Globalization: The Ups and Downs of Globalization or World economic integration Globalization: The Ups and Downs of Globalization or World economic integration

Globalization results  Increase in the importance of international trade  Increase in the movement of capital  Increase in labor migration  Increase in regional integration

Benefits of Trade  Specialization of production

Jose the Wheat Farmer  Specialize

Teresa the Baker  Specialize

Specialization leads to efficiencies. The Law of Comparative Advantage

Where does Comparative Advantage Come From? Differences in: Differences in: Climate and natural resourcesClimate and natural resources Relative abundance of labor and capitalRelative abundance of labor and capital TechnologyTechnology External economiesExternal economies (External economies are a reduction in a firm’s costs that result from an expansion in the size of an industry)

How technology affects Global Trade:  Information Technology collaborative work collaborative work communication communication  Transportation Technology of people of people of goods and services of goods and services

The Gains of Globalization  Who gains?

The Balance of Payments: Linking the United States to the International Economy Learning Objective 29.1 The Current Account FIGURE 29.1 Trade Flows for the United States and Japan, 2006

Does it raise all Boats?  Are you better off?

The International Sector and Learning Objective 29.3 FIGURE 29.4 U.S. Imports and Exports, 1970–2006

An Overview of International Trade U.S. International Trade in a World Context The Eight Leading Exporting Countries

An Overview of International Trade U.S. International Trade in a World Context

The Unintended Consequences of Banning Goods Made with Child Labor Would eliminating child labor in developing countries be a good thing?

Government Policies That Restrict Trade The Argument over Trade Policies and Globalization “OLD-FASHIONED” PROTECTIONISM Protectionism The use of trade barriers to shield domestic companies from foreign competition.  Saving jobs  Protecting high wages  Protecting infant industries  Protecting national security

Trade Agreements NAFTA – North America Free Trade – soon AFTA? Amero? European Union – 28 countries - 12 Euro CAFTA - Central America Free Trade

The Current Exchange Rate System The Euro Countries Adopting the Euro

International Capital Markets Learning Objective 30.3 FIGURE 30-6 The Distribution of Foreign Purchases of U.S. Stocks and Bonds by Country, 2006

Summary: Benefits of Trade Specialization Foreign Investment Competition Higher Standard of Living

Costs of Globalization  Who loses?

What about the sinking ships?

Household income Working more and getting less.

The Lorenz curve and the Gini Coefficient (

In the US  1967: (first year reported) 1967  1968: (lowest coefficient reported) 1968  1970:  1980:  1990:  2000:  2005: (most recent year reported; highest coefficient reported)[3] 2005

Compared with other countries...  Country1980 Gini2000 Gini China India USA

Hot off the presses... “Gap between rich, poor seen growing Income disparity reaches highest since 1920s, paper reports, with recent Wall Street boom partly to blame.” (CNNMoney.com)  The figures, based on "adjusted gross income" which incorporates certain deductions such as contributions to individual retirement accounts, revealed that the income level for the tax filer in wealthiest 1 percent of Americans grew 3 percent...between 2000 and 2005, according to the Journal.  At the same time, the median American income, however, slipped 2 percent during that same period... ...was due a combination of factors including globalization and technical advances...

Another measure of well being: Wages

A Race to the bottom?

Real Median Wage in 1973: $12.45 Real Median Wage in 2000: $12.90 Up nearly 1/3 of a percent! Is that good? Well...

Factors That Affect the Equilibrium Exchange Rates  A difference in income growth rates  Differences in relative inflation rates  Changes in real interest rates

In the same time period  GDP per person went up 72%  Global Trade as a percent of GDP doubled

To put it in perspective  Between 1948 and 1973 real median wage increased 80%

The Environment

Deforestation

Avoiding Pollution Regulations

We are all affected

Acceleration of Global Warming

Adaptation

Homogenizing Properties of Globalization

Questions?Comments?