International Economics and Development

(email: [email protected])
Benvenuti - Welcome
 This class
Organization:
Mon – Tues – Wedn 10:00-11.30 (Aula Anfiteatro)
Inside this team: Economics of Globalization RI 2021-22
There is a tutor

Office Hours:
Mon and Thurs (Wedn) 15-16

Other:
Composition. It is quite an heterogenous class. English.
This is a subject within the Master Degree in IntRel.
Double degree UniCa-MGIMO
Some other programs: Formed
Erasmus Students
 Benvenuti - Welcome
6 ECTS:
March: all weeks on Mon Tues Wedn
April: 4-5-6

We are going to use material which is available ON LINE:

CORE web site
Out World in Data

International Economics: Theory and Policy

Paul R. Krugman, Maurice Obstfeld, Marc Melitz
Further information: http://catalogue.pearsoned.co.uk/educator/
product/International-Trade-Theory-and-Policy-OLP-with-etext-Global-Edition/
9781292074061.page

Chapters: 1-2-3(3.1-3.2-3.3-3.4)-7-9-11
 Benvenuti - Welcome

https://www.degruyter.com/document/doi/10
.4159/9780674972667/html

We will work together.

Presentation in class (only in class). 1 credit.
 Class work
(discussion of Rodrik and Globalization material)
2 chapters per week:

March 10: Chapters 1 - 2

March 16: Chapters 3 - 4
March 23: Chapters 5- 6
March 30: Chapters 7 - 8 -9

Why is this book important?

This is about economics written for the wide public. It verifies many
concepts of the manual in the real world.
It talks about several different contexts; it talks about history; it talks
about GOVERNANCE of a process.

https://www.tedxlausanne.com/talks/richard-baldwin/
Then there are your skills.
Presenting and discussing to an audience is important. I want to discuss with you.
 Report
WTO: http://stat.wto.org/CountryProfiles/E28_e.htm
http://stat.wto.org/Home/WSDBHome.aspx?Language=E
http://stat.wto.org/CountryProfile/WSDBCountryPFReporter.aspx?Language=
EUNdata: http://data.un.org/CountryProfile.aspx
World Bank: http://data.worldbank.org/data-catalog/country-profiles

Main web material with interesting trade data visualization:

(https://comtrade.un.org/labs/)
(https://www.wto.org/english/res_e/statis_e/statis_e.htm)
Do you think international trade is important?
Do you think international trade is important?
Since 2020 we are experiencing a pandemia
NEWS:

- Increase in energy price

- Supply of micro-chip crisis
- Role of China in the global markets
- Scarcity of some products (try to order a new car)
- Supply – chains (resilience, reshoring)
- Ports crisis
- Increase in transport costs
https://intelligence.weforum.org/topics/a1Gb0000000pTDoEAM?tab=publications
Important events of
the last 6 years

Trump elected @POTUS

Tesi da me seguite per la
triennale EeF:

-dazi su acciaio e alluminio

-effetti a livello territoriale in
relazione al voto dei territori
-dazi contro i prodotti cinesi
-politica commerciale EU con la
Russia
-dazi US contro i prodotti EU
-la grande divergenza
-la grande convergenza
Campagna Leave 2016
Brexit:
 Frammentazione della produzione: l’esempio del
Boeing 787 Dreamliner
Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage:
Wing ice protection: GKN Aerospace (UK) Kawasaki Heavy Industries (Japan)
Centre fuselage: Alenia Aeronautica (Italy) Spirit Aerosystems (USA)

Rear fuselage: Escape slides: Air Cruisers (USA)

Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows:
Commercial Airplanes (USA) Zodiac Aerospace (USA)
Lavatories: PPG Aerospace (USA) Flight deck seats:
Jamco (Japan) Ipeco (UK)

Raked wing tips: Korean Airlines Flight deck controls:

Aerospace division (Korea) Esterline (USA),
Moog (USA)
Horizontal Stabiliser:
Alenia Aeronautica (Italy)
Engines: GE Engines (USA),
Rolls Royce (UK)
Aux. power unit: Hamilton Centre wing box:
Sundstrand (USA) Fuji Heavy Industries (Japan) Engine nacelles: Goodrich (USA)

Passenger doors: Tools/Software: Dassault Systemes (France)

Latécoère Aéroservices (France) Navigation: Honeywell (USA)
Landing gear: Messier-Dowti (France) Pilot control system: Rockwell Colins (USA)
Cargo doors: Saab (Sweden) Electric brakes: Messier-Bugatti (France) Wiring: Safran (France)
Tires: Bridgestone Tires (Japan)
Prepreg composites: Final assembly: Boeing
Toray (Japan) Commercial Airplanes (USA)
Source: www.newairplane.com
What are we going to talk about here?

