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Introduction To Globalization

This document provides an overview of the world economy and globalization. It discusses Japan and China's integration into the global economy through exports. It also examines the failure of communist systems in Eastern Europe and challenges faced by Latin America and Asian countries. The document defines globalization and outlines its catalysts and impacts on trade, services, and factor markets. It notes constraints to globalization like non-tradable sectors and environmental costs. Charts show global economic growth averaging 3% annually since 1980.

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24 views

Introduction To Globalization

This document provides an overview of the world economy and globalization. It discusses Japan and China's integration into the global economy through exports. It also examines the failure of communist systems in Eastern Europe and challenges faced by Latin America and Asian countries. The document defines globalization and outlines its catalysts and impacts on trade, services, and factor markets. It notes constraints to globalization like non-tradable sectors and environmental costs. Charts show global economic growth averaging 3% annually since 1980.

Uploaded by

ckcengiz00
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© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
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ECO 429 – WORLD ECONOMY

GLOBALIZATION

ZEYNEP YENER GÖK


HACETTEPE UNIVERSITY DEPARTMENT OF ECONOMICS
BRIEF PICTURES OF THE WORLD ECONOMY 1

- What is the way for a country to integrate


successfully into the international division
Japan was a closed economy. Opened itself
gradually however collapsed in WWII. Starting of labor?
with an export volume of 1% in 1950s, now - Which mechanisms cause an economy to
challenges North America and Europe.
produce goods that are demanded in the
In the last 25 years China integrated itself into world?
international division of labor and now has
6% of the exports. - Does continuous increase in export mean
increasing demand for the currency of the
country?
BRIEF PICTURES OF THE WORLD ECONOMY 2
After 1945 centrally planned economies of - What are the reasons for the failure of the
Eastern Europe were unable to grow and communist system?
eventually the communist systems - How can it be explained why the
collapsed economies could not catch up?

Latin America had positive GDP growth


rate in 1950s and negative since 1980s. - What are necessary ingredients for a
The four tigers of Asia grew since 1950s successful and sustainable growth?
until the Asian financial crisis. Since then
the growth rate has been volatile.
Sub-Saharan countries show no growth
BRIEF PICTURES OF THE WORLD ECONOMY 3

- What are the costs if a financial bubble


During Great Depression (1929) and Great
bursts?
Recession (2009) the world economy - Under what conditions the contagion is
experienced massive breakdowns.
inevitable?

During the two oil price shock in 1970s the - How does the world cope with such a
oil price increased almost 20 times sudden shortage of production factor?
compared to 1960s.
GLOBALIZATION 1
Globalization means a reduction in market segmentation and the increasing
interdependence of national markets.

• In terms of economic activity:


- Internationalization: an increase in the volume of economic flows across borders
- Liberalization: the removal of restrictions to cross-border flows, such as the
elimination of trade or investment barriers

• In terms of realm of knowledge and ideational dissemination:


- Universalization: particular ideas or principles being accepted by all people
- Westernization: the increasing prevalence of ideas and practices originating in
Europe or the US
GLOBALIZATION 2
• Deterritorialization: Territories are becoming less important to human affairs.
Increase in human interaction. Countries and
Technological easier and quicker travel
  regions moved closer to each other not in terms of
improvement across large distances
geography but relationship.

Territories are not disappearing but becoming less important to human interaction.

The lowering of time and distance barriers allows people to become involved in the
lives of other people in other parts of the planet much more easily.

Globalization is not occurring at the same rate and same pace in all countries or
regions.
GLOBALIZATION 3
CHANNELS OF INTERDEPENDENCE

• Product markets:
In the product markets countries trade exchanging exports and imports. Exports and
imports influence GDP, investment and employment. Thus, countries are interlinked in
the business cycle and in economic growth.
ie: A dynamic economy like the US stimulates exports of other countries
Expansion in US  production of export goods in other countries ↑  expansion in
export-oriented countries  production of export goods ↑  investment ↑ 
consumption and employment ↑
GLOBALIZATION 4
CHANNELS OF INTERDEPENDENCE

• Factor markets: Capital, technology and labor are allocated between countries.
capital leaves a country  factor quantity ↓  production potential ↓
 other country’s production potential develops
• Technology transfer: If the technology is transferred with exclusive ownership titles,
the country to which the technology is transferred can use it exclusively.
• Labor transfer: Need to distinguish between permanent and temporary migration.
Remittances (wages) are relevant.
• Natural resources are also allocated through international markets.
GLOBALIZATION 5
CHANNELS OF INTERDEPENDENCE

• Financial markets: Currency and money markets are essential for international
linkages.
• Demand for and supply of currencies determine the exchange rates and these
reflect trade and capital flows (ie. in the case of FDI).
• They also mirror bonds, bank loans.
• Expectations are vital and this interdependency may separate itself from the
real economy.

• Environmental systems: Pollutants are transported between countries. Cross-


border externalities or all countries are affected as in the case of global warming.
GLOBALIZATION 6

CATALYSTS FOR GLOBALIZATION

• Decrease in the transport and communication costs.

• Developments in the information technology

• Reduction of political tensions

• Transition of centrally planned economies of Central and Eastern Europe and the
opening of China

• Revision of national regulations regarding international trade and institutions.


IMPACT OF GLOBALIZATION 1
TRADE

• The allocation mechanism works globally, the international price differences will
lead to arbitrage.
• Increasing interdependence means not centralization of decisions but that
decisions now have to be made under different restrictions.
• More fragmentation in the production process means that the production
locations can be changes more easily.
• Growing intra-firm trade.
• Strengthen the arbitrage in inter-sector trade.
• Increasing importance of intra-sector trade.
IMPACT OF GLOBALIZATION 2
SERVICES
• Types of global services:
• Cross-border supply: A service like an international telephone call
• Consumption abroad: Consumers or firms of one country may use the service on another
country
• Commercial presence: A service may be supplied in another country
• Presence of natural persons: Individuals may travel to supply their service in another country.
• Distinction between border-crossing and local services mostly depends on tradable and
non-tradable goods. This distinction becomes relevant between ‘person-disembodied’
and ‘person-embodied’ services.
FINANCIAL MARKETS
• Portfolio capital is extremely mobile
IMPACT OF GLOBALIZATION 3
FACTOR MARKETS
• Capital mobility increased especially in the • Labor markets are becoming more global
form of FDI which is the forerunner of for those with high qualifications.
trade in commodities tomorrow.
CONSTRAINTS FOR GLOBALIZATION

• The sector of non-tradables


• Internationally immobile factors of production
• Preferences of households and entrepreneurs differ
• Internalizing the environmental costs may lead to increasing transactions costs
• The fear of global terrorism increases uncertainty
ECONOMIC CHANGE OF THE WORLD ECONOMY 1

Since 1980, economic growth has been at about 3 percent per year
ECONOMIC CHANGE OF THE WORLD ECONOMY 2

Since 1980, economic growth has been at about 3 percent per year

Source: Maddison, A. (2001), The World Economy: A Milleannial Perspective, OECD


ECONOMIC CHANGE OF THE WORLD ECONOMY 3
ECONOMIC CHANGE OF THE WORLD ECONOMY 4
ECONOMIC CHANGE OF THE WORLD ECONOMY 5
ECONOMIC CHANGE OF THE WORLD ECONOMY 6

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