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 ??