Globalization - Who Gains, Who Gets Hurt, and Why It Matters

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Globalization - Who Gains, Who Gets Hurt, and Why
It Matters

• Montclair State University
• College of Humanities and Social Sciences
• World Cultures Day
• Thursday, April 3, 2008
• 1030-1120 Session

Phillip LeBel, Ph.D. Professor of
Economics Department of Economics and
Finance School of Business Lebelp_at_mail.montclair.e
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What Is Globalization, and Why Is It Important?

1. Globalization is an expansion of economic
   interdependence through international trade and
   factor mobility that generally leads to higher
   levels of per capita income. Rising economic
   interdependence means that countries engaged in
   globalization can no longer afford to ignore
   events in other parts of the world and that they
   must craft policies that take into account both
   domestic policies and those of other countries
   around the world.
2. Globalization constitutes one of four ways that
   countries can raise per capita income. These
   factors are a. an increase in the stock of
   inputs (land, labor, capital, and
   entrepreneurship), b. technological change, c.
   input specialization, and d. output
   specialization through international trade.
3. Measures to expand globalization must proceed in
   a coherent and coordinated fashion if all
   countries are to benefit. Absent such
   coordination there will be significant
   differences between gainers and losers that could
   create pressures to limiting or reversing the
   process. As such reversals occurred during the
   Great Depression of the 1930s and during the
   Second World war, one should not take for granted
   the challenges and opportunities that
   globalization presents.

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International Trade, Investment, and Factor
Mobility Show Rising Interdependence around the
Globe

• Global trade flows - in goods and services, in
  portfolio and direct foreign investment, and in
  international labor migration - have been rising
  in rough proportion to increases in Global
  Domestic Product levels. Some trends
• 75 percent of global exports are among developed
  countries 25 percent among developing ones
• Developed countries export primarily manufactured
  goods, accounting for over eighty percent of
  their total and sixty percent of total world
  exports.
• Developed countries export more primary products
  than developing countries and developing
  countries export more manufactured goods than
  primary goods.
• The United States has increased its dependence on
  international trade from approximately 5 percent
  in the late 1950s to over 13 percent today.
  Because the United States has such a large
  economy, it accounts for the largest single
  market in international trade.
• Because the United States also has run chronic
  trade deficits, when the U.S. also runs budget
  deficits, as it has done over several periods,
  foreigners increase their stock of dollar
  reserves. These rising stocks often have been
  used to finance U.S. Treasury deficits.

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Foreign Direct Investment Flows Increase From
Developed Countries to Emerging and Developing
Economies
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Rising Trade and Payments Imbalances in the U.S.
Reduce U.S. Monetary and Fiscal Policy
Independence
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Most U.S. Trade Remains Among Developed
Countries,the Exception Being the Rising Share
of Imports from China and India
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1. Net Immigration from Developing to Developed
Countries Increases with Globalization2.
Immigration Rates Depend on Differences in Rates
of Growth Across Regions and in Differences in
Levels of Real Per Capita Gross Domestic Product
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Globalization Creates Changes in Relative Prices

• Although the United States is the largest
  consumer of crude oil, falling domestic
  production rates combined with higher growth in
  global demand have produced rising real prices
  that are now reaching those of the early 1970s
  and may continue to do so for the foreseeable
  future. Such increases in crude oil place
  renewed pressure on trade dependence, and on the
  search for more sustainable energy and
  environmental policies.

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Energy Consumption Depends on the Level of Income
and Relative Prices

• Energy conservation starts with the proposition
  that consumers will respond rationally to the
  price of energy, given alternatives and the level
  of income. As long as rapidly growing economies
  such as China and India increase the demand for
  energy, pressure on the United States to improve
  conservation will expansion. This pressure
  reflects two considerations
• Growing dependence on imported energy
• The growing impact of global warming as more
  countries increase their dependence on fossil
  fuels

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Globalization and the Environment1.
Globalization That Produces Higher Levels of Per
Capita Income Increases the Rate of Energy
Consumption. 2. In Turn, Rising Energy
Consumption Increases Environmental Emissions
that Add to Global Warming.3. Global Warming and
Rising Populations Threaten Habitats that Result
in a Loss of Biodiversity.
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Globalization and Inequality1. Globalization
can produce rising average levels of per capita
income for the world.2. Because policies and
levels of risk differ across countries,
globalization may initially cause rising
inequality across countries.3. It also can
produce rising inequality within countries for
the same reasons.4. Policies that are designed
to raise per capita incomes through globalization
need to take measures to see that the benefits
are broadly distributed.
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Measures for Successful Globalization

1. Countries need to work in concert to bring about
   harmonization of monetary, fiscal, and trade
   policies that provide broadly distributed global
   gains. This means close cooperation among the
   G-8 major countries, and the WTO trade framework.
2. Banking and financial accounting standards need
   to be developed for transparent capital flows
   that provide accurate information for an
   efficient allocation of investment. This means
   adopting and upholding capital adequacy ratios
   consistent with prevailing norms, as in the Basel
   Accords framework.
3. Countries need to work through international
   organizations such as the WTO to ensure that
   trade benefits are universally upheld. This
   means the extension wherever possible of global
   agreements rather than side agreements that skew
   the benefits of trade and investment.
4. Political measures that improve transparency,
   including greater clarity in property rights,
   electoral accountability in government, and
   judicial independence are essential if
   globalization is to deliver on the promise of
   broad-based gains.
5. Finally, it means a commitment to maintaining
   sufficient liquidity in global financial markets
   that results in non-inflationary sustainable
   growth in ways that also strengthen environmental
   quality and promote broad-based gains.

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Above All, Globalization Requires a More
Sophisticated Understanding of the Global Economy
than We Have Sometimes Displayed

• As globalization expands, the United States can
  not afford to adopt simplistic attitudes in
  foreign policy choices. Avoiding such simplistic
  notions requires that one take into account
  differences in cultures, in economic conditions,
  and the varying policies in different parts of
  the world. Above all, it requires that one not
  forget John Donnes dictum No man is an
  island, entire of itselfany mans death
  diminishes me, because I am involved in mankind
  and therefore never send to know for whom the
  bell tolls it tolls for thee.
• Meditation XVII, 1624.

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