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1. Globalisation


1492-1820: Anti-globalist (mercantilist) restrictions; ... (J.G.Williamson, 2002), labor migration reaches its climax (no restrictions) ... – PowerPoint PPT presentation

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Title: 1. Globalisation

1. Globalisation
  • Globalisation and multinational enterprises

Globalisation and multinational enterprises
  • Contact details
  • Crt Kostevc
  • Office hours tuesday, 1000 v R-304
  • crt.kostevc_at_ef.uni-lj.si
  • course web site
  • http//www.ef.uni-lj.si/predmeti32/_struktura/opre

Credit requirements
  • option A
  • seminar (individual)-70 of the grade
  • participation and preparation of comments -30
  • option B
  • written exam-100

  • 12-15 pages analyzing different aspects of the
    functioninh of multinationals and their role in
  • Examples
  • Effect of MNCs on wages in host countries
  • Role of MNCs at knowledge transfer in host
  • Importance of MNCs for developing countries
  • MNC and the role of the state
  • MNC and market structure
  • The role of MNCs in the global economic crysis
  • MNC and the convergence of consumer habits

  • The seminar must follow the technical
    requirements of writting a masters thesis.
  • In addition to the technical chapters,
    introduction, conclusions and references, the
    seminar must include a teoretical part
  • Explaining the essence of the problem and its
    relation to the relevant literture
  • and an empirical/statistical part
  • Presenting empirical research, statistical
  • At least 10 units of references!

Structure of the course
  • 1. lecture Globalisation
  • 2. lecture Globalisation and inequality
  • 3. lecture International trade and/or
    international production (substitutes or
  • 4. lecture FDI and multinational enterprises
  • 5. lecture Modelling multinational firms
  • 6. lecture Survey of empirical findings
  • 7. lecture Presentation of seminars
  • 8. lecture Comments to seminars

Structure of the lecture
  • Defining globalisation
  • Description of the process of globalisation
  • Causes of globalisation
  • Supporters and antiglobalists
  • Historic epochs of globalisation
  • Consequences and dangers of globalisation
  • Future of the globalisation process.

  • Google search engine returns 6.430.000 hits to
  • foreign direct investment 12.200.000 hits
  • multinational corporation 1.910.000
  • transnational corporation only 225.000

  • ...globalisation, is ...simply the logical
    extension of the tendency towards specialisation
    and trade has been going on almost since mankind
    first walked on the surface of the earth
    (Eslake, 2000)
  • In economic terms, globalisation refers to the
    growing economic integration of the world, as
    trade, investment and money increasingly cross
    international borders (which may or may not have
    political or cultural implications). (BBC,
    Globalisation shakes the world, 2007)

  • broad definition (Nye, 2009) increase in
    worldwide networks of interdependence
  • not only economic globalisation
  • Environmental smallpox epidemic originated in
    Egypt in 1350 BC. It reached China in 49 AD,
    Europe after 700, the Americas in 1520, and
    Australia in 1789. Bubonic plague, or the Black
    Death, originated in Asia, but its spread killed
    a quarter to a third of Europe's population in
    the 14th century. Avian flu, swine flu?
  • Military consisting of networks of
    interdependence in which force, or the threat of
    force, is employed. The world wars of the 20th
    century are a case in point.

  • social globalization consists in the spread of
    peoples, cultures, images, and ideas. Migration
    is a concrete example. In the 19th century, some
    80 million people crossed oceans to new homes -
    far more than in the 20th century. At the
    beginning of the 21st century, 32 million US
    residents (11.5 percent of the population) were
    foreign-born. In addition, some 30 million
    visitors (students, businesspeople, tourists)
    enter the country each year.

  • Ever increasing integration of the world economy
    from the early 1950s in terms of trade,
    investment and production
  • The process in not new, but has garnered markable
    attention of late
  • Liberalisation of trade and finance has driven
    changes in functioning of the firms
  • progress in transport and telecommunications.

