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MN2165: The Global Economy

Lecture 1:
Introduction: Economic Growth
and the Global Economy

Lecturer
Dr. Diego Vazquez, E-mail: D.A.Vazquez@rhul.ac.uk
Workshops:
Dr. Diego Vazquez,

Aims and Objectives of the Course


Identify the key features
and theories of
globalisation.
Understand the structural
forces shaping the global
economy, global trade and
investment patterns.
Analyze the relevant
institutions to which
globalization has given
rise, from the World Trade
Organization to the
multinational enterprise.
Highlight the challenges of
globalization

Explanatory Aspects of Globalization


The role of Nation states as the container of
societies begins to be questioned. National
economies but also identities, and politics
become open.
Global institutions like the International Monetary
Fund (IMF) and the World Bank grow.
Multinational companies organize global supply
chains
Trans-boundary processes of capital movements
pollution, trade, and migration intensify.
Global environmental change, economic crises,
poverty and conflict exceeds national actions.

Globalisation: Different Views


What is globalization?

How does globalization


affects our life?

A political view
globalisation is not just economic. It is also a
political and security phenomenon.
I believe the world has changed in a more fundamental way. Globalisation
has transformed our economies and our working practices.. We live in a
world where isolationism has ceased to have a reason to exist. By
necessity we have to co-operate with each other across nations.
Many of our domestic problems are caused on the other side of the world.
Financial instability in Asia destroys jobs in Chicago and in my own
constituency in County Durham. Poverty in the Caribbean means more
drugs on the streets in Washington and London. Conflict in the Balkans
causes more refugees in Germany and here in the UK. These problems can
only be addressed by international co-operation.
We are all internationalists now, whether we like it or not. We cannot
refuse to participate in global markets if we want to prosper. We cannot
ignore new political ideas in other countries if we want to innovate. We
cannot turn our backs on conflicts and the violation of human rights within
other countries if we want still to be secure.

Tony Blair, 2001

A businessmen view
opening of world markets, global supply chains,
shifts in factors of production across borders,
multinationals
'

One consequence of the race for competitiveness will be


a shift of jobs to the third world, Professor Garellis says,
'the opening of world markets and the harmonisation of
international business rules, through agreements such
as the General Agreement on Tariffs and Trade (GATT),
puts enormous pressure on business to relocate'.
In the past 10 years, a labour force of some 1,200 million
people has become reachable in the developing
countries, at an average cost of less than $2 an hour.
The industrialised nations at present employ 350 million
people paid an average hourly wage of $18.

(Stephane Garelli, Financial Times, 30/9/94)

An Economist View

increased economic efficiency. Integrated


Markets, breaking down barriers to trade and
capital
(Globalisation) is the closer integration of the
countries and peoples of the world which has
been brought about by the enormous reduction
of costs of transportation and communication,
and the breaking down of artificial barriers to the
flows of goods, services, capital, knowledge and
(to a lesser extent) people across borders.

(Stiglitz, 2001,p. 9)

Theories of Globalization:
Sceptics
Hirst & Thompson

Does globalization
exists?

Historical and regional


comparisons. The
internationalised economy.
Jones
Cycles of the economy
Saul:
Discusses the end of
globalization: An specific
economic moment.

Radicals
Giddens:
Globalization is real and its
consequences can be felt
everywhere. The task is to
analyse and understand
Ohmae:
The borderless triad.
Globalization is an inexorable,
irreversible, homogenising force

Pragmatics
Dicken:
The globalizing economy. Significant qualitative changes in the
international model of production and consumption. The global
economy is a dynamic web of transnational production networks and
geographically localised political, economic and cultural systems.
Scholte:
Conceptual confusion: Some authors use the word globalization to talk
about universzalization, westernization, or neo-liberalism

Does Globalization Exists?


The hyperglobalistic view
Globalization is a fact. In the world of internet, information
technology and and TV, there will be globalization ( Blair,
2001 in Dicken, 2005)
Todays global economy is genuinely borderless. Information,
capital and innovation flow all over the world at top speed,
enabled by technology and driven by consumers desires to
access the best and less expensive products. (Ohmae, 1995)
Globalisation is political, technological and cultural, as well as
economic. It has been influenced above all by developments
in systems of communication, dating back only to the late
1960s. In short, economic Globalization has been driven by
technological advances that have made easier and quicker to
complete international transactions, both trade and financial
flows (Giddens, 1999)

Does Globalization Exists? The Sceptic View


We do not have a fully globalised economy, we do have an
international economy where exchanges occur between
country units, and national policy responses to it. (Hirst &
Thompson, 1992
Political Discourse
Globalisation is just an euphemism for what we use to call
neoliberal macroeconomic policies: free market and no
state intervention (Marrison, 1998)
Economic Cycles
In many ways (the economy) is less globalised than 100 years
ago (Glyn & Sutclife, 1992). If the theorists of
globalization mean that we have an economy in which
each part of the world is linked by markets sharing close
to real-time information, then that began not in the 1970s
but in the 1870s. (Hirst &Thompson 1999, 9)
The End of Globalization
Globalization is falling apart, collapsing very fast. Bits and
pieces continue but a flood of other forces have come into
play ( Saul, 2005)

