GEEC 204

MODERN WORLD ECONOMY

GLOBALIZATION

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What is Globalization?
 increasing interconnectedness of people and places
as a result of advances in transport, communication,
and information technologies that cause political,
economic, and cultural convergence (IMF).

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What is Globalization?
 growing integration between countries around the
world as a result of flows of goods and services,
capital, people and ideas.

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What is Globalization?
‘the compression of the world and the
intensification of consciousness of the world as a
whole (Roland Robertson,1992, Sociologist)

‘the intensification of world-wide social relations

which link distinct localities in such a way that local
happenings are shaped by events occurring many
miles away (Anthony Giddens, 1990, sociologist).
10 mph=16kph 65mph=104kph 300mph=482kph 500mph=805kph
36mph=57kph 400mph=643kph 700mph=1125kph
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History of Globalization
1. wave: 1870-1910 - declined transport costs, flows of trade, capital and
labor increased.

2. wave: 1960-1980 - dramatic expansion of trade among rich countries

but developing countries isolated (excl. Taiwan, S. Korea)

3. wave: since 1980 - dramatic increase in capital flows, revolutionary

changes in telecommunications.

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History of Globalization

• As integration progressed the growth rate of the world accelerated from

1% per year in the mid 19th century to 3.5% in 1970-2000.

• Today the world economy can produce in 2.5 years all the value it
produced in the whole 19th century

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• China:
1.opening the economy in the early 1980s to obtain new capital
equipment and technology
2.Growth on average 9% 1978-1994
3.exports and imports grew 13-14% per year

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• India:
1.pursued inward-oriented policy until 1991
2.grew 1.4% per year in 60s,
3.-0.3% in the 70s;
4.80s - better but borrowed a lot from abroad

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• Arguments Against Globalization

1. Rich States and Multinational Corporations (MNCs):

the ideology of the developed countries dominate and
control the international economic system in a deeper
and intensive manner.

2. Gains of Globalization for Rich at the Cost of Poor:

Globalisation has helped the corporate elites to be more
and more rich and wealthy. The poor continue to face
poverty and exploitation.

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• Arguments Against Globalization

3. Source of Economic Crises:

Financial crises have become more and more
threatening and extensive. For the last three years, the
World has been living with global economic recession.

4. Globalisation as an Imposed Decision of the Rich:

The critics of describe globalisation as an imposed
decision. It has not been a democratic choice of the
people of the world. It has been the brain child of the
rich and wealthy.

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• Arguments Against Globalization

5. Increased Protectionism and Neo-colonialism:

Globalisation led to a new system of protectionism. For
the developing countries, MNCs have been acting as
agents of undue control over their economies.

6. Productivity Failure, Social Disaster, Instability:

The world continues to live with poverty, hunger disease
under- development, violence, wars and terrorism.

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• Arguments For Globalization

1. Globalization is natural and necessary:

It is a natural extension of prevailing and ever-
increasing global interdependence.

2. problems are due to infant stage of Globalization:

Globalisation appears to be threatening global
independence, sovereign nation state system due to
the initial stage of the process of Globalisation. Once
it gets developed, it will stabilize world economy.

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• Arguments For Globalization

3. Defects of Globalization are due to selfishness :

problems of Globalization are the result attempts by
some developed countries in their favour. What is bad
is not Globalisation but selfishness of states.

4. Globalisation is Governable and Dependable:

By free trade policies and deregulations, it can
increase socio-economic cultural relations among all
people. It can reduce chances of war and lead to
stable, healthy and peaceful development.

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• Arguments For Globalization

5. It broadens access to goods and services.

globalization makes more goods and services available
to more people at lower prices. Business owners have
access to a bigger market.

6. Information and technology spread more easily.

Art and culture, information and technology spread
more easily in a globalized society. Civil society groups
can look to other countries for inspiration and good
ideas can spread more easily.

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• About globalization, Mahatma Gandhi once said:
“I do not want my house to be walled in on all sides and my windows to
be closed. Instead, I want the cultures of all lands to be blown about my
house as freely as possible. But I refuse to be blown off my feet by any.”

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Types of Globalization

1. Common Ecological constraints

2. Cultural Globalization
3. Globalization of communication
4. Economic Globalization
5. Political Globalization

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 Common Ecological constraints

Global threats due to fragile ecosystem and the globalization of the

ecological risk

Requires global action

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 Cultural Globalization
development of human values and human rights
Western values of rationality, individualism, equality and efficiency
growth of cross-cultural understanding
erosion of local traditions and standards and their replacement by
foreign ones

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 Globalization of communication
spread of knowledge, ideas
dramatic leaps in communications and travel
increase in world productivity
collaboration & co-creation

loss of species
spread of disease
environmental degradation
war and terrorism

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Economic Globalization
 Declining Trade and Investment Barriers
 Creation of high-tech jobs in wealthy nations
 lifting from poverty

 loss of jobs in wealthy nations

 exploitation of workers in poor nations

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Political Globalization
Institutionalization of international political structures.
Political centralization and decentralization
Global governance-specialized and general international organizations
International and global political organizations vis- a-vis national states.

https://www.youtube.com/watch?v=5SnR-e0S6Ic
https://www.youtube.com/watch?v=s_iwrt7D5OA

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Signs of Globalization
Increase in international trade at a faster rate than the
growth in the world economy
Increase in international flow of capital - including
foreign direct investment
Greater transborder data flow, using such technologies
such as the Internet, communication satellites and
telephones
Greater international cultural exchange, for example
through the export of Hollywood and Bollywood
movies.

