Global Rents

In a speech this week, Mark Carney sets out the increasing impact of globalisation on our domestic economy. He points to an increasing disconnectedness between domestic slack and domestic inflation, and a strengthening link between domestic wages and global wages. A global shift towards service economies, combined with a technological revolution, has allowed the ‘unbundling of production into global value chains’ (i.e. spitting up the production process across countries), which leads to ‘greater synchronisation of pricing across countries’. In the long run, this trend is set to continue, as the UK seeks to open up trade with new countries and digital platforms accelerate the efficiency of this de-bundling process. As production costs across geographies converge, so surely must rents (economic residuals) also converge? Location is the major driver of differentials in rent and, as long as businesses still discern on location, then differentials will be maintained. However, in a truly global economy could there one day be a single global rent?