1. Globalization What is it?
increasing integration of economies and societies around the world, particularly through trade and financial flows.
In purely economics sense, it essentially refers to economic integration – which occurs when countries lower trade and non-trade barriers and open themselves up to investment and trade with the rest of the world.

2. Globalization It’s an emotionally-charged word:
On one hand, it represents the key to economic development by some
On the other hand, some people believe it is anti-development because it increases inequality, threatens employment and living standards, and thwarts social progress.
How could one world have two diametrically different meanings?

3. Waves of Globalization
Globalization is a historical process:
The first wave lasted from 1870 to the start of World War I
sparked by advances in transport and reductions in trade barriers.
The level of exports to world income doubled to 8 percent as international trade boomed.

4. Waves of Globalization
A second wave of globalization lasted from about 1950 to 1980.
It focused on integration between rich countries as Europe, North America and Japan restored trade relations through a series of multilateral trade liberalizations.
Economies of OECD countries grew
Developing countries largely excluded from this wave of integration

5. Waves of Globalization
but has garnered a great deal of momentum since the 1980s. Why?
Because of two main reasons:
advances in transport and communications technologies.
choice of large developing countries to seek foreign investment and open themselves up to international trade

6. Globalization Examples of increased openness:
between 1980 and 1998, manufacturing rose from less than a quarter of developing country exports to more than 80 percent.
The more globalized developing countries saw their aggregate per capita growth rate rise from 1 percent in the 1960s, to 3 percent in the 1970s, 4 percent in the 1980s and 5 percent in the 1990s.
Other developing countries, home to about two billion people, actually experienced negative growth in the 1990s.

7. Globalization
Countries that strongly increased their foreign trade included Brazil, China, Hungary, India, Uganda, Vietnam and Mexico.
How deeply integrated are developing countries?
Consider 4 aspects of globalization:

8. Globalization Trade Capital movement Movement of people
Spread of knowledge and technology

9. 1. Trade

10. 1. Trade
Developing countries; share of trade – from 19% in 1971 to 29% in 1999.
Strongest rise in export of manufactured goods
NIEs in Asia have done well
Africa as a whole has fared poorly.

11. 2. Capital Movements

12. 2. Capital Movements
Increased private capital flows to developing countries in much the 1990s
Particularly “dry” period in the 1980s.
Net official flows of “aid” (development assistance) have fallen since the early 1980s.
Direct foreign investment has become the most important private flow.
Portfolio investment and bank credit rose and fell (financial crises of the late 1990s)

13. Movement of People
the proportion of labor force around the world that was foreign born increased about one-half (IMF, Jan 2002).
Most migration occurs between developing countries.
Flow of migrants to advanced economies offers potential for skills to be transferred back to the developing countries and for wages in those countries to rise.

14. Spread of Knowledge Information exchange: normally overlooked
Direct foreign investment brings expansion of the physical capital stock and technical innovation
In general, knowledge about production methods, management techniques, export markets and economic policies becomes available at very low cost.

15. Equalizer or driver of inequality and poverty?
During the 20th century, global average per capita income rose strongly but the distribution of income among countries has become more unequal than at the beginning of the century (IMF, World Economic Outlook, 2000).
Some studies (Nicholas Crafts, 2000) contend that the gap has narrowed when one uses the UNDP’s Human Development Index (HDI)

16. Equalizer or driver of inequality and poverty?
The evidence shows that
Most globalizing developing countries have seen only small changes in household inequality.
In the Philippines and Malaysia, inequality actually decreased.
Vietnam saw large increases in per capita income and no significant change in inequality.
But in Latin America, wage differences have widened.
Inequality also rose in China.

17. Globalization and Poverty Reduction
In China: The number of rural poor fell from 250 million in 1978 to 34 million in 1999.
In Vietnam: Surveys of the country's poorest households show 98 percent of people became better off in the 1990s.
In Uganda: Poverty fell 40 percent during the 1990s and school enrolments doubled.
But others failed to share the benefit of globalization….

18. The peripheries
Many countries in Africa have failed to share in the gains of globalization.
Their exports still predominantly primary commodities.
Why the failure?
Because:
poor policies and infrastructure, weak institutions and corrupt governance have marginalized these countries.
geographical and climatic disadvantage have locked some countries out of global growth

19. Adjustment costs of globalization?
Globalization certainly forces a lot of adjustment and produces adjustment costs, disruption of certain segments of society
Some fear the loss of cultural diversity – homogenization of culture and institutions.
There is not much hard evidence of that integration is leading to homogenization.
McDonaldization, trade in human parts?
Cultural interaction as part of globalization has been going on for a long time. e.g. Japan, Italian cuisine with tomato sauce (from New World) and garlic (from China)

20. Developing Countries vs Developed Countries
Despite some disruptions, majority of people in developing countries support globalization of some form – especially trade and direct investment.
The Pew Center’s global attitudes survey showed that in Sub Saharan Africa, 75 percent of households said they thought it was a good thing that multinational corporations were investing in their countries.
Vietnam was one of the most pro-globalization populations in the Pew Survey

21. How Can the Poorest Countries Catch Up More Quickly?
A policy matrix that includes:
Macroeconomic stability to create the right conditions for investment and saving;
Outward oriented policies to promote efficiency through increased trade and investment;
Structural reform to encourage domestic competition;
Strong institutions and an effective government to foster good governance;
Education, training, and research and development to promote productivity;

22. How Can the Poorest Countries Catch Up More Quickly?
External debt management to ensure adequate resources for sustainable development.
these policies should be focused on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgeted—including health, education, and strong social safety nets.

23. What can the developed world do?
Promoting trade.
Encouraging flows of private capital to the lower-income countries, particularly foreign direct investment
supplementing more rapid debt relief with an increased level of new financial support. Official development assistance (ODA) has fallen to 0.24 percent of GDP (1998) in advanced countries (compared with a UN target of 0.7 percent).

24. Conclusion Globalization involves both benefits and risks
integration is not simply an “either-or” choice. Countries can open up to trade and direct investment while managing other aspects of their relationship with the larger world economy.