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Globalization & Introduction. Three dimensions of globalization Economic Globalization increasing cross-border trade in goods, services and financial.

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Presentation on theme: "Globalization & Introduction. Three dimensions of globalization Economic Globalization increasing cross-border trade in goods, services and financial."— Presentation transcript:

1 Globalization & Introduction

2 Three dimensions of globalization Economic Globalization increasing cross-border trade in goods, services and financial capital. Cultural Globalization increasing movements of knowledge, culture and people across borders. Political Globalization increasing international governance

3 Source: Importance of Trade Grows

4 SOURCE: PRELIMINARY REPORT: 27 JULY 2011, BIS REPORTING BANKS Perspectives on Financial Globalization



7 Perspectives on Globalization Positive: Increases access, competition Negative: Increases inequality, risk IMF: Link Birdsall LinkLink

8 Why Now? Transportation and Communication costs declining. ( Containerization, Link; Fiber optic; New York Times)Link New York Times Ideology (success of export led growth strategies, collapse of Soviet communism, post-Cold War dominance of Western countries).

9 Link

10 Comparative Advantage Example England is better at making both cloth and wine than Portugal. It has an absolute advantage in both products. But compared to other products, wine is the product in which Portugal is relatively strongest. Products per Worker Workers Productivity England60Wine2 Cloth6 Portugal120Wine1 Cloth1

11 If England makes 1 additional cask of wine, they give up the opportunity to make 3 bolts of cloth. If Portugal makes an additional cask of wine, they need only give up 1 bolt of cloth. This lower opportunity cost of producing wine in Portugal is a comparative advantage. England has a comparative advantage in producing cloth. To make an additional bolt, they must only give up 1/3 of a cask of wine.

12 If England trades 48 bolts of cloth to Portugal in exchange for 24 casks of wine, both countries can consume more of all goods. Concentration on producing goods with comparative advantage and trading with others with different comparative advantage is mutually advantageous. No Trade ConsumptionWorkers EnglandWine9045 Cloth9015 PortugalWine60 Cloth60 Trade ConsumptionWorkers EnglandWine9636 Cloth9624 PortugalWine7296 Cloth7224

13 Declining Tariff Rates

14 B. Cultural Globalization Globalization Index

15 Hollywood Movies a Global Business Link

16 C. Political Globalization Multinational Institutions We will draw data, research and analysis from global economic institutions. Key activity of all institutions include policy advice; economic analysis, and technical assistance and training to member gov’ts These institutions also important elements of global economic architecture.

17 Key IMF activities The IMF provides : Short-term loans to countries facing financial or currency crises Support for G20 Link

18 Key World Bank Activities Raises funds on world financial markets and makes low interest loans to national and regional gov’ts for infrastructure projects to promote development. Receive donor funds and provide grants for improvement in health, education, environment or other social goals. Link

19 Global Governance Final stage of globalization would be cooperative arrangements between countries regulating behavior of states. Examples –Financial Stability –WTO

20 Key BIS Activities Act as a bank for central banks, holding foreign reserves and facilitating central bank transactions Hosting Basel committees on financial stability Link and disseminating results. Link

21 Main Duties of World Trade Organization Negotiate Trade Agreements Review Trade Policies Settle Trade Disputes Link to WTO


23 “National System” of Political Economy German/American economist Friedrich List developed alternative to David Ricardo’s “comparative advantage” theory. Agriculture, no matter how productive, does not support the basis of a fully developed culture and society because it does not require, support, or reward advances in intellectual acumen. (see Chapter XII). Chapter XII

24 A manufacturing industry changes the character of society and makes it more sophisticated. State intervention may be necessary to support manufacturing, certainly in building infrastructure, enforcing patents, but also in imposing tariffs to limit competition. Influenced by Alexander Hamilton’s Report on Manufactures which arguably led to a high tariff regime in 19 th century USA. LinkLink

25 Infant Industry Argument Free trade is ok for advanced economies. But developed economies will not be able to compete. State must protect manufacturing until it is time to “Kick Away the Ladder.” –Low tariffs on manufacturing inputs –Encourage immigration of skilled labor

26 Regionalism East Asian economies becoming integrated in terms of trade. Regional systems of governance developing.

27 Regional Development Banks Development Banks fulfill same role as World Bank but with regional focus

28 Regional Financial Architecture Three elements of the emerging Asian architecture (A)liquidity provision—Chiang Mai Initiative Multilateralization; (B)macroeconomic and financial surveillance— Asean+3 Macroeconomics Research Office; (C)regional bond market development—Asian Bond Markets Initiative; LinkLink: Finance & Development 2012

29 Link

30 Rising Trade within EM/Developing Economies

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