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Globalization Thematic Group

Globalization Thematic Group. Globalization. What is globalization? Driving forces Measures Effects Response: Policies and Institutions. What is Globalization ?. The increased freedom and capacity of individuals and firms to:

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Globalization Thematic Group

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  1. Globalization Thematic Group

  2. Globalization • What is globalization? • Driving forces • Measures • Effects • Response: Policies and Institutions

  3. What is Globalization ? • The increased freedom and capacity of individuals and firms to: • undertake economic transactions with residents of other countries • operate on a global scale

  4. Driving Forces of Globalization • A reduction in official obstacles/barriers for conducting business with foreigners • Fast reduction and convergence of transaction costs associated with doing this business

  5. Examples of price decline in transport and communication • Between the early 1980's and 1996 real sea freight costs fell 70%. • Real air freight costs have fallen 3-4% a year over a long period. • Real costs of international phone calls fell 4% a year in the developing countries in the 1990's and 2% a year in the industrial countries.

  6. Cost of a 3-Minute Telephone Call, New York to London (Constant 1990, U.S. $) $0.30

  7. Examples of Innovation Driving Improved Quality/ Lower Cost Containerization easier tracking less pilferage/losses faster port services Electronic data easier tracking faster delivery interchange (better scheduling) just-in-time inventory management Fiber optics Lower costs

  8. Average Air Transport Revenue per Passengers Mile (in 1990 US dollars)

  9. Average Tariffs in Industrial Countries

  10. Average MFN Import Tariffs inLarge Developing Countries

  11. Measures of Globalization • Trade integration • Financial integration • Global production networks

  12. Trade to GDP Ratios Rose Dramatically over the Last Decade(Export plus import as a percentage of GDP) % Forecast Developing countries High-income OECD

  13. Trade to PPP GDP, 1986 and 1996(percent)

  14. Net Private Flows to Developing Countries, 1990-96(in billions of US$) US$ billions

  15. Gross private capital flows as % of PPP GDP,1986 and 1996

  16. Ratio of FDI to GDP (%) 1970-95

  17. Developing Countries and Foreign Direct Investment:Filtering for low FDI to GDP ratios, 1990-94 Number of countries of which

  18. Global Production Networks • Local Firms • Low Labor Cost • Local Knowledge • Domestic Distribution • MNEs • Proprietary Technology • Management Know-How • Global Brands • Global Distribution • Scale • Direct Ownership • Joint Venture • Licensing • Franchising • Supplier Agreement

  19. Special Characteristics of GPNs • Many studies have shown that firms which engage in global production enjoy unique, difficult to replicate assets--usually technology or differentiation • Many studies have also shown that foreign firms usually pay higher wages, have higher productivity, and greater export orientation--their difficult to replicate assets enable that • Certain parts of the world have become magnets for GPN in recent years--the Mexico-US. border; Guandong, adjoining Hong Kong; parts of Poland; parts of Malaysia; the Bombay and Bangalore region in India--this is where growth rates are often hitting 10% a year--and where the upgrading to higher value-added activities is occurring most rapidly

  20. Share of MNE Affiliate Production inWorld Manufacturing Output Percent

  21. Effects of Globalization • Growth • Adjustment costs and inequality

  22. Openness and Growth Adam Smith (1776) Sachs & Warner (1995) Ben David (90s) Sebastian Edwards (1998) • Coastal regions grew faster--cheaper to transport by water and engage in division of labor • After adjusting for PCI and other factors, open economies grew 2-5% faster than slow economies • About 7-8 papers on the issue of convergence and its relation to growth • * In general, no convergence • * Shows that, over 1929-84: PCI in 48 US states converged systematically to that in NY state • * States that had half the average US income in 1929 grew 1% faster than the average. NY state (richest) grew about 1% slower than average, at 0.7% • * EU early years--little K&L flows--saw systematic convergence; half-life of the income gap to the average country fell from 75 years in 1900-1933 to 13 years in 1959-68 • Using trade policy indicators in study of 93 countries finds that openness induces faster total factor productivity growth.

  23. Adjustment costs and inequality • Workers in protected sectors of the economy may lose their jobs as grade liberalization proceeds • Wage inequality may increase as a result of diffusion of more capital/science-based production that favor skilled over unskilled labor

  24. Financial Misery Index since July 2, 1997(mean of changes in currency, stock market, interest rates)

  25. Response to Globalization: Policies • Macroeconomic stability • Liberalisation of trade / prices / factor markets / FDI • Privatization • Orderly liberalization of capital flows • Better access to international markets / technology / infrastructure • Safety nets to ease adjustment costs

  26. Response to Globalization: Institutions • Efficient public administration • Promote and enhance competition • Enforcement of rights / contracts • Regulatory framework for private provision of infrastructures • Institutions to facilitate the adoption of standards and norms • Sound financial systems

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