ECON113: Economics of Globalization
EXAM PREPARATIONS
,Part 1. What makes countries and people trade?
Many theories from economists [week 1, 2 & 3]
Globalization
= greater interdependence between countries and their citizens
Increased internationals flows of:
- Economic elements
→ goods and services
→ people
→ investments in equipment, factories, stocks, bond
- Non-economic elements
→ culture
Driving forces:
- Technological change
- Multilateral trade negotiations (GATT/WTO)
- Continuing liberalization of trade and investment
- Widespread liberalization of investment transactions
- Development of international financial markets
First Wave of Globalization
1870 - 1914
- Decreases in tariff barriers
- Technological developments
→ declining transportation costs
→ driven by European and American businesses and individuals
- Ended by WWI
Second Wave of Globalization
1945 - 1980
- Nationalism motivated globalization
- Falling transportation costs increased trade
- Trade liberalization not uniform
→ mainly developed countries participated
→ manufactured goods were included
Most developing countries did not participate in growth of global trade in
manufacturing and services
→ continuing trade barriers in developed countries
→ unfavorable investment climates
→ antitrade policies of developing country governments
, → dependence on agricultural and natural-resource products
Developing countries as group left behind
Import Substitution
An industrialization strategy that used to be popular in the 50s and 60s (Mexico, Brazil, India,
etc.)
- If there are fertilizer imports, there should be a fertilizer factory
- Extensive use of trade barriers to protect domestic industries from import competition
- Rationale
→ exports from developing countries cannot compete with advanced countries,
especially with the high trade barriers
→ protect the infant industries will allow them to grow to a size where they can
compete with the developed countries
- Disadvantages
→ no incentive to increase efficiency (why improve if there’s no comparison)
→ discriminating against all other producers, including potential exporting ones
→ very difficult to remove restrictions once in place (industries are too dependent)
→ breeds corruption (the government “decides” which industries can be successful)
Abandoned by most countries by mid-80s
Third Wave of Globalization
1980 to present
- Many developing countries have participated (China, India, Brazil)
- Other developing countries; increasingly marginalized in world economy
- Significant international capital movement
- Global supply chain
→ production separated into stages or tasks that are undertaken in many countries
→ international production network
- Outsourcing
= subcontracting of work to another firm or the purchase of components for a product
rather than manufacturing them in order to reduce costs
Measuring Globalization
Openness index
- Rough measure of the importance of international trade in a nation’s economy
- Nation’s exports and imports as a percentage of its Gross Domestic Product (GDP)
EXAM PREPARATIONS
,Part 1. What makes countries and people trade?
Many theories from economists [week 1, 2 & 3]
Globalization
= greater interdependence between countries and their citizens
Increased internationals flows of:
- Economic elements
→ goods and services
→ people
→ investments in equipment, factories, stocks, bond
- Non-economic elements
→ culture
Driving forces:
- Technological change
- Multilateral trade negotiations (GATT/WTO)
- Continuing liberalization of trade and investment
- Widespread liberalization of investment transactions
- Development of international financial markets
First Wave of Globalization
1870 - 1914
- Decreases in tariff barriers
- Technological developments
→ declining transportation costs
→ driven by European and American businesses and individuals
- Ended by WWI
Second Wave of Globalization
1945 - 1980
- Nationalism motivated globalization
- Falling transportation costs increased trade
- Trade liberalization not uniform
→ mainly developed countries participated
→ manufactured goods were included
Most developing countries did not participate in growth of global trade in
manufacturing and services
→ continuing trade barriers in developed countries
→ unfavorable investment climates
→ antitrade policies of developing country governments
, → dependence on agricultural and natural-resource products
Developing countries as group left behind
Import Substitution
An industrialization strategy that used to be popular in the 50s and 60s (Mexico, Brazil, India,
etc.)
- If there are fertilizer imports, there should be a fertilizer factory
- Extensive use of trade barriers to protect domestic industries from import competition
- Rationale
→ exports from developing countries cannot compete with advanced countries,
especially with the high trade barriers
→ protect the infant industries will allow them to grow to a size where they can
compete with the developed countries
- Disadvantages
→ no incentive to increase efficiency (why improve if there’s no comparison)
→ discriminating against all other producers, including potential exporting ones
→ very difficult to remove restrictions once in place (industries are too dependent)
→ breeds corruption (the government “decides” which industries can be successful)
Abandoned by most countries by mid-80s
Third Wave of Globalization
1980 to present
- Many developing countries have participated (China, India, Brazil)
- Other developing countries; increasingly marginalized in world economy
- Significant international capital movement
- Global supply chain
→ production separated into stages or tasks that are undertaken in many countries
→ international production network
- Outsourcing
= subcontracting of work to another firm or the purchase of components for a product
rather than manufacturing them in order to reduce costs
Measuring Globalization
Openness index
- Rough measure of the importance of international trade in a nation’s economy
- Nation’s exports and imports as a percentage of its Gross Domestic Product (GDP)
