Transcript Economic Turbulence Ahead: How Much, How Long, and What

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
10:30-11:20 Session
Phillip LeBel, Ph.D.
Professor of Economics
Department of Economics and Finance
School of Business
[email protected]
What Is Globalization, and Why Is It Important?
1.
2.
3.
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.
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.
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.
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:
1.
2.
3.
4.
5.
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.
Foreign Direct Investment Flows Increase From Developed
Countries to Emerging and Developing Economies
Ratio of Fore ign Dire ct Inve s tm e nt to GDP
8.00
7.00
World FDI-GDP Trend
y = 0.0039x2 + 0.0402x + 0.3999
6.00
R2 = 0.7619
5.00
4.00
3.00
2.00
1.00
0.00
1980
1982
1984
1986
1988
1990
Af rica
North America
Middle East and North Af rica
1992
1994
1996
1998
East and South Asia
West Europe
World
Source: The World Bank , Iworld Development Indicators 2006
2000
2002
2004
2006
2008
Central and Latin America
Central and East Europe
World FDI-GDP Ratio Trend
2010
Rising Trade and Payments Imbalances in the U.S. Reduce U.S.
Monetary and Fiscal Policy Independence
U.S. Inte rnational Trade
U.S. Inte rnational Trade Balance
in current $U.S. billions
in current $U.S. billions
$3,000
$2,500
$200
Import Trend
4
y = 0.0012x
- 0.0874x3 + 2.8004x2 - 22.278x + 64.568
R2 = 0.9944
$0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
($200)
$2,000
($400)
Export Trend
y = -0.0005x + 0.0481x3 - 0.7718x2 + 9.1309x + 4.2377
R2 = 0.9906
($600)
4
$1,500
($800)
$1,000
($1,000)
($1,200)
$500
y = -0.0017x
4
($1,400)
$0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
Exports
Imports
Export Trend
+ 0.1375x 3 - 3.6224x
R2 = 0.878
2
+ 31.842x - 61.219
($1,600)
U.S. International Trade Balance
Import Trend
Source: U.S. D ept. of Commerce, BEA
Source: U.S. D ept. of Commerce, BEA
US Budget and International Trade Balance Ratios
Measured in relation to the U.S. Gross Domestic Prod
uct
0.0400
0.0200
0.0000
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
-0.0200
-0.0400
-0.0600
y = 2E-06x
-0.0800
Net Balance Trend
- 6E-05x 2 - 0.0019x + 0.0105
R2 = 0.5296
3
-0.1000
US Budget Balance Ratio to GDP
US Trade Balance to GDP Ratio
US Net Budget and Trade Balance Ratio to GDP
Net Balance Trend
Source: U.S. CBO, Budget of the United States; U.S. Department of Commerce, Bureau of Economic Analysis, International Statistics
2002
2005
US International Trade Balance Trend
Most U.S. Trade Remains Among Developed Countries,
the Exception Being the Rising Share of Imports from China and India
1. Net Immigration from Developing to Developed Countries Increases with
Globalization
2. Immigration Rates Depend on Differences in Rates of Growth Across Regions
and in Differences in Levels of Real Per Capita Gross Domestic Product
Global Net Migration by Region
8,000,000
6,000,000
United States Trend
y = 3923.1x 2 + 24552x + 4E+06
R2 = 0.9371
4,000,000
European Union Trend
y = -9816x 2 + 425691x - 593566
R2 = 0.6966
2,000,000
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
-2,000,000
-4,000,000
-6,000,000
Sub-Saharan Africa
Latin America & Caribbean
United States
East Asia & Pacific
Middle East and North Africa
European Union Trend
Source: The World Bank, World Development Indicators 2007
European Monetary Union
South Asia
United States Trend
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.
U.S. Energy Trade Dependence
U.S. Prove n Crude Oil Re s e rve s
(Net Energy Trade as a Percentage of Total Consumption)
in million barrels
45,000
5.00%
40,000
0.00%
1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
35,000
30,000
-5.00%
25,000
-10.00%
20,000
-15.00%
15,000
10,000
5,000
y = -5E-05x2 + 2.6395x - 9395.5
R = 0.8654
0
-5,0001904 1913 1922 1931 1940 1949 1958 1967 1976 1985 1994 2003
-10,000
-20.00%
2
-25.00%
y = 4E-05x 2 - 0.0066x + 0.0206
R2 = 0.8204
-30.00%
Observed Trade Dependency
U.S. Energy Trade Dependency Trend
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
1.
2.
