1. Globalization - Who Gains, Who Gets Hurt, and Why It Matters
Montclair State University
College of Humanities and Social Sciences
World Cultures Day
Thursday, April 3, 2008
10:30-11:20 Session
Phillip LeBel, Ph.D.
Professor of Economics
Department of Economics and Finance
School of Business

2. What Is Globalization, and Why Is It Important?
Globalization is an expansion of economic interdependence through international trade and factor mobility that generally leads to higher levels of per capita income. Rising economic interdependence means that countries engaged in globalization can no longer afford to ignore events in other parts of the world and that they must craft policies that take into account both domestic policies and those of other countries around the world.
Globalization constitutes one of four ways that countries can raise per capita income. These factors are: a. an increase in the stock of inputs (land, labor, capital, and entrepreneurship), b. technological change, c. input specialization, and d. output specialization through international trade.
Measures to expand globalization must proceed in a coherent and coordinated fashion if all countries are to benefit. Absent such coordination there will be significant differences between gainers and losers that could create pressures to limiting or reversing the process. As such reversals occurred during the Great Depression of the 1930s and during the Second World war, one should not take for granted the challenges and opportunities that globalization presents.

3. International Trade, Investment, and Factor Mobility Show Rising Interdependence around the Globe
Global trade flows - in goods and services, in portfolio and direct foreign investment, and in international labor migration - have been rising in rough proportion to increases in Global Domestic Product levels. Some trends:
75 percent of global exports are among developed countries; 25 percent among developing ones
Developed countries export primarily manufactured goods, accounting for over eighty percent of their total and sixty percent of total world exports.
Developed countries export more primary products than developing countries and developing countries export more manufactured goods than primary goods.
The United States has increased its dependence on international trade from approximately 5 percent in the late 1950s to over 13 percent today. Because the United States has such a large economy, it accounts for the largest single market in international trade.
Because the United States also has run chronic trade deficits, when the U.S. also runs budget deficits, as it has done over several periods, foreigners increase their stock of dollar reserves. These rising stocks often have been used to finance U.S. Treasury deficits.

4. Foreign Direct Investment Flows Increase From Developed Countries to Emerging and Developing Economies

5. Rising Trade and Payments Imbalances in the U. S. Reduce U. S
Rising Trade and Payments Imbalances in the U.S. Reduce U.S. Monetary and Fiscal Policy Independence

6. Most U.S. Trade Remains Among Developed Countries, the Exception Being the Rising Share of Imports from China and India

7. 1. Net Immigration from Developing to Developed Countries Increases with Globalization 2. Immigration Rates Depend on Differences in Rates of Growth Across Regions and in Differences in Levels of Real Per Capita Gross Domestic Product

8. Globalization Creates Changes in Relative Prices
Although the United States is the largest consumer of crude oil, falling domestic production rates combined with higher growth in global demand have produced rising real prices that are now reaching those of the early 1970s and may continue to do so for the foreseeable future. Such increases in crude oil place renewed pressure on trade dependence, and on the search for more sustainable energy and environmental policies.

9. Energy Consumption Depends on the Level of Income and Relative Prices
Energy conservation starts with the proposition that consumers will respond rationally to the price of energy, given alternatives and the level of income. As long as rapidly growing economies such as China and India increase the demand for energy, pressure on the United States to improve conservation will expansion. This pressure reflects two considerations:
Growing dependence on imported energy
The growing impact of global warming as more countries increase their dependence on fossil fuels

10. Globalization and the Environment: 1
Globalization and the Environment: 1. Globalization That Produces Higher Levels of Per Capita Income Increases the Rate of Energy Consumption In Turn, Rising Energy Consumption Increases Environmental Emissions that Add to Global Warming. 3. Global Warming and Rising Populations Threaten Habitats that Result in a Loss of Biodiversity.

11. Globalization and Inequality: 1
Globalization and Inequality: 1. Globalization can produce rising average levels of per capita income for the world. 2. Because policies and levels of risk differ across countries, globalization may initially cause rising inequality across countries. 3. It also can produce rising inequality within countries for the same reasons. 4. Policies that are designed to raise per capita incomes through globalization need to take measures to see that the benefits are broadly distributed.

12. Measures for Successful Globalization
Countries need to work in concert to bring about harmonization of monetary, fiscal, and trade policies that provide broadly distributed global gains. This means close cooperation among the G-8 major countries, and the WTO trade framework.
Banking and financial accounting standards need to be developed for transparent capital flows that provide accurate information for an efficient allocation of investment. This means adopting and upholding capital adequacy ratios consistent with prevailing norms, as in the Basel Accords framework.
Countries need to work through international organizations such as the WTO to ensure that trade benefits are universally upheld. This means the extension wherever possible of global agreements rather than side agreements that skew the benefits of trade and investment.
Political measures that improve transparency, including greater clarity in property rights, electoral accountability in government, and judicial independence are essential if globalization is to deliver on the promise of broad-based gains.
Finally, it means a commitment to maintaining sufficient liquidity in global financial markets that results in non-inflationary sustainable growth in ways that also strengthen environmental quality and promote broad-based gains.

13. Above All, Globalization Requires a More Sophisticated Understanding of the Global Economy than We Have Sometimes Displayed
As globalization expands, the United States can not afford to adopt simplistic attitudes in foreign policy choices. Avoiding such simplistic notions requires that one take into account differences in cultures, in economic conditions, and the varying policies in different parts of the world. Above all, it requires that one not forget John Donne’s dictum: “…No man is an island, entire of itself…any man’s death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee”*.
*Meditation XVII, 1624. ≠