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Globalization
By: Neel Patel and Avni Patel
Nations are
Interdependent
 Interdependency arises from a situation
in which economies of countries rely on
each other to produce goods and
services one country needs in exchange
for other goods and services. (KEY POINT)
 We do this by trading…
 Remember: Trade is always beneficial for
both nations.
Trade
 By trading, we get what we want in exchange for
something someone else wants. Remember Comparative
Advantage is the main way we trade. It says that we trade
things based on who has the lower opportunity cost for the
given good.
 For example, many people in Saudi Arabia desire
bananas, but their desert landscape does not allow them to
produce bananas efficiently. So if Saudi Arabia wants
bananas, it will have to import them from a banana
producing country such as Brazil. But Brazil wants
something in exchange… So Saudi Arabia gives Brazil oil
for the bananas.
 Careful: Money is not desired… it is just something that is
a store of value or a median of exchange… it is not what
we want. An easy way to remember is would you rather
have a million pieces of paper that has 1$ written on it, or
would you want a nice large home with a golden swimming
pool. We want stuff not money.
Globalization: What I do
affects you too…
 Today’s society is more connected than ever before.
 Likewise, if we’re connected, then we tend to be affected
by each other’s actions. For example, the recent US
housing bust has decreased consumption in not only the
US, but it has spread to other parts of the world too.
 You can relate as well… for example, let’s say you have a
good friend who is having a really bad day and you feel
bad for them. Now you find yourself having a crummy day
as well. Because both of you are really close friends, both
of you feel for each other. This is globalization, just on a
larger scale.
Globalization doesn’t have
to be bad.
 Interdependency is a good thing. If one country
is experiencing a booming economy, then that
country has more money to spend on other
country’s good and services. This increase in
imports/exports can lead to other countries
doing better as well.
 We tend to view globalization in America as
something that takes our jobs to Mexico or
China. However, the media tells us little as to
why and how we have benefited.
Globalization doesn’t have
to be bad… continued
 Our manufacturing jobs go to other nations
because we have higher labor costs and
production costs. Whereas countries such as
Mexico don’t have as high costs. When things
are produced there however, we, Americans,
can buy these goods for cheaper prices than if
we were to produce them. So now, since things
cost less, we can buy more stuff  I like stuff…
do you???
Globalization doesn’t have
to be bad… continued
 Furthermore, America has also benefited
from the increase in high technology
jobs. While labor costs are low in Mexico,
people here are generally more educated
and skilled. So since we have a higher
skilled workforce with more education,
don’t you think we should do these types
of jobs that fit our true potential?
The case for Protectionism
 Protectionism is defined as a country or
government that wants to prevent SOME (not
all) free trade in fear of the negative
consequences that arise with free trade.
 In the next slides, you will find a variety of
cases for protectionism and why that case can
be proved wrong. You must decide whether or
not protectionism is good or bad, the debate
rages on today…
The case for : Military
Self-sufficiency
 The issue here is not economic, but
political-military.
 Many nations argue they cannot rely on
other nations for weapons, because such
dependency may come to haunt them
when wars arise.
Diversification-for-Stability
Argument
 Many nations argue that they must diversify
their economies in order to insure themselves
from economic downturns that can arise if they
rely on only one Sector of the economy. Think
about Michigan’s economy that has depended
on autos for so long, now it has to diversify.
 The same issue is being argued for nations on
a larger scale. They claim that diversification
can lead to greater domestic stability.
The Infant Industry Argument
 Some nations claim that they need short
term protection for their industries so that
they can grow big and strong to compete
with larger scale foreign companies.
 However, which industries need this
protection? It is very difficult to decide
which industries need help. Also, many
protective measure still exist when these
infant industries mature.
The Protection-againstDumping Argument
 Dumping is defined as the sale of a product in
a foreign country at prices either below cost or
below the prices commonly charged at home.
 If the firms succeed in dumping, they will
achieve monopoly power.
 However, most nations outlaw dumping that
injures domestic firms.
The Increased Domestic
Employment Argument
 Many argue protectionism is good because it increases
the amount of jobs available in the domestic economy.
The jobs would increase, because firms would have to
make all of the good for consumption for the country.
To do this, the firms must hire a lot of people.
 However, increased protectionism can lead to trade
wars where everyone enacts barriers. For example,
this was evident of the Smoot-Hawley Tariff that is
partly to blame for the Great Depression.
The Cheap Foreign Labor Argument
 Many argue that the cheaper wages in other
nations lead firms to hire less workers at home.
That is why we need protectionism.
 However, this argument assumes that it is not
mutually beneficial for the rich and poor
people/countries to trade.
 Also, trade is based on comparative advantage
and not absolute advantage.
 People wrongly assume that we will be hurt
with less employment, but they don’t realize
the lower costs and the new ability to focus on
higher technology industries that come with
trade.
Interdependency Today
 Today, with increases in Globalization, we now
have cooperative economic units known as
free trade zones. For example, we are in a free
trade agreement with Canada and Mexico
known as NAFTA (North-American Free Trade
Agreement)
 Europe has taken one step ahead of this and
created the European Union which shares
more than just free trade, but also one
common central bank, etc.
What has lead to
Globalization?
 Globalization has increased mainly because
barriers to trade have decreased. (KEY POINT)
 We find it easier to trade across oceans that
were once very treacherous. We do this by
airplanes, satellites in space, etc.
 Our ability to communicate with each other
more easily is a big reason as to why
globalization has increased.
The key Ingredients to
Globalization:
If you don’t understand a word below, click on it!
1. Reduction in Quotas and Tariffs.
2. Increase in Communication such as internet
and even the telephone/cell phone.
3. Increased number of participant countries in
the world economy.
4. Reduction in transportation costs.
5. Increased protection of intellectual property.
Globalization: A love story
and not such a love story…
 Globalization has lead to many things:
 Positives: McDonalds, Pokemon, Cultural diffusion
(a fancy way to say we now understand more about
others), Democracy and Capitalism have spread,
greater immigration,
 Negatives: Brain Drain (smart people go to richer
countries), environmental decay, natural resources
such as oil or zinc or lumber get used up, income
disparity increases, black market activities increase,
sweat shops…
Exercises:
 What is interdependency between countries in an
economic sense? Click on a box next to each answer
option. You can only proceed after clicking on the right
answer.
A. When one nation assumes dominance over
another nation.
B. When one nation depends on another nation for a
good or service and the other nation depends on
another and so on…
C. When one nation can produce all of its goods
domestically so it doesn’t need to trade.
D. When one nation produces apples and another
cannot produce apples.
Exercises Continued…
 Why do we, in America, worry about
financial meltdowns in faraway places
such as Europe or Asia? Please
explain…
 Hint: Include interdependency in your
statement.
Exercises Continued…
 The correct answer to why we worry
about financial meltdowns elsewhere is
because the world is becoming more
economically interconnected. When one
section of the world experiences an
issue, the other parts of the world can
feel it too. Think about the current/last
economic recession in 2008-2009
Exercises Continued…

