Globalization & Introduction

Three dimensions of globalization

• Economic Globalization increasing cross-border trade in goods, services and financial capital.

• Cultural Globalization increasing movements of knowledge, culture and people across borders.

• Political Globalization increasing international governance

Source: http://data.worldbank.org/data-catalog/world-development-indicators

Importance of Trade Grows

Dec.1977 Jun.1980 Dec.1982 Jun.1985 Dec.1987 Jun.1990 Dec.1992 Jun.1995 Dec.1997 Jun.2000 Dec.2002 Jun.2005 Dec.2007 Jun.20100

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35000

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45000

Summary of International Positions,Amount Outstanding

(In billions of US dollars)To

tal A

sset

s

SOURCE: PRELIMINARY REPORT: 27 JULY 2011, BIS REPORTING BANKS HTTP://WWW.BIS.ORG/STATISTICS/BANKSTATS.HTM

Perspectives on Financial Globalization

SOURCE: GLOBALIZATION FDI STATISTICS HTTP://STATS.OECD.ORG/INDEX.ASPX

Mar.1987

Dec.1987

Sep.1988

Jun.1989

Mar.1990

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Sep.1991

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Mar.2011

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35000

International debt securities - all issuers(in billions of US dollars)

SOURCE: BIS QUARTERLY REVIEW: 'JUNE 2011TABLE 12A: INTERNATIONAL DEBT SECURITIES - ALL ISSUERSHTTP://WWW.BIS.ORG/STATISTICS/SECSTATS.HTM

Perspectives on Globalization

• Positive: Increases access, competition

• Negative: Increases inequality, risk

IMF: Link

Birdsall Link

Why Now?

• Transportation and Communication costs declining. ( Containerization, Link; Fiber optic; New York Times)

• Ideology (success of export led growth strategies, collapse of Soviet communism, post-Cold War dominance of Western countries).

Link

Comparative AdvantageExample

• England is better at making both cloth and wine than Portugal. It has an absolute advantage in both products. But compared to other products, wine is the product in which Portugal is relatively strongest.

       Products per Worker

  Workers   Productivity

England 60 Wine 2

    Cloth 6

Portugal 120 Wine 1

    Cloth 1

• If England makes 1 additional cask of wine, they give up the opportunity to make 3 bolts of cloth. If Portugal makes an additional cask of wine, they need only give up 1 bolt of cloth. This lower opportunity cost of producing wine in Portugal is a comparative advantage.

• England has a comparative advantage in producing cloth. To make an additional bolt, they must only give up 1/3 of a cask of wine.

• If England trades 48 bolts of cloth to Portugal in exchange for 24 casks of wine, both countries can consume more of all goods.

• Concentration on producing goods with comparative advantage and trading with others with different comparative advantage is mutually advantageous.

    No Trade    Consumption WorkersEngland Wine 90 45  Cloth 90 15Portugal Wine 60 60  Cloth 60 60

    Trade      Consumption WorkersEngland Wine 96 36  Cloth 96 24Portugal Wine 72 96  Cloth 72 24

Declining Tariff RatesAverage Tariff Rates

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Low income Middle income High income

B. Cultural Globalization

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Social Globalization Index

BrazilSwitzerlandMalaysiaNigeria

0-10

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B. Social Globalization [37%] ii) Data on Information Flows (35%)i) Data on Personal Contact (34%) Internet Users (per 1000 people) (33%)

Telephone Traffic (25%) Television (per 1000 people) (36%)Transfers (percent of GDP) (3%) Trade in Newspapers (percent of GDP) (31%)International Tourism (26%) iii) Data on Cultural Proximity (31%)Foreign Population (percent of total population) (21%) Number of McDonald's Restaurants (per capita) (45%)International letters (per capita) (24%) Number of Ikea (per capita) (45%)

Globalization Index

Hollywood Movies a Global Business

Link

Link

Rank Title Origin Language Box Office in USD ᵃ1 Transformers: Dark of the Moon United States of America English 10,883,8942 Harry Potter and the Deathly Hallows: Part 2 United Kingdom/ United States of America English 9,866,2293 You Are the Apple of My Eye (Na xie nian, wo China (Taiwan) Mandarin 7,975,1154 Pirates of the Caribbean: On Stranger Tides United States of America English (Spanish) 5,827,5105 Mission: Impossible - Ghost Protocol United States of America/ United Arab Emirates English (Russian/ Arabic) 5,704,3876 3-D Sex and Zen: Extreme Ecstasy (3D rou pu tuan China (Hong Kong) Cantonese 5,272,1667 Kung Fu Panda 2 United States of America English 5,071,6208 Sherlock Holmes United Kingdom/ United States of America/ English 3,531,4229 I love Hong Kong China (Hong Kong) Cantonese 3,425,52010 X-Men: First Class United States of America English (German) 3,325,094

C. Political GlobalizationMultinational Institutions

• We will draw data, research and analysis from global economic institutions.

• Key activity of all institutions include policy advice; economic analysis, and technical assistance and training to member gov’ts

• These institutions also important elements of global economic architecture.

Key IMF activities The IMF provides : • Short-term loans to countries facing financial or

currency crises• Support for G20

Link

Key World Bank Activities• Raises funds on world financial markets and makes

low interest loans to national and regional gov’ts for infrastructure projects to promote development.

• Receive donor funds and provide grants for improvement in health, education, environment or other social goals.

Link

Global Governance

• Final stage of globalization would be cooperative arrangements between countries regulating behavior of states.

• Examples– Financial Stability– WTO

Key BIS Activities• Act as a bank for central banks, holding foreign

reserves and facilitating central bank transactions• Hosting Basel committees on financial stability

Link and disseminating results.

http://www.bis.org/stability.htm

Main Duties of World Trade Organization• Negotiate Trade Agreements• Review Trade Policies• Settle Trade Disputes

Link to WTO

ALTERNATIVES TO GLOBALIZATION

“National System” of Political Economy

• German/American economist Friedrich List developed alternative to David Ricardo’s “comparative advantage” theory.

• Agriculture, no matter how productive, does not support the basis of a fully developed culture and society because it does not require, support, or reward advances in intellectual acumen. (see Chapter XII).

• A manufacturing industry changes the character of society and makes it more sophisticated.

• State intervention may be necessary to support manufacturing, certainly in building infrastructure, enforcing patents, but also in imposing tariffs to limit competition.

• Influenced by Alexander Hamilton’s Report on Manufactures which arguably led to a high tariff regime in 19th century USA. Link

Infant Industry Argument

• Free trade is ok for advanced economies. • But developed economies will not be able to

compete. • State must protect manufacturing until it is

time to “Kick Away the Ladder.” – Low tariffs on manufacturing inputs– Encourage immigration of skilled labor

Regionalism

• East Asian economies becoming integrated in terms of trade.

• Regional systems of governance developing.

Regional Development Banks

• Development Banks fulfill same role as World Bank but with regional focus

Regional Financial Architecture

Three elements of the emerging Asian architecture(A) liquidity provision—Chiang Mai Initiative

Multilateralization; (B) macroeconomic and financial surveillance—

Asean+3 Macroeconomics Research Office;(C) regional bond market development—Asian Bond

Markets Initiative;

Link: Finance & Development 2012

Link

Rising Trade within EM/Developing Economies