GLOBALIZATION PROCESS

HTTP://WWW.OECD-ILIBRARY.ORG/ECONOMICS/ECONOMIC-
GLOBALISATION_9789264111905-EN
 Actual Routes

https://www.shipmap.org/
 Production fragmentation: Boeing 787 Dreamliner

Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage:

Wing ice protection: GKN Aerospace (UK) Kawasaki Heavy Industries (Japan)
Centre fuselage: Alenia Aeronautica (Italy) Spirit Aerosystems (USA)

Rear fuselage: Escape slides: Air Cruisers (USA)

Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows:
Commercial Airplanes (USA) Zodiac Aerospace (USA)
Lavatories: PPG Aerospace (USA) Flight deck seats:
Jamco (Japan) Ipeco (UK)

Raked wing tips: Korean Airlines Flight deck controls:

Aerospace division (Korea) Esterline (USA),
Moog (USA)
Horizontal Stabiliser:
Alenia Aeronautica (Italy)
Engines: GE Engines (USA),
Rolls Royce (UK)
Aux. power unit: Hamilton Centre wing box:
Sundstrand (USA) Fuji Heavy Industries (Japan) Engine nacelles: Goodrich (USA)

Passenger doors: Tools/Software: Dassault Systemes (France)

Latécoère Aéroservices (France) Navigation: Honeywell (USA)
Landing gear: Messier-Dowti (France) Pilot control system: Rockwell Colins (USA)
Cargo doors: Saab (Sweden) Electric brakes: Messier-Bugatti (France) Wiring: Safran (France)
Tires: Bridgestone Tires (Japan)
Prepreg composites: Final assembly: Boeing
Toray (Japan) Commercial Airplanes (USA)
Source: www.newairplane.com
 Will Covid kill (change) globalization?

https://www.youtube.com/watch?v=KJhlo6DtJIk

https://voxeu.org/article/coming-battle-covid-19-narrative

https://ethics.harvard.edu/covid-19-response
 Lot’s people worry (a lot!)
• Why trade has become such an important question?
– In 1995 imports of toys from China to the US were
5,4 billion $.
– Since trade continue to increase, the apparent
competitive pressure from China worries lots of
people.
– How to use data is crucially important; if we read
wrong the data ‘poisoning’ ‘toxic’ discussions can
start.
 Resourse on line
• https://www.khanacademy.org/test-
prep/mcat/society-and-
culture/demographics/v/globalization-
theories
 Jeffrey Sachs
Doubts on recently discussed global trade agreements

What’s Globalization?

https://www.youtube.com/watch?v=JJ0nFD19eT8
 Interesting questions
1. Why do countries trade? (Old questions)
2. How gains from trade are distributed?
3. Policies in the global market. Protectionism.
4. Why do multinationals exist?
5. Which are their main characteristics?
6. Which institutions govern our globalization wave? IMF, WB.
7. How do they regulate relations between countries?
8. Measurement issues
9. Phenomena which seem contrasting but connected:
global trade agreements (TTIP e TPP) and regional blocs:

European Union
NAFTA (North American Free Trade Agreement – USA, Canada e Messico)
MERCOSUR (Argentina, Brasile, Paraguay e Uruguay + others)
ASEAN Free Trade Area (Association of South-East Asian Nations)
 Historical trade maps
https://easyzoom.com/imageaccess/ec482e04c2b240d4969c14156bb6836f
 Land and Sea routes
http://mentalfloss.com/article/86338/8-trade-routes-shaped-world-history
How did perfume was created?
Venetians’ ‘mude’ (maps)
1750-1870
 Historical prospective
• Ancient time: empires traded a lot.
• The Middle Ages: European downturn, Asian
dynamism (silk road, islamic empire)
• Renaissance (trading post in France); Franz Von Taxis
(Innsbruck Brussels in 5 days)
• Colonial empires (mercantilism, protectionism);
• Industrial Revolution
 How to define Globalization?
• Economics: integration, which means
no barriers or easiness in exchanges of goods, services,
capital, knowledge (ideas) and people movement

Implications: higher interdependency of national economies

(both financial and goods markets), higher movement of
people across borders, higher information flows.

Anna Maria Pinna

Definition
 Ourdays routes
(DHL Global Connectedness Index)

Global Connectedness Index 2020

https://www.dhl.com/global-en/spotlight/globalization/global-connectedness-index.html
Overestimating levels of globalization
(General public)
Managers
 Globalization of Markets:
1950-2015; 1950=100; source: WTO

Anna Maria Pinna

Last trends
 Some History
• It is not a new phenomena
• Globalization phases
• Comparison between the first wave and
trends of the last 50 years,
periods which recorded the highest
increase in income.

