1. Introduction to International Relations International Relations Globalization and Inequality Jaechun Kim

2. Globalization, Growth, and Inequality Definition of Globalization Revisited: What Is It? Definition of Globalization Revisited: What Is It? One of the most hotly debated issues of today’s world… One of the most hotly debated issues of today’s world… Both proponents and opponents… Both proponents and opponents… The term entered the scholarly jargon in the 1980s… but lack of clear definition … The term entered the scholarly jargon in the 1980s… but lack of clear definition … To some Globalization means integration of economies, but to others it also means political and culture integration… To some Globalization means integration of economies, but to others it also means political and culture integration…

3. (Economic) Globalization Increasing integration of economies around the world, particularly through free trade and financial flows… Increasing integration of economies around the world, particularly through free trade and financial flows… This is the definition that we will use today… This is the definition that we will use today…

4. Economic Globalization has taken on many different forms (mainly 3 forms) International Trade: Share of international trade in total output among developed countries Share of international trade in total output among developed countries 27 percent in 1987  48 percent in 2004 Among developing countries – 10 %  20 % Among developing countries – 10 %  20 %

5. FDI World FDI flows tripled between 1988 and 2004 World FDI flows tripled between 1988 and 2004 US $ 192 billion  US $ 710 billion US $ 192 billion  US $ 710 billion The share of FDI to GDP is rising in both developed and developing countries The share of FDI to GDP is rising in both developed and developing countries About one third of total FDI is going to the developing countries About one third of total FDI is going to the developing countries FDI is the largest form of private capital inflow to developing countries FDI is the largest form of private capital inflow to developing countries

6. Capital Market Flows Diversification of portfolios including foreign financial assets… Diversification of portfolios including foreign financial assets… Borrowers look for foreign sources of funding… Borrowers look for foreign sources of funding… Most volatile feature of Economic Globalization… Most volatile feature of Economic Globalization… Asian Financial Crisis of the 1990s… Recent financial crisis… starting from Lehman brothers…

7. Each aspect of Econ Globalization (i.e., intl free trade, FDI, short-term K movement) raises distinct issues and distinct consequences… You can favor openness in trade, but not in FDI and short-term K movements You can favor openness in trade, but not in FDI and short-term K movements Or favor openness in trade and FDI, but not short-term K movements Or favor openness in trade and FDI, but not short-term K movements Or favor all three… Or favor all three… Or reject all three… Or reject all three… Is (Economic) Globalization a Wholly a New Thing? What about economic globalization of the 19 th century? What about economic globalization of the 19 th century?

8. The differences between Economic Globalization of 19 th c. and Economic Globalization of today? limited players in the late 19 th century… it was basically European affair… limited players in the late 19 th century… it was basically European affair… Today’s Globalization is more global… Today’s Globalization is more global… limited degree of financial integration in the late 19 th century… limited degree of financial integration in the late 19 th century… Today financial services are far more developed and far more deeply integrated…. Today financial services are far more developed and far more deeply integrated….

9. What caused today’s trend toward Economic Globalization? The role of technology? Technological developments are the driving forces…??? The role of technology? Technological developments are the driving forces…??? American hegemon? (HST) creating and maintaining liberal international economic order in post WWII era.. American hegemon? (HST) creating and maintaining liberal international economic order in post WWII era.. International Regime? (similar to functional theory…) International Regime? (similar to functional theory…) Collective interests of the firms (MNCs)? (Helen Milner) Collective interests of the firms (MNCs)? (Helen Milner)

10. One of the greatest problems in the world is poverty. Economic Globalization and World Poverty: Does More Economic Globalization Increase World Poverty? Or Reduce it? Impact of economic globalization varies from one country to another… !!! Impact of economic globalization varies from one country to another… !!! Does openness in trade raise (overall) growth within a state? 1 percentage point increase in ratio of trade to GDP  2 percentage point increase in per capita income (Figure 3) 1 percentage point increase in ratio of trade to GDP  2 percentage point increase in per capita income (Figure 3) Consensus that greater openness raises growth within a nation… e.g. KORUS FTA Consensus that greater openness raises growth within a nation… e.g. KORUS FTA

12. Economic growth and poverty reduction: Does more openness worsen income inequality (within states)? Poverty may increase despite growth… Poverty may increase despite growth… Figure 1 – relationship between poverty reduction and economic growth Figure 1 – relationship between poverty reduction and economic growth

14. Must growth come at the expense of equity? (the relationship between changes in equality and growth) Must growth come at the expense of equity? (the relationship between changes in equality and growth) Developing countries have feared this… Developing countries have feared this… Figure 2 – no correlation between growth and change in inequality Figure 2 – no correlation between growth and change in inequality The relationship between changes in equality and openness (free trade) Figure 4 – no correlation between openness and changes in equality (Gini)… Figure 4 – no correlation between openness and changes in equality (Gini)…

16. Caveats: Controversy over what influences income inequality… we don’t know for sure what influences inequality… Controversy over what influences income inequality… we don’t know for sure what influences inequality… Openness does not necessarily ensure that the benefits of increased efficiency and growth are distributed equally… Openness does not necessarily ensure that the benefits of increased efficiency and growth are distributed equally… Stolper-Samuelsson Theorem – factor endowment and free trade… Stolper-Samuelsson Theorem – factor endowment and free trade…

17. Openness benefit owners of factors in which that society is abundantly endowed, whereas it harms owners of factors in which a society is poorly endowed… (SS theorem) Openness benefit owners of factors in which that society is abundantly endowed, whereas it harms owners of factors in which a society is poorly endowed… (SS theorem) Some other factors which contribute wealth distribution other than factor endowment… Many intervening variables! Some other factors which contribute wealth distribution other than factor endowment… Many intervening variables! Governments’ policies Governments’ policies Educational and vocational training programs… Social safety nets… Restriction of openness, is it desirable way to help (negatively) affected sectors?

18. It can be very costly way of helping affected workers… It can be very costly way of helping affected workers… Globalization and Inequality between Countries? (North-South relations): Has Globalization increased inequality between states? 1960: the average per capita GDP in the richest 20 countries was 15 times that of the poorest 20 1960: the average per capita GDP in the richest 20 countries was 15 times that of the poorest 20 2001: the average per capita GDP in the richest 20 countries was 32 times that of the poorest 20. 2001: the average per capita GDP in the richest 20 countries was 32 times that of the poorest 20. What is to blame? Openness? What is to blame? Openness? Figure 5 Figure 5

20. Does openness explain why poor countries got poorer? Does openness explain why poor countries got poorer? Figure 5! Problem for many of the poorest countries – the exclusion from the process of Globalization… Problem for many of the poorest countries – the exclusion from the process of Globalization…