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VII. A International Economic Relations and the Developing Countries:
THE "GLOBALIZATION" PHENOMENON
Arch RitterECON 3508 November 2015
[Source: See Text, pp. 600-603]
Outline:
I. DEFINITION AND CHARACTERISTICSII. HISTORICAL PRECEDENTSIII. CAUSAL FORCES UNDERLYING THE
PROCESSIV. GENERAL CONSEQUENCESV. POLICY RESPONSES TO GLOBALIZATION VI. THE FUTURE
I.DEFINITION AND CHARACTERISTICS
What is “Globalization”?
I.DEFINITION AND CHARACTERISTICS
What is “Globalization”?
- the increasing economic, social, political and cultural integration of the peoples and nations of the world?
II. HISTORICAL PRECEDENTS? Earlier periods of integration have occurred
Early Empires: Alexander the Great; Pax Romana?Inca and Aztecs, Chinese and Mogul EmpiresBritish Empire; Spanish Empire; Napoleonic France; Russian Empire? Soviet Empire?1870 - 1914 economic integration of much of the
world?Growing economic interaction from 1945 to 1995.
Human Migrations since 120,000 BC
III. CAUSAL FORCES UNDERLYING THE PROCESS
But the process more recently has accelerated;
What are the forces driving the process of “globalization”?
Qingdao Port, China
III. CAUSAL FORCES UNDERLYING THE PROCESS
A. Technological Changes:– declining international communication and transportation
costs;– extreme reductions in information processing costs;– ever-increasing economies of scale in manufacturing;– Emergence of China as workshop of the world
B. Multinational CorporationC. Intensified Global Economic Governance:
– establishment of WTO and role of IFIs– Multilateral and regional Integration Agreements to
diminishing trade barriers of many sorts;– diminishing barriers to international flows of capital and
enterprise;– Increasing international migration despite maintenance of
barriers
C. Global Shift in Conventional Wisdom • towards economic “apertura” and• expanded role for market forces?
Disputed by anti-globalizers
D. Consumer Sovereignty also drives process almost everywhere
E. End of most of the “Cold War”
and in consequence:
• Rapid expansion of international trade globally, among developing countries, and between developed and developing countries;
• Even more rapid increases in international capital movements, including equity, bank credit, currency trading, remittances, and foreign direct investment;
• Rapid learning and transfer of technology through trade in capital goods, direct foreign investment, education and research and development; – Especially Information and Communications
Technology• Continuing international migration flows, from
developing to developed countries but also among developing countries;
Mechanism’s of Globalization1. Trade2. Technological transfer3. Capital flows and Direct foreign
investment (in part via multi-national corporations)
4. Migration and Remittances5. Information and Communications
Technology
1. Trade. For example
Where Wal-mart gets its products; Source: http://sasi.group.shef.ac.uk/worldmapper/display.php?selected=38
2. Technological TransferHow is Technology “Transferred”?
– Trade in capital and consumer goods that embody technologies of various sorts
– Direct Foreign Investment– Licensing arrangements– Education, at home, abroad and return– Books, communications media
3. Capital Flows and DFI
Significant capital flows in 2000sNote: International financial integration;Direct Foreign Investment (DFI), Loans,
Portfolio investmentConcentrated in resource rich countries and
LDC manufacturing centersDebt burden has been declining due to
write-offs, increases in exports and GDP, lower interest rates
Trends in Foreign Direct Investment
“Outsourcing's Third Wave“: Land Acquisitions
4. Migration and Remittances
But note “Reverse Remittances”
“Capital Flight” – Paul Collier: Many African countries’
citizens hold substantial amounts of their wealth outside their countries.