Anna Maria Pinna

 First wave: 1870-1914
• Starts round 1870. Main characteristics: high
increase in capital movements, increase in migration
flows and doubling of international trade flows
• Main drivers: trade liberalization policies and
technological developments reducing transport costs
(trade costs)
• Developing economies (colonies) specialized in the
production of primary goods which are exported to
the developed countries in exchange of
manufactures (N-S trade)

Marzo 2012 Anna Maria Pinna

 Did globalization always increased?
• Globalization crashes between the 2 WW
• Back to nationalism and protectionism
Notwithstanding further progress in technology and
falling transport costs

• The three pillars (trade, capital flows and migrations)

go back to 1870 level
• Poverty and Inequality start to increase

Anna Maria Pinna

Technology

Anna Maria Pinna

 Main determinants of Globalization
• Technical Progress, reduces natural barriers across markets
(transport and communication costs)
• Social Progress, reduces cultural barriers (es.: language or
religious barriers)
• Integration policies, reduces(both at the regional or
multilateral level) political barriers:
– Border barriers (Tariff and NTMs)
– Internal measures (es.: Technical Barriers)
• Competition policy, reduces barriers created by firms
behaviour (entry barriers)

Anna Maria Pinna

 https://ourworldindata.org/international-trade

II wave: 1960 - today

1. Since 1960, world trade has become a much larger part of the world economy.

Anna Maria Pinna

 II wave: 1960 - today
2. Trade is the engine of recent globalization trend. More than half is trade in manufacturing products.

Anna Maria Pinna

https://atlas.media.mit.edu/en/visualize/stacked/sitc/export/wld/all/show/1962.2014/

The importance of manufacturing

Anna Maria Pinna

 https://ourworldindata.org/international-trade

Export composition

Anna Maria Pinna

 II wave: 1960 – today
3. Change in the structure of global trade (N-S; intra industry)

Anna Maria Pinna

 II wave: 1960 – today
3. Change in the structure of trade (N-S; intra industry)

Anna Maria Pinna

 II wave: 1960 – today
4. Trade blocs become the norm

Anna Maria Pinna

 II wave: 1960 – today
5. Partecipation to Global Value Chains (GVC)
Globalization of production

Firms source goods and services from locations around the

globe to capitalize on national differences in the cost and
quality of factors of production like land, labour, energy, and
capital

Companies can
Ø lower their overall cost structure
Ø improve the quality or functionality of their product
offering

Anna Maria Pinna

 II wave: 1960 – today
5. Partecipation to Global Value Chains (GVC)
Globalization of production

One mode of international production is the Foreign Direct

Investment (FDI). In the last 30 years FDI increased a lot.
They are also very volatile
 Resources on line
• https://www.khanacademy.org/test-
prep/mcat/society-and-
culture/demographics/v/globalization-trade-
and-transnational-corporations
 Richard Baldwin
https://www.youtube.com/watch?v=Op1bOgVpK88
from minute 4.45 to 13
 Richard Baldwin
https://www.youtube.com/watch?v=Op1bOgVpK88
from minute 4.45 to 13
https://jackblun.github.io/Globalinc/html/fig_1980.html
 The BIG issue
Globalization allowed the biggest eradication of poverty never
seen (see the movement of China)
BUT Inequality within our economies increased.

If Inequality increases in China has a different implication than if

it increases in our economies. Why?
USA, UK and other western economies….it increased a lot!
(Saez e Piketty)

PS. Italy and Sardinia have different problems.

Role of MNCs
 The Globalization Of Production
• Historically this has been primarily confined to
manufacturing enterprises
• Increasingly companies are taking advantage of modern
communications technology, and particularly the Internet,
to outsource service activities to low-cost producers in
other nations (more to say on this Baldwin)
• The production process has been fragmented
internationally

• Outsourcing of productive activities to different suppliers

results in the creation of products that are global in nature
(ex. Boeing 777, IBM - now Lenovo- Thinkpad X31 etc.)
Early example
 Barbie and international
fragmentation of production

Ø Plastic for the body and hair comes from Taiwan and Japan.
Ø Moldes and colors from USA.
Ø Assembly used to take place in Philippines and Taiwan, but it was
then moved to other countries in South-Est Asia (Indonesia,
Malaysia , China).
Ø Cotton cloth for dresses comes from China.
Ø Most Barbie dolls are shipped to USA from Hong Kong.
Ø Value of the doll in Hong Kong (1995) was 2$: 35 cents labor, 65
cents materials, 1$ intermediation and transport.
Ø Sale price in USA was about 10$: 1$ Mattel profits and the rest
general overhead and distribution costs and margins, etc.
 GVC: A more recent example

Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage:

