Transcript Figure 17.1 Per Capita Real GDP by Region

Chapter 17
The Future Path of Globalization
...the sea brought Greeks the vine from India, from
Greece transmitted the use of grain across the sea,
from Phoenicia imported letters as a memorial
against forgetfulness, thus preventing the greater
part of mankind from being wineless, grainless,
and unlettered.
(Plutarch, 100 A.D.)
International
Economics
Globalization Means Interdependence
• The performance of each economy is linked to the
performance of other economies in many ways, as the
circular flow diagram clearly illustrated.
• The Nebraska automobile industry example taught us the
protectionism does not favor national interests over foreign
interests, but one national interest over other national
interests.
• The Lerner symmetry theorem shows that protection of an
import competing industry hurts the same country’s export
industries.
• The two-country model of trade makes it very clear that
protectionism is not just a domestic political matter:
Protectionism has clear economic effects abroad as well as
at home.
International
Economics
Globalization Means Interdependence
• The performance of each
economy is linked to the
performance of other
economies in many ways.
• The circular flow diagram
from Chapter 2 clearly
illustrated the links
between the domestic
economy and the rest of
the world.
SF
rF
Financial Sector
SI
rI
rG S G
DFP
Tr
Individuals
rP
TXI
TR I
Government
TXP
Producers
TR P
G
TrF
SP
IG
C
I
Exports X
Transfers
Border
Imports IM
Financial
Flows
Abroad
SF
rF
Figure 2.7
The Circular Flow of an Open Economy
International
Economics
Globalization Means Interdependence
• The Lerner symmetry
theorem reminds us that
protection is costly to an
economy because it favors
a higher-cost industry over
a lower-cost industry.
• In the extreme case,
protectionism that
eliminates all trade takes
the economy back to selfsufficiency and a lower
level of welfare.
Food
400
P
300
A
C
200
CPL
p
100
0
100
200
300
400
500
Clothing
International
Economics
Globalization Means Interdependence
• The two-country
model of trade
makes it very clear
that protectionism is
not just a domestic
political matter:
Protectionism has
clear economic
effects abroad as
well as at home.
Figure 4.5
Heartland
The International Market
Orient
P
S
P
S
P
S
2
b
c
c
1
B
0.5
0
C
C
D
60 75 90
D
Tons 0
30
D
Tons
0
25 35 55
Tons
International
Economics
Globalization and Growth
• The power of compounding means that long-run growth
invariably does more for human welfare than any shortrun economic change.
• The costs of protectionism extend beyond the
immediate opportunity costs because protectionism has
serious long-run effects on economic growth.
• Globalization’s role in spreading knowledge has been
recognized for centuries.
• The models of economic growth made it clear that longrun growth requires continuous technological progress,
and protectionism therefore reduces technological
progress.
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Economics
Controversial Aspects of Globalization
• Globalization seems to clash with the concept of the
“nation.”
• Throughout history, foreigners have often been seen
as a threat rather than as the source of increased
welfare through specialization and exchange.
• There has also been a fear that foreign ideas and
culture accompany international trade and undermine
society.
• To a large degree, the future path of globalization
depends on people’s views on foreigners and their
countries’ relationships with foreigners.
International
Economics
Controversial Aspects of Globalization
• Globalization is often seen as promoting a “race to the
bottom” among policy makers, who are described as
facing competition to reduce taxes, relax regulations
and standards, and bow down to foreign business
interests.
• There is relatively little evidence supporting the “race
to the bottom” hypothesis, however.
• It remains a hotly debated issue whether international
competition improves or weakens economic
institutions.
International
Economics
Controversial Aspects of Globalization
• A common theme is that an increasingly integrated world
economy is “bad” for the environment.
• It is claimed that firms will locate where pollution
controls are weakest, thus increasing overall world
pollution and that people will flock to those locations,
making the pollution even worse.
• Globalization and economic growth cause environmental
problems only if there is no technological progress.
• The question of whether globalization is environmentally
friendly therefore comes down to whether it raises the
rate of technological progress.
International
Economics
Controversial Aspects of Globalization
• In summary, to argue that globalization is bad for the
environment is, essentially, to argue that:
(1) There will be less technological progress in a
competitive global economy than there would be in
smaller, isolated economies; and
(2) Governments in closed economies do a better job
of making prices and taxes reflect opportunity costs than
do governments in open economies.
• There is no convincing evidence to support either of
these arguments, and logical arguments to support these
outcomes require very questionable assumptions.
International
Economics
Globalization and International Inequality
• Differences in per capita real output across countries and
regions of the world have been getting larger throughout
the past two-hundred years.
• The growing income differences have not been the result
of a lowering of per capita incomes in some parts of the
world.
• Virtually all regions of the world have grown.
• The problem has been that some countries have grown
much faster than others.
• For the income differences to be narrowed, lower income
countries must grow faster than high-income countries.
• It is difficult to argue that low-income countries can
achieve faster technological progress and economic growth
as closed economies.
International
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Figure 17.1
Per Capita Real GDP by Region
Western
Offshoots
Per Capita Real GDP
Western
Europe
15000
10000
Southern
Europe
World
Latin America
Eastern Europe
5000
Asia
Africa
1820
1870
1900
1929
1950
1973
1992
International
Economics
According to Jeffrey Sachs, more rapid economic growth in
developing countries requires more, not less, globalization:
...the technological capacity of an economy depends not just
on its own innovations, but on its capacity to adopt the
technologies produced elsewhere. This can happen through
three main channels. Countries can import technology
embodied in capital and consumer goods (cell-phones, fax
machines, personal computers, immunizations). They can
license technologies from patent holders. And they can
attract foreign direct investment (FDI), so that a
multinational enterprise with proprietary technology sets up
production inside their borders. In all cases, countries must
be successful as exporters to pay for the imports of
technology (or to pay the dividends on foreign investment).
Jeffrey Sach (2000), “A New Map of the World,” The Economist, June 24.
International
Economics
According to the scientist and writer Thomas Barlow:
Change may be inevitable. But does this really
make us the pawns of some monolithic,
uncontrollable force? Discovering the answer to
that, in the long run, will be one of the adventures
of our shared future. My own hope, though, is
that we will learn–if we aren’t quietly doing so
already–that the unpredictable is not he same thing
as the uncontrollable. We will see that man does
not conform to technology but to a perception of
opportunity.
Thomas Barlow (2002), “Why We Can Choose to Conquer Fear of Change,” Financial
Times, January 5/6.
International
Economics
Preparing for the Opportunities of Globalization
• No matter what your field of concentration is, there are
international dimensions to be studied.
• Business education has globalized along with business.
• Most business schools now teach specialized courses in
international marketing, international management, and
international finance.
• All colleges and universities offer students opportunities to
study abroad for the summer, a semester, or an entire
academic year.
• Study a foreign language.
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