Research That Matters (January 17 - 20, 2008)

Purpose: One of the most controversial agendas in social science entails the impact of economic globalization on the welfare state. Economic globalization (hereafter globalization) involves economic integration of the states through the increased flow of goods, services, and capital. Globalization is regarded as pressure on all states to change their social policies as well as economic schemes in market-friendly ways. Previous scholars argued different perspectives of how globalization affects the welfare state, including positive, negative, curvilinear, and even insignificant relationships. While several researchers empirically examined the dynamic between globalization and the welfare state, most of them ignored the role of welfare regimes. Welfare regimes reflect quantitative differences in arrangements of welfare functions between major social institutions. As a result, welfare regimes prescribe the functional mechanism of the welfare state and therefore may influence the relationship between globalization and the welfare state. Our aim is to empirically investigate this relationship, concentrating on the mediating effect of welfare regimes. Thus, we hypothesize that the impact of globalization on the welfare state will be different according to welfare-regime types.

Method: We scrutinized data from 18 developed countries from 1985 to 2001. The dataset was created through the integration of two data sources; OECD.Stat and the Comparative Welfare States of Luxembourg Income Study. We used the ratio of social welfare expenditure (SWE) to the total GDP as the proxy of the welfare state. By conceptualizing globalization as the intensification of international economic exchange, we measured globalization with the foreign direct investments (FDI) as a percentage of GDP. For the typology of welfare regimes, we employed Esping-Andersen's (1999) model identifying three welfare-regime types: liberal, conservative, and socio-democratic. We controlled other covariates such as unemployment rate, GDP per capita, and the aging population (+65) rate. We analyzed data with a three-level hierarchical linear model and a pooled time series analysis.

Results: The result of a hierarchical linear model demonstrated that welfare-regime types solely explained 39.08% of the total variability of SWE among 18 countries. While socio-democratic regime spent an average 27.87% of SWE to the total GDP, conservative and liberal regimes spent 22.17% and 18.19% respectively. The main effect model showed an insignificant relationship between FDI and SWE. However, by analyzing interaction effect, we confirmed that effect of FDI on SWE is significant and vary according to welfare-regime types. 1% increment in FDI decreases SWE by .12% in socio-democratic regime, while it increases SWE by .11% in conservative regime, and by .01% in liberal regime.

Implications: Findings suggested that welfare regimes differently respond to the impact of globalization and therefore mediate the relationship between globalization and the welfare state. While globalization shrinks the welfare state in socio-democratic regime, it expands the welfare state in conservative regimes. In liberal regime, globalization slightly affects the welfare state. These findings imply the welfare-regime type is a significant factor that must be considered in studies investigating the impact of globalization on the welfare state. Based on the results, we discussed interpretations of the phenomena.