1、1The International Economy and GlobalizationIntroduction Economic Interdependence Caused due to increased integration of market economies Reflects the evolution of global economic and political order US dominance post World War II Formation of European Community(1950s)Rising importance of MNCs(1960s
2、)Market power of OPEC(1970s)Creation of the euro Globalization of Economic Activity Globalization Greater interdependence among countries and their citizens Consists of increased integration of products and markets across nations Includes noneconomic elements such as culture and the environmentForce
3、s Driving Globalization Technological change Shrinks the influence of time and geography Greater tradability of goods and services Liberalization of trade and investments Lower trade barriers Development of international financial markets Significance of global production sharing Accounts for 30 per
4、cent of world tradeWaves of Globalization First wave:1870-1914 Decrease in tariff barriers and introduction of new technologies Largely driven by Europe and America Exports as a share of world income nearly doubled to about 8 percent Per capita incomes rose by an annual average of 1.3 percent as aga
5、inst 0.5 percent earlier Great Depression and increase in protectionism Exports as a share of national income fell to about 5 percentWaves of Globalization Second wave:1945-1980 Decrease in transportation costs Government cooperation to decrease trade barriers Discriminated both in terms of which co
6、untries participated and which products were included Developing countries faced sizable barriers in manufactured goods Developed countries registered productivity gains through agglomeration economies Developing countries did not participateContinuedWaves of Globalization Latest wave:began in 1980
7、Developing countries focus on manufacturing Tariff cuts by developed countries Liberalized foreign investment policies Increasing marginalization of some developing countries Significant international capital movements Less globalized labor flows Foreign outsourcing(Table 1.2)Example:Manufacturing a
8、t HP(Table 1.1)ContinuedBackBackUnited States:An Open Economy US economy has become increasingly integrated into the world economy Trade of goods and services Financial markets Labor force Ownership of production facilities Dependence on imported materialTrade Patterns Globalization of US economy(Ta
9、ble 1.3)Increased imports as well as exports US ranks as the worlds greatest exporter Openness:The nations exports and imports expressed as a percentage of its GDP(Table 1.4)BackBackTrade Patterns Openness of US economy(Figure 1.1)Late 1800s:Relatively high due to rise in world trade Between 1890 an
10、d 1950:Less open to world trade Post World War II:Increasing openness due to technological advances and reduction in barriers Relative importance of international trade has increased by 50 percent during the past century Shift in trade patterns From raw materials and agricultural products(1890s)to m
11、anufactured goods and services(today)Leading trade partners of U.S(Table 1.5)ContinuedBackBackLabor and Capital Labor mobility Has not increased in the US in the past 100 years due to restrictions on immigration 1960s:Restrictions were liberalized Capital flows Foreign ownership of U.S.financial ass
12、ets has risen since the 1960s By the late 1980s,the United States became a net borrower Labor and Capital Capital flows Increased international banking Unbroken 24-hr cycle of Foreign-exchange markets Commercial banking Worldwide branch networks of U.S.banks Increased presence of foreign banks in th
13、e U.S.Globalized operations of securities firmsContinuedImportance of Globalization Competitive advantage Gain by focusing on doing those things where there is a relative advantage Gain from competitive processes Innovation and efficient production Weakening of monopolies Higher firm turnover Stabil
14、ity for producers Vulnerability to disturbances initiated overseasFallacies of International Trade Trade is a zero-sum activity Imports reduce employment and act as a drag on the economy;exports promote growth and employment Tariffs,quotas,and other import restrictions will save jobs and promote a h
15、igher level of employmentFree Trade:Cigarettes Controversies underlying the decision on free trade of cigarettes Health concern:Tobacco should be treated as an exception to trade rules Manufacturers view:There is no basis for creating new regulations that weaken the principle of open trade protected
16、 by the WTO Current trade rules permit countries to enact measures to protect the health and safety of their citizensInternational Competitiveness Competitiveness:The extent to which goods of a firm or industry can compete in the marketplace Depends on the relative price and quality of products Asse
17、ssing the competitiveness of a nation:What criteria underlie a nations international competitiveness?Must all of its firms and industries be competitive?Does a nation have to export more than it imports to be competitive?International Competitiveness Primary economic objective of a nation:Generate a
18、 high and increasing standard of living for its people Depends on achieving high productivity of its employed resources Channel resources from low-productivity uses to high-productivity uses Both imports and exports are necessary for rising productivityContinuedCompetition,Productivity,and Economic
19、Growth McKinsey research provides evidence that the surest path to high productivity is to:Open markets to trade,investment,and ideas from the most advanced nations Permit vigorous competition with firms that have implemented leading-edge technologies Economists agree that growth rates are closely r
20、elated to:Openness to trade,education,and communications infrastructure(Figure 1.2)BackInternational Trade:An Opportunity International trade benefits many workers Enables them to shop for consumption goods that are cheapest Permits employers to purchase the technologies and equipment that best comp
21、lement their workers skills Allows workers to become more productive as the goods they produce increase in value Producing goods for export generates jobs and income for domestic workersInternational Trade:A Threat Not all workers gain from international trade Rise in unemployment and wage inequalit
22、y Loss of jobs because of cheap exports produced by lower-cost,foreign workers Relocation of firms abroad in search of low wages and lax environmental standards Wages tend to:Increase for workers whose skills are more scarce internationally than at home Decrease for workers who face increased compet
23、ition from foreign workersInternational Trade:An Opportunity or Threat to Workers?International trade is just another kind of technology If international trade is squeezing the wages of the less skilled,so are other kinds of advancing technologyBacklash Against Globalization Critics:U.S.policies pri
24、marily benefit large corporations Environmentalists:Elitist trade organizations make undemocratic decisions undermining national sovereignty on environmental regulation Unions:Unfettered trade permits unfair competition from nations lacking labor standards Human rights activists:Trade organizations
25、support governments that allow sweatshops and pursue policies that bail out governmental officials at the expense of local economiesBacklash Against Globalization Noneconomic aspects:Political and military dominance of the U.S.Influence of foreign culture Perceptions appear to be closely related to
26、the labor-market pressures Americans consider costs to be more than benefits Less-skilled workers are much more likely to oppose free trade and immigration Less-skilled workers have been gravely affected in terms of wage-growth levels Pros and cons of globalization(Table 1.6)ContinuedBackTerrorism J
27、olts the Global Economy Threat of terrorism:Americans became increasingly concerned about their safety and livelihoods Critics:Globalization has excluded many of the worlds poor nations,and this calls for a reform Concerns:Conflict might undo the process of globalizationImpact of Terrorism on the Gl
28、obalEconomy Globalization could become slower and costlier Increased insurance and security costs Heightened border inspections:slow shipments of cargo and increase in inventory Tighter immigration policies New investments will be affected by greater preoccupation with political risk International trade as a long-run weapon in the war against terrorismContinued
