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Globalization and the U.S. Economy You’reYou’re Living It!
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What is globalization?
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Anti-globalization protests
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What is Globalization? Globalization is the integration of economies through markets across frontiers (Martin Wolf) Globalization is the “death of distance” – (Frances Cairncross) “The international integration of markets for goods, labour and capital” (Niall Ferguson, Historian)
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The expansion of world trade
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Forces driving globalization
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Drivers of globalization
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Technology and the death of distance
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Global shift Largest economies in 2003 USA Japan Germany UK France China Italy India Brazil
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Largest economies in 2003 Largest economies in 2025 USA JapanChina GermanyJapan UKGermany FranceIndia ChinaUK ItalyFrance IndiaRussia BrazilSouth Korea
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Largest economies in 2003 Largest economies in 2025 Largest economies in 2050 USA China JapanChinaUSA GermanyJapanIndia UKGermanyJapan FranceIndiaBrazil ChinaUKMexico ItalyFranceRussia IndiaRussiaGermany BrazilSouth KoreaUK
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Comparing China and India Data is for 2003 unless statedIndiaChina 2003 population (billions)1.01.3 2050 population (billions)1.61.4 Gross investment (% of GDP)23.343.9 Foreign direct investment ($bn)3.653.6 Manufacturing exports (% of total)49.786.0 Service exports (% of total)32.39.7 Literacy rate (% of population)65.486.0 Sources: World Bank Development Report, 2005
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China’s rapid march forward
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Cameras and Colour TVs
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China’s export performance
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Growth environment scores Getting the conditions right
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Conditions for achieving growth GES Economic stability Political conditions Technological capabilities Human capital
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GES scores across countries High scores / ranking Sweden (3) USA (10) Germany (16) UK (21) China (53) Thailand (57) Russia (81) Brazil (95) India (97) Low scores / ranking Zimbabwe (170) Burundi (169) Liberia (168) Afghanistan (167) Nigeria (147) Pakistan (126) Indonesia (114) Turkey (112)
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How does globalization affect the U.S. economy?
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Globalization and the U.S. The U.S. is a highly open economy Strong trade links with other countries Open financial (capital) markets –Bonds –Equities –Property We have a fairly open labor market – tolerant of inflows of workers from overseas Globalization creates opportunities and threats The key is to be internationally competitive
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Opportunities for the U.S. Cheaper imports from emerging market countries –Keeps down inflation and interest rates –Boosts consumer welfare Potential for increasing export sales –Which markets are we best at? Opportunities for overseas investment –Mergers and takeovers –Direct investment (e.g. new factories overseas; out- sourcing) Opportunities arising from migration of labor Opportunities of rapid technological change
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A world of low inflation
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Threats for the U.S economy Threats to our manufacturing industries –Low cost competition –Lost jobs from out-sourcing Threats to jobs in service sector industries Structural unemployment May cause a widening of the rich-poor divide Social and economic tensions from migration Threats to the global environment – affects us all Inflationary risks from higher energy prices
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World Oil Demand - Projections Per cent of total2005 USA25 Japan6 China9 Russia3 India3 Brazil3 BRICs18 Source: Goldman Sachs, “The World and the BRICs dream” March 2006
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World Oil Demand - Projections Per cent of total20052025 USA2519 Japan64 China916 Russia34 India37 Brazil34 BRICs1831 Source: Goldman Sachs, “The World and the BRICs dream” March 2006
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Cars owned per 1000 people 20002005 USA480503 China715 India58 Brazil137150 Russia140189 Source: Goldman Sachs, “The World and the BRICs dream” March 2006
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Cars owned per 1000 people 200020052025 USA480503532 China715137 India5848 Brazil137150351 Russia140189492 Source: Goldman Sachs, “The World and the BRICs dream” March 2006
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Gainers and losers in the U.S. from globalization Some summary thoughts
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Some winners Potential Winners BusinessesBusinesses with leading global brands Business services Niche high value manufacturers Suppliers of energy and utilities IndividualsConsumers of low cost imports People with strong cross cultural skills
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Some winners and losers Potential WinnersPotential Losers BusinessesBusinesses with leading global brands Business services Niche high value manufacturers Suppliers of energy and utilities Mass market manufacturers Multinationals without the right local partners and strategies in a global economy IndividualsConsumers of low cost imports People with strong cross cultural skills Low skilled workers in tradable sectors Low and medium skilled workers in sectors open to migrant labour
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How competitive is the U.S.? Competing in a global economy
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Not enough investment?
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Globalization II Need to Know - NAFTA
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