1. Global Markets and State Power
A New Economic Order?

2. Emergence of Global Economic Order
Interwar period ( )
High tariffs on imported goods to protect the national economy
Bretton Woods System ( )
Controlled capitalism
Stable monetary exchange system (US dollar fixed to gold)
States free to control permeability of borders
Expansion of international trade
Expansion of welfare state : government undertakes economic action to ensure the provision of social goods and services
Collapse of gold-based fixed rate system in 1971.

3. Emergence of Global Economic Order
Neoliberalism (1980s—)
State intervention distorts the natural efficiency of markets
: collapse of communism
Privatization of public enterprises
Deregulation of the economy
Liberalization of trade and industry
Tax cuts
Anti-inflationist monetary policy
Control on organized labor
Reduction of social spending
Expansion of international markets
Removal of controls on global financial flows.

4. The Advance of deregulation and liberalization, 1980-98

5. Recent Trends in World Trade
World trade has grown faster than world output.

6. Recent Trends in World Trade
Merchandise Exports as percentage of GDP ( )
Trade involves a larger number of countries and sectors
Growing share of developing economies
Expanded array of tradable goods and services

7. Recent Trends in World Trade
A new geography of trade
Changing location of manufacturing production to developing countries
OECD economies experience a significant rise in trade in services.
OECD countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.
Expansion in trade between developing country economies
Dominance of intra-industry trade
Fragmentation and outsourcing of production: Outsourcing: contracting out a business function to an external provider

8. Who picks up the phone?

9. Globalization or Regionalization?
Degrees to which regions trade within their own region or with others outside it.

10. Globalization or Regionalization?
Why is regionalization a concern?
Trade diversion
Zero-sum economic competition
Multilateral and regional liberalization proceeds simultaneously
Fragmentation of production makes it difficult to sustain a trade bloc
Regionalism is not producing a segmentation of world economy
Interregional agreements

11. Globalization of Finance
No longer an adjunct to trade: growth exceeds growth of trade.
Transborder financial flows
Foreign direct investment: When a corporation headquartered in one nation invests in a corporation located in another nation either by purchasing an existing enterprise or by providing capital to start a new one.
Portfolio investment: Foreign investors purchase the stocks or bonds of national corporations but do not control these corporations.
Unevenness of international financial flows
Concentrated among OECD economies
Fluctuations in capital flows to developing economies

12. A stylized view of capital mobility in modern history

13. Globalization of Finance
Integration of financial markets
Narrowing of interest rate differentials
Stocks of foreign assets as a percentage of world GDP
Financial deepening: Synchronization of business cycles
Institutionalization of global financial markets
Global setting of standards: Bank of International Settlements
Financial Action Task Force
International Accounting Standards Board

14. Globalization of Finance and Financial Crises
Debt crises in Latin America in the 1980s
Washington Consensus
South-east Asia Crisis
Argentina Crisis
Global Financial Crisis

15. Foreign Direct Investment and Globalization of Production (USD billion)
FDI flows have become more diffuse but more intense
Concentrated among the major OECD economies
Doubling of share accounted by developing economies

16. Foreign Direct Investment and Globalization of Production
Transnational corporation (TNC)
Fragmentation of production
Cross-border acquisitions and mergers
Countries and companies ranked according to value added or GDP:

17. Volkswagen’s transnational production network

18. Corporations and States
Finland and Nokia
France and Renault
Global financial crisis and government bail-outs

19. Globalization of Production
Deindustrialization of developed economies and industrialization of developing economies
Intensification of transnational economic and corporate competition
Global integration of productive processes
Integration of distant labor markets, especially skilled labor

20. Will Globalization be Derailed by the Financial Crisis
YES NO
Globalization has historically been a cyclical process.
Financial globalization had run ahead of societies and political institutions
Bail-outs will inevitably trigger protectionism and nationalism
Declining economic flows
The current wave of globalization is qualitatively different from the ones that preceded it.
Economic globalization may decline but other aspects will continue:
Environmental
Cultural
Migration
Economic interdependence will stem power politics

21. Economic Integration in Europe
Stages of Economic Integration
Free trade area: no visible trade restrictions between members
Customs Union: Free trade area plus common external trade regime
Common Market: Customs Union plus free movement of services, capital and labor
Monetary Union: common market plus a common currency
Economic Union: monetary union plus a common economic policy

22. Economic Integration in Europe
Single Market (1992)
Free movement of goods, services, capital, labor
Mutual recognition of product standards – health and safety standards (CE mark)
Public procurement
Removing physical frontier controls
Harmonize rates of VAT and excise duties
EU citizenship, non-discrimination in access to social and welfare benefits
Work-in progress. Member state transposition of internal market legislation
Trade in services: low level intra-EU trade. Services directive (2006)
FDI flows: low-level of intra-EU FDI flows

23. Economic Integration in Europe- Eurozone
Single market –single money: reduction in transaction costs
Single currency: permanently fixed exchange rates
Fixed exchange rate system: central banks set an exchange rate- revaluation /devaluation
Floating exchange rate system: market determines exchange rate
Monetary union in the absence of fiscal union
Stability and Growth Pact
Budget deficit no more than 3% of GDP
National debt lower than 60% of GDP

24. Economic Integration in Europe Eurozone
European Central Bank
Executive Board: President (Trichet)/ vice-president plus 4 members
Governing Council: executive board plus governors of national central banks
Membership and enlargement:
Britain, Sweden, and Denmark opt out
New members have to adopt once they fulfill conditions: Cyprus, Malta, Slovenia, Slovakia, Estonia have adopted euro

25. Europeanization and Globalization
Diversion of trade and investment
Positive integration: setting up collective rules
Free movement of labor
Social and environmental policies
Institutionalization and interest representation