The model implies that there is a lower bound to quality below which firms cannot sell, however low the (local) wage rate they face. The range of quality levels between the current maximum level and this lower bound shifts upwards when trade is liberalized (the ‘moving window’). The initial (‘impact’) effect of globalization, i.e., that associated with trade liberalization, in an initially segmented (but not autarkic) world economy may reduce welfare in countries with intermediate levels of capability, but these countries stand to be the most important gainers as capabilities are transferred across countries in subsequent phases of the globalization process.