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Threats to Globalisation
Geoff RileyA2 Economics – Summer 2010
The value of world exports
Real value of world trade in US dollars, at constant 2000 prices
Global Exports of Goods and Services
Source: Reuters EcoWin
70 75 80 85 90 95 00 05 10
thou
san
d bi
llion
s
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
US
D (
tho
usan
d b
illio
ns)
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
Who wrote the following?
“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages...The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion...were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice.”
Has globalisation contributed to the crunch?
• Globalisation initially helped to usher in decade of low inflation
• Rise in global growth and increase in the value of world trade
• Positive sum game for many
– But rising trade imbalances including emerging market current account surpluses
– And contributed to sharp rise in commodity prices
• Shift of income to ‘high saving’ countries
• Rise in global savings led to fall in long term interest rates
• Cheaper money stimulated:
– Property bubble
– Search for higher yields among lenders (riskier)
– The genesis of sub-prime?
– Rising inflation in 2008 must not be discounted as a factor behind the current crisis
Quarterly value of world trade
Quarterly value of world trade in goods and services
2009 was a bad year for global trade!
Export, EXPORTS,F.O.B. US Dollars Imports, IMPORTS,C.I.F.
Source: Reuters EcoWin
04 05 06 07 08 09 10
thou
sand
bill
ions
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
US
Dol
lars
(th
ousa
nd b
illio
ns)
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
Volatile commodity prices in the world economy
Index of Prices 2000=100
The Economist Commodity Price Index
Commodity Price Index Food Commodity Price Index Metal Industrials
Source: Economist Commodity Price Index
05 06 07 08 09 10 11
75
100
125
150
175
200
225
250
Inde
x
75
100
125
150
175
200
225
250
Metals
Industrial Metals
Food
Policy interest rates
Per Cent - set by the relevant Central Bank
Interest Rates for the Euro Zone, UK and USA
Source: Reuters EcoWin
05 06 07 08 09 10 11
0
1
2
3
4
5
6
Per
cent
0
1
2
3
4
5
6
USA Interest Rates
Bank of England Rates
Euro Zone Interest Rates
China’s Mounting Surpluses
US dollars, billions
Current Account and Foreign Currency Reserves
Source: Reuters EcoWin
97 98 99 00 01 02 03 04 05 06 07 08 09 10
billio
ns
0
50
100
150
200
250
300
350
400
450
US
Dol
lars
(bi
llions
)
0
50
100
150
200
250
300
350
400
450
China's Current Account Balance
thou
sand
billi
ons
0.0
0.5
1.0
1.5
2.0
2.5
3.0
US
D (
thou
sand
billi
ons)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
China's Reserves of Foreign Currency
Gains from globalisation
• Traditional approach– Exploitation of comparative advantage– Gains from specialisation and trade
• Higher output• Lower real prices• Welfare gains for all participants in trade and exchange• A “free lunch” welfare gain from a reallocation of
scarce resources• Mutual gains from trade between nations• Falls in the costs of transport increase the
opportunities for extended trade
– Every country has a comparative advantage in some type of economic activity
Fault-Lines for a globalising world
• Globalisation and inflation
– 1990s – the “great stability” (calm before the storm)
– Surge in demand for and prices of commodities
• The paradox of inequality within countries
– Secular decline of Western manufacturing / structural U
– Pressure on real wages / relative living standards
– Globalisation has failed to benefit the poor people in many countries (e.g. agflation and absolute poverty)
• Changing balance of power in the world economy
– Politically unwelcome shifts in ownership
– Politically unwelcome shifts in global production
• Widening global trade imbalances
– Consequences for capital flows
• Threats to the global commons
De-globalisation
• Steep slowdown in world economic growth
• Unemployment worldwide will rise by around 30m above 2007’s level in 2009
• Sharp fall in global trade
• Fall in net private debt and equity flows to developing countries
• Worldwide FDI inflows shrank 21% in 2008 to $1.4 trillion
• Partial reversal of migrant flows and also remittances
• Evidence of a return towards economic nationalism
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