Ene rgy Inte ns ity and Pe r Capita Incom e
Energy Intensity
3000
Energy Intensity Trendline
Y = 0.1732x 3 - 8.0918x 2 + 73.266x + 785.92
2500
2
R = 0.3968
2000
1500
1000
500
0
Russia
China
United States
Singapore
Japan
France
Germany
Britain
Australia
Israel
Poland
Czech Republic
South Korea
South Africa Hungary
Czech Republic
Chile
Malaysia
Mexico
Venezuela
Thailand
Mexico
Hungary Malaysia
India
Singapore
Turkey
South Korea
Philippines South Africa
Canada
Thailand Chile Greece Australia
Russia
United States
Argentina
Brazil
Portugal Britain
Indonesia
Israel
China
France
GermanyJapanHong Kong
India
PPP GNP Per Capita =Tens of $U.S. Dollars
PPP GNP Per Capita, 1995
Ene rgy Inte ns ity and Ene rgy Price s
Energy Intensity
25
20
Energy Intensity = Grams of Oil Equivalent Energy Consumption per $U.S. of GDP
Energy Intensity
PPP GNP Per Capita
Energy Intensity Trendline
15
10
5
0
Russia
China
Poland
Czech Republic
South Africa
Hungary
Venezuela
Mexico
India
Malaysia
Singapore
Turkey
South Korea
Philippines Canada
Hong Kong
Chile AustraliaBrazil Greece
Britain
Argentina JapanPortugal
United States
Britain
Israel
Germany France
South
Africa
Chile Australia Brazil
Hong Kong
Venezuela IndonesiaUnited States
Japan
Russia
-5
Premium Gasoline Price, in $U.S. cents per gallon
Energy Intensity = decagrams of oil equivalent per $U.S. of GDP
Energy Intensity
Premium Gasoline Price $U.S.
Energy Intensity Trendline
Globalization and the Environment:
1. 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.
Global Warming Data, 1867-2001
Global Warming Data, 1960-2001
70.00
70.00
60.00
60.00
Fahrenheit Trend
y = 0.0001x 2 - 0.0077x + 56.995
R2 = 0.6043
50.00
50.00
40.00
Fahrenheit Trend
y = 0.0004x 2 + 0.0103x + 57.057
R2 = 0.683
40.00
30.00
30.00
Celsius Trend
y = 6E-05x 2 - 0.0043x + 13.886
R2 = 0.6043
20.00
Celsius Trend
y = 0.0002x 2 + 0.0057x + 13.921
R2 = 0.683
20.00
10.00
10.00
0.00
1867 1878 1889 1900 1911 1922 1933 1944 1955 1966 1977 1988 1999 2010 2021 2032
Celsius
Fahrenheit
Celsius Temperature Trend
0.00
1960 1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038
Fahrenheit Trend
Celsius
Fahrenheit Trend
Celsius Trend
Index of Relative Biodiversity
Renewable Resource Biodiversity Growth Profile
M
Fahrenheit
IB
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
3
S-1
S-2
S-3
S-4
S-5
t
1
13
25
37
49
61
73
85
97 109 121 133 145 157
t
Globalization and Inequality:
1. 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.
Incom e Ine quality and pe r Capita Incom e
0.50
Tanzania
630
0.45
0.40
y = -0.0005x
Kenya
1360
0.35
Botswana
5190
Senegal
1750
2
+ 0.0213x
R2 = 0.5385
Chile
8090
Mexico
7490
0.30
0.25
0.20
0.15
0.10
Mauritania
1380
Peru
3080
Singapore
Thailand
United Kingdom
16720
5890
Hong Kong
N.Zealand Australia
16730
United States
Philippines Tunisia
17350
20050 Switzerland
14400
23120
2480
5130 Algeria
22100
France
Canada
China
Denmark
5740
19200
Israel
19720
1910
18650
Italy
Côte d'Ivoire
Germany
S.Korea 14600
Norway
17730
1640
Uganda
20610
8950
18040
Ethiopia 1070
India
Pakistan
Sweden Belgium
Sri
Landa
Netherlands
340 Rwanda
1210
Japan
2130
Spain
Bangladesh
17610
2810Poland
17560
18160
20160
13170
770
1230
4880
Gini Coefficients for U.S. Household Income
0.05
0.00
Ethiopia
340
0.6000
Bangladesh
1230
China
1910
Poland
4880
Mexico
7490
Israel
14600
Sweden
17610
France
19200
Switzerland
22100
0.5000
Actual Gini
Source: World Development Report
Inequality-Income Trend
Income Inequality Trend
y = 0.0001x 2 - 0.0117x + 0.5677
R2 = 0.9356
1994 (Washington, D.C.: The World Bank, 1994)
0.4000
0.3000
0.2000
0.1000
0.0000
1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 2024
Gini Coef f icients
Gini Inequality Trend in the U.S.
Source: U.S. Census Bureau, Department of Commerce
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 noninflationary sustainable growth in ways that also strengthen
environmental quality and promote broad-based gains.
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 Donne’s dictum: “…No man is
an island, entire of itself…any man’s 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.
QuickT i me™ and a
T IFF (Uncompressed) decompressor
are needed to see this pi cture.
≠