GlobalisationSource WTO, 2009
GlobalisationSource Estevadeordal, Frantz,
Taylor (2002)
GlobalisationSource Penn World Tables 6.2
Importance of transport costsSource Clark,
Dollar, Micco (2002)
Importance of transport costs Source Jacks in
Pendakur (2007)
(No Transcript)
Arguments for and against globalisation
  • Globalisations critics
  • against free trade
  • effect of corporations on souvereign governments
  • ecological standards
  • rights of local communities
  • Supporters of globalisation
  • free trade
  • world without borders
  • end of national economies.

Antiglobalisation movement
  • A very heterogeneous group activists brought
    together by their fight against MNC hegemony and
    the might of trade agreements
  • Accuse TNCs that, with the goal of maximizing
    profits, they neglect workers rights, eco
    standards and the role of national legislature
    and governments
  • The only global integration they are willing to
    accept is one where democratic principles,
    advancement of human rights and increased
    equality are followed.

Antiglobalizacijsko gibanje
  • Critics of globalisation believe that the rulling
    elites garner all benefits of globalisation,
    leaving nothing for the people/workers
  • Against neoliberalism
  • turbo-capitalism (Edward Luttwak)
  • market fundamentalism (George Soros)
  • cazino-capitalism (Susan Strange)
  • McWorld (Benjamin Barber).

Antiglobalisation movement
  • Heterogeneity
  • anarchists
  • socialists
  • NGOs
  • developed country unions
  • rare 3rd world protesters
  • environmentalists
  • even some economists who oppose certain aspects
    of globalisation (Stiglitz, Rodrik)

Criticism of antiglobalisation
  • Critics argue that antiglobalists have no
    empirical evidence
  • There has been a decrease in the absolute ane
    relative number of people living in absolute
    poverty (wage bellow 1 per day)
  • Average income per capitain the period 2002-2007
    has experienced fastest growth in recorded
    history, but the benefits were not equaly
  • Life expectency in most of the world (except
    sub-Saharan Africa) has increased markably. In
    sub-Saharan Africa it stayed more or less equal.

Criticism of antiglobalisation (poverty level)
Source Sachs (2005)
Criticism of antiglobalisation
  • Antiglobalist criticism is misdirected
  • Farming sectors of the third world are mainly
    harmed by restrictions to developed countries
    markets and not free trade as antiglobalists tend
    to believe
  • Third world workers have a choice between opitons
    on offer to them (take on a job at a TNC or get a
    job at a local plant)
  • There is broad agreement amongst economists that
    greater transparency in the functioning of TNCs
    and capital flows is needed.

Two epochs of globalisation
  • 1492-1820 Anti-globalist (mercantilist)
  • Discovery of America, sailable root to India,...
  • Strong impact on commerce, growing share of trade
    in GDP
  • Trade is NOT a consequence of falling trade
    restrictions and global integration
  • There was, namely, no decrease in price
    differences between the export and import
  • Discoveries and the progress made in transport
    technology lead to trade monopoly markups,
    tariffs, non-tariff barriers, wars, pirates,...

Two epochs of globalisation
  • 1820-1913 first global century
  • With the end of mercantilism, a period of
    relative peace (after the Napoleonic wars) and
    improving transport connections (pax Britannica)
  • Convergence of prices (not only across the
    Atlantic), but primarily with Asia and Africa,
    where there was a strong presence of European
    colonial powers
  • Integration of factor markets, global capital
    markets after 1913 were comparable to those of
    today in terms of global coverage
    (J.G.Williamson, 2002), labor migration reaches
    its climax (no restrictions)

Two epochs of globalisation
  • 1913-1950 antiglobalisation
  • complete disintegration of the world economy
  • formation of trade and migration barriers many of
    which are still in use today (share of
    foreign-born US citizens falls from 14.6 (1913)
    to 6.8 (1950))
  • price differences across the Atlantic double and
    reach the 1870 level
  • fall in investment into new technologies and a
    fall in foreign direct investment.