Globalisation is not the same as

Internationalization ( quantitative increase of


transactions across national borders)

Universalization (convergence, global =


worldwide and everywhere)

Neoliberalism (open border markets and hollow


out of the state)

Westernization (convergence to western culture)


When taken to mean one of these terms, ideas of
globalisation reveal little new and can have
questionable political implications.
(Scholte, 2006)

Definitions
Globalization" is a spread of trans-planetary
connections through organisations that coordinate
the activities of individuals across the planet:
Communications, ideas, social relations, knowledge, people,
production processes -global factories, global sourcing-,
consumption, money, and responses to supranational
challenges environment, health-(Scholte, 2006)

Economic "globalization" is a complex of

interrelated processes of qualitative and


quantitative change in economic activities, is the
result of human innovation and technological progress.

Increasing integration of economies around the


world, particularly through flows of goods, services,
people, knowledge and capital (Dicken, 2004)

What implies a Global Market?


Integrated Trade (Goods and
services): Extension of market forces (supply and

demand) from beyond international borders.


Not only the volume of international trade but also the
composition of what countries export is important. Access to
cheaper Imports. Manufactured goods vs commodities

Capital Movements:

Access to cheap or skilled


labour beyond local boundaries, access to new markets,
Integration of financial markets by modern electronic
communication, Widespread ACCESS to Capital flows
Capital flows are either official flows of aid or development
assistance or private investments such as FDI (direct foreign
investment), portfolio investment and bank credit

Spread of Knowledge and Technology:


Drive: Changes in communications technology, production

processes and division of labour. FDI brings not only


expansion of capital stocks but also technical innovation:
production methods, management techniques, economic
policies

Movement of People:

Movement of People
International migration, has enormous
implications for growth and welfare in
both origin and destination countries
Workers move from one country to
another partly to find better
employment opportunities. Most
migration occurs between developing
countries. But the flow of migrants to
advanced economies is likely to provide
a means through which global wages
converge.

International Emigration

An important benefit to developing


countries is the receipt of
remittances or transfers from
income earned by overseas emigrants
UNPD data show that development
countries remittance receipts totalled
$240 billion in 2009, exceeding
development aid from all sources by 70
percent

International Immigration

Internationalization versus Globalization


Two different models used to explain the world economy.
1. Internationalized Economy
National economies
Shallow integration into world market relationships
National Governance and International Agreements remains
relevant
Multinational companies prevail
2. Globalised Economy
World system
Markets and production global
Functional Integration through transnational production networks
Governance problematic: Global Institutions
Transnational companies prevail
Source: Hirst and Thompson, Globalisation in Question, pp. 13
(reading workshop 1)

The pragmatic view: Dicken (2005)


The Global Economy can be seen as the linking together of two sets
of networks:
the organizational ( production networks)
and the geographical ( localised clusters of economic activity)
Struggle
between Global Forces towards convergence and Local
.
Forces promoting divergence.
.
Five major networks of actors competing and collaborating in the
global economy: Labour, CSO, Firms, Consumers and States,
Despite cycles the general trend is steadily towards increased
integration
Qualitative Changes: from shallow to deep integration
Globalized Regions.
Global Value Chains, Key role of MNE.
New Industrialising Economies

The Globalizing Economy :

Dicken (2005)

Globalization as Processes:

economic, political, personal


technological (internationalization of technology).
Economic globalizing processes imply integration of economies through
flows of capital, services, technology and labour

Localizing
processes.
Internationalizing
processes
Globalizing
processes
Regionalizing
processes

Localizing processes

4 types of processes

High Degree of functional


integration of economic
activities

Pure
Globalization

Internationalizing processes

Extent of Geographical Spread of


Economic activities

High

Summary
Ongoing debate on whether we have a globalised
economy: sceptics vs radicals.
Pragmatic view recognised that we do not have a
globalised economy but evidence suggest we have a
globalising economy.
Although some regions are more globalised than
others, globalization processes are accelerating.
Globalization as a concept describes a new
phenomenon, different from internationalization,
universalization, westernization and neo-liberalism
Economic Globalization is is a complex of interrelated
processes of qualitative and quantitative change in
economic activities.
This quantitative change is an unique phenomenon
changing traditional north=south political economy.

Class Query: How do we measure Globalization?

What indicators you would use to make a


Globalization Index.
What would be the economic globalization
indicators?

Definitions
Foreign Investment (FI): Investment of resources outside the
home country.
Sum of foreign portfolio investment plus foreign direct investment
Foreign Portfolio Investment (FPI): investment in foreign
financial instruments (Gov Bonds, foreign stocks). Involves loans
paying a fixed rate of interest
Foreign Direct Investment (FDI): investment in business
activities to produce and/or market a product in a foreign country.
Involves investments over which the firm maintains control
FDI Flows : FDI going out of a county ( outwards) and getting into
a country ( inwards)
FDI stock: Total amount of FDI in a given country or region.