In Box

Strange Trade

Recent research reveals the surprising unintended consequences of free trade

Free trade advocates say it's an engine of economic growth; opponents think it perpetuates global inequality. But the unintended effects of all that cross-border traffic -- which has nearly quadrupled around the world since 1990 -- may be even more interesting. Here's a look at some of the most surprising conclusions from recent research on trade.

1. Trade makes countries shrink.
Increased international trade lowers a country's birth rate, in part because it exposes countries to gender norms that bring women out of the home and into the workplace.

--John A. Doces, International Interactions


2. Trade is less important than marriage.
Facing a shortage of available wives, Chinese families are increasing their savings rates to increase their sons' competitiveness in the marriage market. This drives down China's exchange rate, contributing to a global trade imbalance.

--Qingyuan Du and Shang-Jin Wei, National Bureau of Economic Research


3. Trade built the ancient civilizations of Mesoamerica.
"Far from being isolated developmentally, [the cacao trade] integrally tied populations in the American Southwest to the socio-political and economic activities of Mesoamerican states."

--Dorothy K. Washburn, William N. Washburn, and Petia A. Shipkova, Journal of Archaeological Science


4. Trade doesn't turn low-tech countries into high-tech ones.
Despite hopes that globalization would allow developing countries to innovate themselves into prosperity, 30 years of increased trade has only brought steeper and more intransigent gaps between low-tech and high-tech countries, with the high-tech countries maintaining their edge through specialization that can take years to match.  


5. Trade can improve your basketball game.
An increase in the number of foreigners playing in domestic basketball leagues correlates with improved performance for the national team, even if it's composed only of domestic players.

--J. Alvarez, D. Forrest, I. Sanz, and J.D. Tena, Labour Economics


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In Box

Epiphanies from Nandan Nilekani

"Seattle has Bill," Thomas Friedman once wrote. "Bangalore has Nandan." The co-founder of Infosys -- the Indian company that made "outsourcing" a household word -- famously gave Friedman the central conceit for The World Is Flat when he said that global commerce's "playing field is being leveled" by communications technology. Now tasked with providing digital IDs to 1.2 billion Indians, Nandan Nilekani is trying to finish the job he started in the private sector: bringing a country that never entirely left the 19th century all the way into the 21st.

My father was a middle manager in a textile mill in Bangalore and ran into hard times. He had to move on and look for other jobs. My parents were concerned that I would not get good schooling, so they put me up in my uncle's house in Dharwad, and I spent about six years there. So at a very young age, I was away from my parents. I developed an amount of independence and learned to stand on my own feet.

Infosys was going to be a different type of company. It was going to be very ethically run, meritocratic, quality-conscious, transparent. People didn't confuse the personal with the corporate. In those days in India, companies were either large multinationals, or they were large units in the public sector, or they were family companies. The notion of a first-generation set of entrepreneurs creating a very different kind of company was like a breath of fresh air in the 1980s.

All the forces that Friedman and I talked about -- globalization, technology, the leveling of the playing field -- are as valid as ever. The transmission of information and capital globally and instantaneously that is happening thanks to the cloud, tablets, and social networking are all manifestations of that concept. That hyperconnected world is both a source of opportunity and a challenge.

What we're doing [in the Indian government] is leapfrogging paper and going straight to online IDs, which is actually a big idea: People who had no idea what IDs were, which is many Indians, are now going to jump from that to an online digital ID that works on the Internet or the mobile phone. Then you can start designing services in the online world: a new way to deliver banking services, food entitlements, whatever. The intersection of what is possible with today's technology and the age-old challenges of developing countries -- that, to me, is a very exciting point.

When Western development happened in the 19th and 20th centuries, it took many decades and it went through the evolution of many technologies: the steam engine, the automobile, the airplane, electricity, the telegraph. Today, countries like India that are experiencing 7 or 8 percent growth and have this population that is impatient for change have to look at a fundamentally different model.

India is fulfilling its promise. It has the largest pool of young people anywhere in the world. And it's a country that's fully exposed because of its openness to the most modern technology. It's a society in transition, where this huge, young, aspirational population is working in a system that is still older and slower. It's a very exciting time.

Illustration by Joe Ciardiello for FP