Wing ice protection: GKN Aerospace (UK) Kawasaki Heavy Industries (Japan)
Centre fuselage: Alenia Aeronautica (Italy) Spirit Aerosystems (USA)

Rear fuselage: Escape slides: Air Cruisers (USA)

Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows:
Commercial Airplanes (USA) Zodiac Aerospace (USA)
Lavatories: PPG Aerospace (USA) Flight deck seats:
Jamco (Japan) Ipeco (UK)

Raked wing tips: Korean Airlines Flight deck controls:

Aerospace division (Korea) Esterline (USA),
Moog (USA)
Horizontal Stabiliser:
Alenia Aeronautica (Italy)
Engines: GE Engines (USA),
Rolls Royce (UK)
Aux. power unit: Hamilton Centre wing box:
Sundstrand (USA) Fuji Heavy Industries (Japan) Engine nacelles: Goodrich (USA)

Passenger doors: Tools/Software: Dassault Systemes (France)

Latécoère Aéroservices (France) Navigation: Honeywell (USA)
Landing gear: Messier-Dowti (France) Pilot control system: Rockwell Colins (USA)
Cargo doors: Saab (Sweden) Electric brakes: Messier-Bugatti (France) Wiring: Safran (France)
Tires: Bridgestone Tires (Japan)
Prepreg composites: Final assembly: Boeing
Toray (Japan) Commercial Airplanes (USA)
Source: www.newairplane.com
 Boeing 787 Dreamliner

Ø Offshore production accounts for 70% of parts

Ø 43 suppliers in 135 sites
Ø Most tasks performed in high-income countries
Ø No clear pattern of technological advantage;
experience and local knowledge play central role
Global Value Chains
i-Phone
 Value Chains of Activites

The Value Chain of a Product Any product has many different activities involved in its manufacture.
Panel (a) lists some of these activities for a given product in the order in which they occur. The value
chain in (b) lists these same activities in order of the amount of high-skilled/low-skilled labour used in
each. In panel (b), the assembly activity, on the left, uses the least skilled labour, and R&D, on the right,
uses the most skilled labour.
Because we assume that the relative wage of skilled labour is higher at Home and that trade and capital
costs are uniform across activities, there is a point on the value chain, shown by line A, below which all
activities are offshored to Foreign and above which all activities are performed at Home.
Rivoli (2009), The Travels of a T-Shirt in the Global Economy: An Economist
Examines the Markets, Power, and Politics of World Trade
 Ritornando a:
1. processo di globalizzazione nella storia (first unbundling)
2. GVC (second unbundling)
First unbundling. Fino al 1990
First unbundling
Second Unbundling
Intermediate goods trade
 Interesting web sites
• https://www.youtube.com/watch?v=qHBoxRdd08o

• http://atlas.media.mit.edu/

• Culture production:
• http://pantheon.media.mit.edu/map/map/all/all/-4000/1/H15/pantheon
• https://www.marinetraffic.com/
 How Does Globalization Affect National Sovereignty?
• Is today’s global economy shifting economic power
away from national governments toward supranational
organizations like the WTO, the EU, and the UN?
• Critics argue that unelected bureaucrats have the
power to impose policies on the democratically elected
governments of nation-states
• Supporters claim that the power of these organizations
is limited to what nation-states agree to grant

è the power of the organizations lies in their ability to

get countries to agree to follow certain actions
 MNCs and the Nation States
• https://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-
corportations-sue-states-ttip-icsid
• http://foreignpolicy.com/2016/03/15/these-25-companies-are-more-powerful-than-
many-countries-multinational-corporate-wealth-power/
• https://books.google.it/books?id=2exmVkg7nB0C&pg=PA54&lpg=PA54&dq=big+compa
nies+against+national+states&source=bl&ots=RuRU4QeN5t&sig=0Ph_pP48gTNm3IeXkt
oy_vw8EMI&hl=it&sa=X&ved=0ahUKEwidtcb0vtDXAhVNDOwKHcErAeg4ChDoAQhFMA
U#v=onepage&q=big%20companies%20against%20national%20states&f=false

• Rodrik argument on Globalization / National policies (I can trace some ppt with
summaries of some chapters)

• http://banmarchive.org.uk/collections/soundings/07_61.pdf

• http://faculty.washington.edu/aseem/BAP%20symposium.pdf

• http://www.epi.org/research/trade-and-globalization/
 Appendix on MNCs

THE CHARACTERISTICS OF MULTINATIONAL ENTERPRISES

OECD_Economic_Globaliz_Indicators2010

Evidence at the base of the New New Theory. What’s happening now in
IT research stems from such evidence.

(Bernard, Eaton, Jensen and Kortum, 2003; Bernard, Jensen, Redding

and Schott 2006)