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Signs of Globalization
Some argue that even terrorism has undergone
globalization. Terrorists now have attacked places all
over the world.
Spreading of multiculturalism and better individual
access to cultural diversity, with on the other hand,
some reduction in diversity through assimilation,
hybridization, Westernization or Americanization of
cultures.
Greater international travel and tourism.

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Signs of Globalization
Greater immigration, including illegal immigration
Development of global telecommunications
infrastructure
Development of a global financial systems
Increase in the share of the world economy controlled
by multinational corporations
Increased role of international organizations such as
WTO, IMF that deal with international transactions
Increase in the number of standards applied globally;
e.g. copyright laws

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 Bretton Woods
System of Monetary Management

•first example of a fully negotiated monetary

order

•intended to govern monetary relations

among independent nation-states
Origins: Economic recession of the 1930s
 Great Depression 1929 – to late 30s and early 40s
 burden of the costs of the 1st WW
 Rise of protectionism

• In turn:
 contraction in investment flows
 a resulting further increase in unemployment.
Origins: Economic recession of the 1930s
duringthe war, the gold standard and currency
convertibility suspended.
to mobilize domestic economies, governments
printed paper money, depreciating the values of
national currencies.
 massive inflation and unemployment.
 Origins: Economic recession of the
1930s
in October 1929, the prices of basic foodstuffs
and materials lost between
 two-thirds
 three-quarters of their value.

 Between 1932 - 1933 unemployment

 in the USA reached 27 %
 in Germany 44 %
Change in Economic Indicators, 1929-
1932
USA Britain France Germany
Industrial
-46% -23 -24 -41
production
Foreign trade -70% -60 -54 -61
Unemployment +607% +129 +214 +232
 Aims at Bretton Woods

1. monetary stability
2. fixed exchange rate based on gold
standard via US dollar as reserve currency
3. to facilitate international free trade
4. Mutual help to settle trade deficits
5. Postwar re-construction – mainly in Europe
 Aims at Bretton Woods
6. create a credit organisation
7. give temporary assistance to countries
with bop problems;
8. create an international capital agency
9. set up an international trade organisation
10. devise and apply international trading
rules.
 Results of Bretton Woods

• IMF

• IBRD – World Bank

• GATT - WTO
The Emergence of Global Institutions
• G20; IMF, WB, UNTACD, WTO

1.Manage, regulate, and police global market place

2.Promote the establishment of multinational treaties to govern global
business system
3.Political stability, co-existence and peace

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 Globalization and migration

labor migration is probably the dimension of globalization along which

international economic integration has advanced the least.

Indeed, labor into and out of some countries is less mobile

internationally today than it was in 1913.

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 Globalization and migration
There were relatively few institutional barriers to immigration in the
late 19th century. Today, migrants without appropriate documentation
may be deported or imprisoned.

Today’s lower-income countries are not so fortunate. Immigration

barriers were already in place, but they became much stricter during
and after the 1st WW, and rich countries retain strict immigration
barriers to this day.

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 Globalization and migration

The movement of goods and finance between countries is easier, and

greater in magnitude, than the movement of people.

You might have to learn an entirely new language or culture, not to

mention leaving behind family and your home community.

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 Globalization and migration

There was a dramatic increase in the integration of the world economy

during the nineteenth century, marked by increasing volumes of trade
and movement of capital.

This was followed by a brief period of de-globalization during the Great

Depression and the 2nd WW, and renewed globalization afterwards,
especially since the 1990s.

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 Globalization and migration

When new people arrive in a nation they are unemployed, so the first
impact of immigration is that it increases unemployment.

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 Globalization and migration

Immigration also increases the cost of job loss for residents, because
the worker who loses a job is now in a larger pool of unemployed
workers.

Workers have more to fear from losing their jobs, and firms will be able
to make employees work effectively at a lower wage.

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 Globalization and migration

Firms are now getting work at lower wages, and so are more profitable.
As a result they will seek to expand production.

To do this, they will invest in new machinery. This will increase labor
demand in the rest of the economy, and when the new capacity is
ready, firms will hire more workers.

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 Globalization and migration

• The short-run impact of immigration is bad for existing workers in that

country:

1.wages fall.

2.expected duration of unemployment increases.

3.short run may last for years or even decades.

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 Globalization and migration

• In the longer run, the increased profitability of firms leads to expanded

employment.

• As a result, incumbent workers are no worse off.

• Immigrants are likely to be economically better off too—especially if

they left their home country because it was difficult to make a living.

https://youtu.be/qqZxJGW9B7M

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 Trilemma of The World Economy
Dani Rodrik

likely impossibility that any country, in a globalized world, can

simultaneously maintain deep market integration (across borders),
national sovereignty, and democratic governance.

https://www.youtube.com/watch?v=LRDIejhdtYk

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 Trilemma of The World Economy
His trilemma refers to three dimensions which cannot occur at the
same time.

1.Hyperglobalization: there are no barriers to location of goods and

investment.
2.Democracy within nation states: government respects individual liberty
and political equality.
3.National sovereignty: Each government can pursue policies that it
chooses without any limits imposed by other nations/ institutions.

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 Trilemma of The World Economy
Hyperglobalization is ruled out : there must be limits
on labour/capital mobility for effective policies of
stabilization and redistribution.
Democracy is ruled out: Hyperglobalization policies
can only be implemented by government if citizens’
opposition is weakened by a dilution of democratic
processes.
National sovereignty is ruled out : If
hyperglobalization policies are accompanied by
supranational institutions, this restricts the ability of
countries to choose national policies independently.

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A powerful logic exists in support of economic openness:

The free flow of resources and goods and

services across national borders, driven by
efficient economic incentives, including the
desire to maximize profit, is likely to make
citizens better off than if borders were closed
and economies turned inward.

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