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Globalisation

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Movement of people, goods and services, raw materials, financial capital and ... Stunning in terms of scope and speed in transition ... – PowerPoint PPT presentation

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Title: Globalisation


1
Chapter 6
  • Globalisation

2
Globalisation
  • Involves declines in the importance of national
    political boundaries and geographical distance
    and increasingly complex interdependencies among
    countries
  • EBRD 2001
  • Movement of people, goods and services, raw
    materials, financial capital and enterprises,
    technology as well as brand names, knowledge,
    ideas, culture, values...

3
Globalisation
  • New surge after WWII
  • Related to
  • technological advances making distances shorter
    and costs lower
  • political decisions
  • e.g. EU, WTO, UN

4
Globalisation
  • Advantages
  • increase in opportunities, choice, freedom
  • specialisation, division of labour, and risk
    diversification
  • dissemination of knowledge (e.g. health care),
    culture and educational exchange
  • workers moving from few opportunities spaces to
    countries with ageing and decreasing working
    population
  • Disadvantages
  • pathological globalisation
  • global crime and terrorism
  • diseases
  • environmental spillovers (acid rain, greenhouse
    gases, overfishing)
  • global financial threats and panics
  • unfair distribution of gains
  • winners and losers
  • incomes of people in certain sectors
  • no safety net or compensation

5
Globalisation
  • To ensure wide and fair distribution of gains ?
    Global action (governments, international
    institutions, pressure groups) and cooperation
  • institutions and international legal and
    regulatory measures
  • rule of law
  • environmental, labour, and safety standards
  • pensions systems, health insurance
  • companies taxation, financial regulation and
    supervision
  • need to strike a balance

6
Globalisation and transition
  • Stunning in terms of scope and speed in
    transition
  • out of long period of planned and
    self-sufficiency
  • trade was defined according to the CMEA
  • excessive specialisation and division of work not
    related to comparative advantages
  • no labour mobility and financial integration
    outside CMEA
  • but educated and skilled labour force
  • Transition process
  • outward focus free trade and inflow of capital
  • democracy (rule of law, welfare), increased
    choice
  • but difficult, slow and costly process for some
    countries

7
Theoretical Background
  • Transition ? Opening of markets in CEECs.
    Integration between Eastern and Western Europe
    will involve
  • labour mobility CEE workers into EU
  • mobility of goods and services growing
    international trade in goods and services
  • mobility of capital mobility of companies in
    search off expanding markets and/or lower costs
  • EU members Fear of flow of employees and firms
    moving away

8
Growth potential
Lower labour costs
CEEC markets
High value added
EU Company
EU markets
Routine activities
High income and Growth potential
Technology skills
9
Labour mobility
  • CEECs large source of employment at low wages
  • EU high income country paying higher wages than
    CEECs and needing workers
  • Expectations huge flow of workers
  • low skilled workers will move from CEECs to EU in
    search of better payment to do routine work and
    for EU firms this means lower costs due to lower
    wages.
  • Reality different
  • EU imposed stronger restrictions on movement
    different languages and cultures plus rigid
    markets barriers

10
Mobility of goods and services
  • If labour mobility is hardly possible (and
    perhaps hinders development) then
  • International trade mobility of goods
  • for CEECs exports increase production and
    employment
  • for EU the CEECS are new expanding market also
    growing exports and employment
  • Outcome depends on comparative advantages
  • CEECS doing low skilled routine works
  • EU high skilled high technology so that low
    skilled in EU are worse off potentially in
    unemployment in the long run
  • Reality Education levels are high in CEECs so
    also skilled work there ? intra industry trade
    and less disruption

11
Mobility of goods and services
  • Evidence
  • Pre-transition in 1988
  • all sectors of manufacturing were exporting to
    the EU.
  • The exports clustered into narrow product groups
  • Clustering persisted
  • Transition
  • Reduction of trade restriction (tariffs and
    non-tariffs)
  • Free movement of capital
  • boom in trade with EU
  • most CEECs more than 50 of trade with EU
  • Positive investment shocks for EU-oriented
    products

12
Mobility of goods and services
  • Negative demand shocks for CMEA-oriented
    products, supply rigidities ? hard for firms
    exporting to CMEA and need to redirect product
    and trade
  • no evidence of tragic consequences
  • increase in employment in exporting sectors in EU
  • a small risk of unemployment for unskilled
    workers In EU