(No Transcript)
  • From 1913 and especially after 1870 the world
    witnessed a period of accelerated globalisation
  • This was brought on by the establishment of the
    gold standard and a reduction of transport costs
  • Until 1929 antiglobalisation was driven by an
    increase in transport costs
  • After 1930 the final step towards disintegration
    was made with the collaps of the gold standard.

Transport costs Source Estevadeordal, Frantz,
Taylor (2002)
Movement of tariff ratesSource Estevadeordal,
Frantz, Taylor (2002)
Collapse of the gold standard Source
Estevadeordal, Frantz, Taylor (2002)
Two epochs of globalisation
  • 1950-2007 second global century
  • in many aspects different from the first one,
  • much smaller factor migrations,
  • trade restrictions, on the other hand, are far
    smaller than they were in the first period of
  • indications of a substitution effect between
    trade and factor movement.

First epoch and antiglobalisation
Last globalisation phase
Comparison of the two epochs
  • Similar in terms of cumulative trade growth rate
    (400 in 471)
  • Fall in trade costs greater in the 1st phase,
    therefore trade costs explain the majority of the
    first phase of globalisation, while only a third
    of the second phase
  • In the collapse of the first globalisation epoch,
    trade costs play a crucial role. The
    contemporaneous growth of output at the time was
    namely 90.

Consequences and dangers of globalisation
  • Production
  • Creation of global markets for primary and
    consumer products
  • Centralisation of global production into a couple
    of production centres
  • Disintegration of the production process into
    several phases which need not be performed at the
    same location (outsourcing, subsourcing,...)
  • Consumption
  • Convergence of global consumer habits

Consequences and dangers of globalisation
  • Finance
  • Creation of global finance markets, easier access
    to credit
  • Growth of financial markets, institutions and
    financial products (derivatives) surprised the
    national and global regulators, which ultimately
    lead to an unstable global financial system and
    the possibility of crysis spreading across the
  • Politics
  • Hegemony of the US, rise of China and India

Consequences and dangers of globalisation
  • Competition
  • Competition in global markets or globalisation of
    local markets bring cheaper products for
    consumers, but also mean greater operating risk,
    higher probability of loss of jobs or their
  • Technology
  • Great advances in information technology fostered
    a fast pace development of globalisation, the
    appearance of global standards, greater
    availability of information and an increase of
    substandard information.

Consequences and dangers of globalisation
  • Ecology
  • Global environmental issues and the need for
    global action on environmental issues
  • Environmental issues are becoming more important
    in developing countries due to production moving
    to those countries
  • Culture
  • expansion of consumerism, global pop-culture
  • increased turism, travel and migration
  • Multiculturalism as a consequence of migration.

Dangers of globalisation
  • Increased operazing risk even in local markets,
    as strong global competition presents dangers for
    all firms and introduces added risks
  • Global regulations cannot keep track of the
    revolutions in global production and the global
    financial system, which ultimately breeds
  • Lack of global standards for consumer goods and
    environmental standards can promote hazardous

Dangers of globalisation
  • Oligopolization and even monopolization of the
    world markets by large cartels or multinational
  • The remaining giants will be less responsive to
    their environment and less robust to changes in
    competition, consumer habits, etc.
  • Growing differences between developed and
    developing countries will accentuate the
    political differences between them.

The future of globalisation
  • The end of the current global financial/production
    crisis will breed a new cycle of globalization
  • Protectionism follows every cycle of
    globalization (beggar-thy-neighbour policies of
    the 1930s)
  • The legacy of the crisis will be a stricter
    legislation, which will limit some of the more
    obvious wrongdoings
  • A new cycle of protectionism is not completely
    impossible as the fast spread of the crisis has
    given more support for mercantilist measures.
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