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ECONOMÍA MUNDIAL

2. GLOBALIZATION

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OUTLINE

What is globalization?

Forces behind globalization

Is globalization new, irreversible and complete?

The costs and benefits of globalization. Challenges and opportunities

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WHAT IS GLOBALIZATION?

Semantic problem: globalization is a term with multiple meanings…

… because we are referring to a multifaceted phenomenon

GLOBALIZATION: is a historical process of increasing integration of countries around the world, particularly through economic flows across borders. It also includes the movement of people, knowledge and culture across international borders.

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FORCES BEHIND GLOBALIZATION

Two main forces Innovation and technological progress Financial and trade liberalization

Both forces work together to cut transaction costs associated with international flows

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TECHNOLOGICAL REVOLUTION

We are in the midst of an all-purpose technological revolution based on ICT technology (computers, software, internet, telecommunications)

Similar to previous technological revolutions (railroad, automobile, electricity,…)

A main difference: rapid rate of diffusion at a global level

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TECHNOLOGICAL REVOLUTION: ICT DIFFUSION

Source: UNCTAD 2008

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TECHNOLOGICAL REVOLUTION: LEAPFROG EFFECT

Source: UNCTAD 2008

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LIBERALIZATION

After World War II Bretton Woods institutions (IMF, WB, GATT) Achieving peace through global prosperity Trade and financial liberalization

Political and civil liberties have simultaneously expanded with economic liberalization

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TRADE LIBERALIZATION

In 1947 the average tariff on manufactures in the industrial countries was over 40 percent. By 2000, they had been lowered to less than 5 percent

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TRADE LIBERALIZATION

Average Tariff Reduction

(1980-2000)

TARIFF 1980 TARIFF 2000

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FINANCIAL LIBERALIZATION

Source: Chinn and Ito (2007)

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EXPANSION OF POLITICAL FREEDOM AND CIVIL LIBERTIES

Libertades políticas en el mundo, 2009

Libres46%

Parcialmente libres30%

no libres24%

Libertades políticas en el mundo, 1973

Libres29%

Parcialmente libres28%

no libres43%

Source: Freedom House

Percentage of free (libres), partially free and non free countries (1973 and 2009)

Worldwide expansion of liberal democracy

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TRANSACTION COSTS REDUCTION

Liberalization, economic and political freedom, and technological innovation lead to international integration through a reduction of transaction costs

Distances shrink. “The world is flat”

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TRANSACTION COSTS REDUCTION

La Reducción de los Costes del Transporte

(medidos en dólares EEUU constantes, 1990)

0

20

40

60

80

100

120

1930

1940

1950

1960

1970

1980

1990

2000

Fuente: FMI

Fletes marítimos

Transporte aéreo

La Reducción de los Costes de Comunicación

(dólares de EEUU constantes, 1990)

0

20

40

60

80

100

120

1930

1940

1950

1960

1970

1980

1990

2000

Fuente: FMI

Coste de las llamadas telefónicas Coste del uso

de satélites

Transportation costs reduction: sea-freights and air-freights

Communication costs reduction: phone calls and satellite use

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MISUNDERSTANDINGS ABOUT GLOBALIZATION

Globalization is new

Globalization is irreversible

Globalization is complete

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FIRST WAVE OF GLOBALIZATION (1870-1913)

Factors fuelling integration Pax Britannica Monetary stability (gold standard) Developments in transport and

communications Labor shortages and surpluses

(migration) Productivity and economic growth

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FIRST WAVE OF GLOBALIZATION AND TRANSPORTATION COSTS

Intercontinental

trade integration

Change in

price

differentials

Due to

Lower

transportation

costs

Lower tariffs

and trade

barriers

Disintegration of the world economy

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FIRST GLOBALIZATION: MODEST REDUCTION OF TARIFFS

Fuente: FMI (1997)

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FIRST GLOBALIZATION: DEEP FINANCIAL INTEGRATION

Financial and trade integration

Exports/GDP

Foreign assets/GDP

Exp

orts

/GD

P

For

eign

ass

ets/

GD

P

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FIRST GLOBALIZATION: MIGRATIONS

1850-1910: 60 million people migrate from Europe to America (50% to USA)

1850-1920: around 50 million people move from China and India.

Labor flows (workers migrations) explain 60% of the reduction in wage differentials between Europe and America

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DISINTEGRATING FORCES

Several forces work against globalization Political conflicts (World Wars) and

ideology (North Korea) Economic crises (Great Depression) Xenophobia Discontent over the process and

results of globalization

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AN INCOMPLETE PROCESS: TRADE

Fuente: FMI

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AN INCOMPLETE PROCESS: FINANCIAL INTEGRATION

Fuente: FMI

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AN INCOMPLETE PROCESS

Home bias in trade Feldstein-Horioka puzzle The purchasing power and exchange

rate disconnect Effects of exchange rates

Equity home bias puzzle Limitations on international migrations Prevalence of non tradable goods and

services

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IS GLOBALIZATION GOOD?

Is globalization impoverishing poor countries? Does globalization widen income disparities? Is it shrinking states ?

Is there any relationship between globalization and environmental problems?

Globalization of health risks

Globalization of crime