– How much? Impossible to know for sure;Motivation? Security, financial, political and
economic; Conserve wealth and incomes in “safe havens”
5. Information and Communications Technology
IV. GENERAL CONSEQUENCES• Restructuring of the International Division of
Labour and the Structure of the International Economy:– migration of labour-intensive industries to
developing countries, – the development of advanced clusters of export-
oriented economic activities in some developing countries
– Major job-loss in labour-intensive tradable industries in higher income countries
– Major job-creation in such industries in developing countries, most notably to China, , and upward pressure on real wage and income levels.
Possible Positive Developmental Implications
What are they?
Possible Positive Developmental Implications
1. Promotion of economic growth.Stimulation of employment generation in successful
manufactures-exporting countries;
2. Productivity gains promote higher real incomes;
“A rising tide lifts all boats?”
Reductions of poverty with growing economies;
note China, South Korea, Hong Kong Singapore………..
Note: the “Factor Price Equalization Theorem”
Implications of Participating in Globalization Process, cont’d
Positive effects, cont’d:3. Increased tax revenues accompanying economic
growth and thence ….. Increased public expenditures in health, education, water,
infrastructure
4. Intensified learning from international sources5. General improvements in many socio-economic
indicators, - but not enough7. Greater capability to defend national cultures?
Maybe, but also greater homogenization of cultures
Implications of Participating in Globalization Process, cont’d
Negative or Problematic effects?What are they?
Implications of Participating in Globalization Process
Problematic effects:1. Vulnerability to world economic downswings, via export
volumes and prices• But perhaps no more than previously• Note possible insulation of LDC banking systems from
contagion2. Loss of sovereignty to international institutions (IMF, WB,
WTO)?• But economic strengthening also improves the
capabilities of governments, domestically and internationally
3. Countries become more vulnerable to actions of high income trading partners
• But protectionism has been falling• WTO-sponsored trade liberalization would
obstruct attempts at protectionism
4. Do increased trade and foreign investment simply exploit developing country workers?
• Common claim from the left• Counter-arguments are powerful
Possible Negative Consequences 1. Cosmopolitanization and simultaneous
homogenization of cultures in many countries? “Westernization?” Commercial Consumerism implanted everywhere?
Loss of indigenous cultures, languages and ways of life?
2. Accumulation of economic power by large corporations?
3. Reduced national capabilities for economic policy-making? (monetary and exchange rate policy?)
5. Widening International Income Disparities?Growth of hyper-ultra rich in globalized context
6. Greater macroeconomic and employment insecurity and instability due to of contagion and financial volatility?
7. Accelerated international transmission of human, plant and animal disease?
8. Possible intensification of some environmental problems e.g. natural resource stripping for exportation
WORLD Distribution of Wealth
Source: Oxfamhttp://www.commondreams.org/views/2015/10/22/-wealth
Impacts on High Income Countries:1. “De-industrialization”: migration of economic
activities to low-wage countries (also services)2. “Blue-collar” and “pink-collar” (service sector) Job
loss and downward pressure on wages to labour in high income countries
Note the “Factor-Price Equalization Theorem” (Paul Samuelson, 1955)
3. Worsening income disparities between “globally-skilled” workers and “globally-excluded”
4. “Rust-belt” type problems of regional development;5. Low-cost products and services;
(Note role of super-sized retailing systems)
POLICY RESPONSES TO GLOBALIZATION 1.Promote Human Development 2.Improve management of international economic
destabilization and volatility3. Stronger action supporting security (re crime,
environment, natural disaster, and disease.)4. Reverse the marginalization of small poor countries5. Promote technological innovation and diffusion in
support of poor people and countries6. Improve and democratize global governance.
6. THE FUTURE?The Nation State: • delegation upwards and downwards of functions,
to regional and global governments. Where does that leave the nation state?
Communications: • the 500-channel universe + video/camcorder, plus
“social media”, computer technology, the web, skype, etc. etc.: Does this lead to cultural and linguistic homogenization or renewed diversity?
Global "factor price equalization" and "convergence" of living standards throughout the world ??
Ultimately, with rising energy prices and rising transport costs, will renewed localization of economic activity be stimulated ??
But when ??