A.
B.
C.
D.
Globalization has increased because of
all of the reason below EXCEPT:
Because Americans have made the
world free of communism forever.
Communication has increased
Trade barriers have decreased.
Decreases in costs of transportation
Exercises Continued…

Which of the following is NOT an example of
interdependency?
A.
Since India grows rice and sub-Saharan Africa can’t
produce rice, sub-Saharan Africa imports rice from
India.
China depends on the US for pharmaceuticals and
the US depends on China for manufactured goods.
The United Kingdom trades British romance novels
with France for French pastries because the British
love French pastries.
Japan took over parts of China in WW II and used
some of China’s resources for the war effort. Japan
depended on China for its natural resources.
B.
C.
D.
Exercises Continued…
 What are import quotas?
A. Regulations enacted by governments that
restrict the amount of goods the country can
export.
B. The total quote or amount, of goods a country
produces in a fiscal year.
C. Regulations enacted by governments that
restrict the amount of goods the country can
export.
D. These are quotes found for stocks in New
York.
Exercises Continued…

A.
B.
C.
D.
What is intellectual property? Name an
example also.
It is smart individuals moving from one place
to another. Example: Bill Gates
It is an asset that an individual(s) create for
production of some sort. Example: patent
It is the total property owned by the rich
people in a country. Example: Country Clubs
It is not worth protecting because it is of oldworld use. Example: Clocks
The World Trade Organization (WTO):
 Yes you guessed it, it is a world organization.
 The WTO is not superman… however, it does
help settle disputes between the 153 member
countries in the subject regarding trade.
 Above all, it’s:
-It’s a negotiation forum
-It’s a set of rules
-It helps to settle disputes
Spain
China
How old is the WTO?
 Although it was born in 1995, the WTO organization
is not that old.
 The WTO grew out of GATT (the General
Agreement on Tariffs and Trade) (KEY POINT)
 The WTO is better than the GATT because unlike
the GATT which only focuses on trade regarding
goods, the WTO also deals with services, traded
inventions and creations and designs known as
intellectual property. (KEY POINT)
The WTO
 The WTO also sees to
it that there is fair
competition among
member countries and
that there is a fair
treatment between rich
developed countries
and poor developing
nations. (KEY POINT)
Exercises

A.
B.
C.
D.
Which of the following has lead to
(ingredient) of world trade?
Personal Income
Costs of production
Tariffs in the world
The real GDP per capita
Exercises continued…
 True or False. A country can always
benefit from trade.
True
False
 True of False. It is easier for a nation to
produce everything itself.
True
False
Exercises Continued…

A.
B.
C.
D.
Which of the following tend to describe what
the World Trade Organization (WTO) does?
It is a strict enforcer of trade and intellectual
property.
The WTO has no specific duties
The WTO acts as an intermediary between
nations regarding trade of both goods and
services and even intellectual property rights.
The WTO acts like the UN and has 7
permanents members with 163 total
members.
Exercises Continued…

A.
B.
C.
D.
Which of the following is a common reason
as to why North Korea and Cuba have yet to
become part of the global market.
The western world threatens to nuke both
countries.
Both countries tend to refuse to participate in
the world economy.
Both countries tend to be self-sufficient and
therefore not need any other country.
Both countries fear they will “lose out” if they
participate in trade.
Exercises Continued…
 Short Essay: List two pros and two cons
of globalization. Overall, do you think that
globalization is detrimental to the world at
large?
References
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

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"Basic Economics: Interdependence." Social Studies for Kids. Web. 30 May
2010.
<http://www.socialstudiesforkids.com/articles/economics/interdependence.htm>.
"WTO | Understanding the WTO - What Is the World Trade
Organization?" World Trade Organization - Home Page. Web. 30 May 2010.
<http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm>.
Why Are Some Nations Wealthy. IMF Center, 21 Sept. 2005. Web. 31 May 2010.
<http://www.imf.org/external/np/exr/center/students/hs/think/lesson6.pdf>.
Bhagwati, Jagdish. "Globalization Arguments." Interview. Video blog
post. Globalization Arguments. 5minLife Videopedia. Web. 31 May 2010.
<http://www.5min.com/Video/Globalization-Arguments-27296840>.
Campbell, McConnell R., Brue L. Stanley, and Flynn M. Sean. Economics. Vol.
18. NewYork: McGraw-Hill, 2009. Print.