Reexamining the economic globalization-welfare state nexus: a Bayesian mixed approach to linear and non-linear dynamics

Abstract

Previous research on the globalization-welfare state nexus has typically been conducted within a linear monotonic framework, focusing on two primary hypotheses. The efficiency hypothesis predicts that globalization shrinks the welfare state's size. In contrast, the compensation hypothesis argues that globalization increases demand for social security, leading to an expanded welfare state. Empirical evidence on this relationship is mixed, with multicollinearity suggested as one possible explanation. This study explores the non-linear, non-monotonic aspects of this nexus using a yearly panel of 10 ASEAN countries from 1970–2019, analyzed through a Bayesian mixed regression. The study focuses specifically on the effects of economic globalization. The results demonstrate a non-linear, non-monotonic relationship characterized by an inverted U-shape, where economic globalization initially expands the welfare state but, after reaching a certain point, leads to its retrenchment. This outcome supports a combination of both the compensation and efficiency hypotheses, aligning with the principles of non-linear and complex system sciences. The study offers a solid and reliable foundation for predicting long-term globalization processes and formulating comprehensive integration policies in ASEAN in the context of declining public expenditures.