While many herald globalization—the increasing
interconnectedness of national economies—to be associated with
rising standards of living across the globe, others fear its effects on
sustainability. Antiglobalization forces and environmentalists view these
developments as a threat to the welfare of future generations because of
profligate and excessive current consumption. This study is the first to
estimate the effects of dependence on trade, foreign direct investment
(FDI), and an index of economic freedom on the World Bank's measure
of sustainability (the genuine savings rate), which measures the rate at
which investment in the total stock of manufactured, human, and natural
capital exceeds its depreciation. Contrary to pessimists' fears, our
indicators of economic openness show positive effects on sustainability,
results that are robust to sample size, testing procedure, and several
alternative specifications. The results support those who suggest that
distorted economies tend to be both inefficient and damaging to future
generations. If increasing trade, FDI, and economic freedom are hallmarks
of globalization, then worries about its effects on future well-being are
misplaced.Equal authorship. We are grateful
to Erich Weede, Rick Auty, Simon Dietz, Paul Hensel, Jonathan Moses,
Ragnar Torvik, Jostein Vik, Paivi Lujala, two reviewers, and the editor
for comments and suggestions. The anonymous reviewers were extraordinarily
constructive. Any remaining errors are entirely our fault. The data are
available at
〈http://www.svt.ntnu.no/iss/Indra.de.Soysa/default.htm〉.