13
Share of CMEA and EU trade 1990-1996annual
average percentage growth percentsource
Hoekman and Djankov (97)
14
Share of EU oriented Products within sectors in
1988
15
Share of new EU oriented Products within sectors
in 1996
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20
Exports and Imports to EU-15 ()
21
Capital mobility
  • Relocation of firms and Foreign Direct Investment
  • Reasons for EU
  • Cost-reduction approach
  • lower labour costs in CEECs so that EU firms can
    do routine works cheaper and then sell back the
    goods to EU markets
  • Expansionary approach
  • potential growing demand and expanding market,
    want to ensure local presence in CEECs so also
    move there
  • For CEECs
  • FDI creates production and employment
  • EU members fear unemployment of unskilled but if
    expansion is reason then less disruption in EU

22
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26
Capital mobility
  • Relocation of firms has been an ongoing process
    for the reasons above but
  • a lot to other OECD countries and only a small
    share of EUFDI goes to CEECs
  • Belgian operations in CEECs 10.7 of all
    foreign operations
  • German FDI in 1995 only 2 to CEECs
  • has been growing but below initial expectations
  • in specific sectors construction, foods and
    beverages, leather and footwear, textiles and
    clothing ? EU job losses in these sectors
  • lack of opportunities at home

27
Applications
  • 1. Effects of globalisation on the labour market
  • 2. FDI and spillovers

28
Globalisation Jobs
  • Postal survey of Belgian firms 1580
    questionnaires. 312 firms replied (20) in
  • manufacturing food, tobacco, chemical
  • services and retail
  • matching with company accounts 260 average
    employment 420 median employment 45
  • Questions on domestic and foreign competition,
    sources, and actions taken in face of it
  • Estimate home labour demand in face of foreign
    competition

29
Changes in competition
30
Source of foreign competition() Western Europe,
USA, Canada, Australia () e.g. Latin-America,
Turkey, Middle-East, Africa. Rank 1 refers to the
highest rank.
31
Reasons for increased competitionRank 1 is the
most important, Rank 5 is the least important.
Columns do not sum to a 100 since the same rank
to multiple options was allowed.
32
The response to increased competition
33
Reasons to invest abroad
34
Productivity of CEE production facility compared
to its Belgian counterpart
35
Risk factors for investing in CEECs
36
Most important risk factors in FDI in Central and
Eastern Europe
  • Internal constraints
  • human resources constraints (appropriate local
    staff,)
  • Budgetary constraints
  • Lack of information/knowledge
  • External constraints
  • economic climate, market considerations
  • political climate
  • cultural considerations

37
Home labour demand equation dependent variable
ln(L)
38
Labour Demand dependent variable ln(L)(GLS
Results), standard errors between brackets,
means statistical significant on the 5 level.
39
Globalisation Jobs
  • Both domestic and foreign competition increased
  • foreign competition stronger
  • Sources (countries)
  • only 6 of firms in 86-89 and 17 in 90-95 say
    CEECs is main source of competition
  • 66 say it comes from West
  • main source of competition
  • lower foreign wages but only for 50 of firms.
  • Other sources innovation and exchange rate

40
Globalisation Jobs
  • Reasons for relocation
  • market opportunity and strategic position not
    costs ? so expansionary approach rather than cost
    reduction
  • Actions taken in face of competition
  • restructuring
  • reduction but also increase in employment
  • only 12 say relocation
  • Labour demand I
  • wages(-), production(), size or capital(),
  • foreign competition () for large firms but (-)
    for small firms

41
Globalisation Jobs
  • Labour demand II
  • wages(-), production(),
  • foreign competition () for large firms but (-)
    for small firms and CEECs has largest effect,
  • technology () when in the presence of graduates
  • foreign competition from CEECs twice as (-) for
    unskilled (blue collar workers) as compared to
    skilled (white collar workers - as expected

42
Globalisation Jobs II
  • Paper (2001, Konings, Murphy
  • Do multinational enterprises substitute parent
    Jobs for foreign ones? Evidence from firm level
    panel data

43
Distribution of parent firms across the EU in the
sample
44
Distribution of subsidiaries across countries
45
Summary statistics
46
Correlations between employment growth in parent
firms and their affiliates
47
Conditional demand for parent employment
48
Main results
  • Increased globalisations did occur, especially
    after 1990
  • only a few firms relocated their production
    facilities, main reason for FDI is to explore new
    markets
  • Employment adjustment in response to increased
    foreign competition did happen and is not always
    negative, also positive adjustment occurred.

49
1. FDI and spillovers
  • Paper The effects of FDI on domestic firms
    evidence from firm level panel data in emerging
    economies (Konings, Oct. 2000)

50
FDI and SpilloversTe Technology effectCe
Competition effect
AC(q)
AC
TE
CE
q
51
Table 1 Summary Statistics (means of sample)
52
Table 3 Results for Bulgaria denotes
significant at the 5 level
53
Table 4 Results for RomaniaDependent variable y
54
Table 5 Results for Poland Dependent variable y
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