Transcript CHAPTER 22: Globalization

Chapter
22
Globalization
Prepared by:
Fernando & Yvonn Quijano
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
Globalization
22
Chapter Outline
CHAPTER 22: Globalization
The Global Circular Flow
A Brief History of Economic
Globalization
The Benefits and Costs of
Globalization
The Free-Trade Debate Revisited
Trade, Growth, and Poverty
The Globalization of Labor Markets:
The Economics of Immigration and
Outsourcing
Capital Mobility
Public Policy and Globalization
Global Externalities and Public Goods
Nongovernmental Organizations and
International Economics: The
Washington Consensus
Globalization, Capitalism, and
Democracy
A Final Word
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
2 of 44
GLOBALIZATION
CHAPTER 22: Globalization
globalization The process of increasing
interdependence among countries and their
citizens.
economic globalization The process of
increasing economic interdependence
among countries and their citizens.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
3 of 44
CHAPTER 22: Globalization
THE GLOBAL CIRCULAR FLOW
FIGURE 22.1 Economic Globalization:
International Flows
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
4 of 44
CHAPTER 22: Globalization
Interdependence among countries brought about by
globalization occurs in which of the following
arenas?
a. Increased international trade of goods and
services.
b. Increased cross-border movements of labor.
c. Expanded international financial flows.
d. All of the above.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
5 of 44
CHAPTER 22: Globalization
Interdependence among countries brought about by
globalization occurs in which of the following
arenas?
a. Increased international trade of goods and
services.
b. Increased cross-border movements of labor.
c. Expanded international financial flows.
d. All of the above.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
6 of 44
A BRIEF HISTORY OF ECONOMIC
GLOBALIZATION
CHAPTER 22: Globalization
Economic historian Jeffrey Williamson classifies the
period 1820–1914 as the first great period of
globalization and the period since World War II as
the second.
Many dimensions of globalization are new today:
•
•
Sharp reductions in trade barriers
Increases in the flows of information and
commerce over the Internet
• Increased speed and lower cost of travel
• Different nature of international relations.
• Dramatic increase in outsourcing.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
7 of 44
CHAPTER 22: Globalization
Efficiency in a world economy is achieved only if:
a. Restrictions are placed on the movement of labor
to protect domestic workers from immigrant labor.
b. Restrictions are placed on the movement of
capital to prevent excessive outflows of capital
from one country and into another.
c. Restrictions are placed on the sale of goods and
services in order to prevent the flow of cheap
goods into the domestic economy.
d. All of the above.
e. None of the above.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
8 of 44
CHAPTER 22: Globalization
Efficiency in a world economy is achieved only if:
a. Restrictions are placed on the movement of labor
to protect domestic workers from immigrant labor.
b. Restrictions are placed on the movement of
capital to prevent excessive outflows of capital
from one country and into another.
c. Restrictions are placed on the sale of goods and
services in order to prevent the flow of cheap
goods into the domestic economy.
d. All of the above.
e. None of the above.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
9 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
THE FREE-TRADE DEBATE REVISITED
comparative advantage A country enjoys
a comparative advantage in the production
of a good if the production of that good has
a lower opportunity cost than it would have
if produced in another country.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
10 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
The argument for free trade rests on two pieces of
intuition:
CHAPTER 22: Globalization
• Voluntary exchange is efficient, and
• Comparative advantage. A country enjoys a
comparative advantage in the production of a
good if the production of that good has a lower
opportunity cost than it would have if produced
in another country.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
11 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
Those who oppose trade make a number of
arguments:
• Buying imports simply ships jobs abroad.
• How can we compete with countries who pay
low wages?
• Free trade will hurt the environment.
• The power of organizations like the WTO can
undermine national sovereignty.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
12 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
Proponents of free trade have a number of counterarguments:
CHAPTER 22: Globalization
• We can’t buy from countries unless they
•
•
•
•
simultaneously buy from us.
Protecting an industry from foreign competition to
save jobs will cost jobs in those sectors which would
expand with free trade.
Protecting an industry can lead to inefficiency and a
lack of ability to compete in world markets later on.
Keeping the unemployment rate low is a
macroeconomic issue.
If the objective is to reduce poverty, how can
preventing trade help?
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
13 of 44
CHAPTER 22: Globalization
Which of the following is not an appropriate tool for
fighting unemployment?
a. Fiscal policy.
b. Monetary policy.
c. Antitrade policies.
d. None of the above. All of the above can be
effective policies for fighting domestic
unemployment.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
14 of 44
CHAPTER 22: Globalization
Which of the following is not an appropriate tool for
fighting unemployment?
a. Fiscal policy.
b. Monetary policy.
c. Antitrade policies.
d. None of the above. All of the above can be
effective policies for fighting domestic
unemployment.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
15 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
One final issue is the debate over genetically
modified (GM) foods or genetically modified
organisms.
genetically modified (GM) foods Strains
of food that have been genetically
modified. Examples include insect- and
herbicide-resistant soybeans, corn, and
cotton and rice with increased iron and
vitamins.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
16 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
TRADE, GROWTH, AND POVERTY
CHAPTER 22: Globalization
Controlling for other determinants of poverty and
growth, is trade a plus or a minus?
• Studies show that countries that were more
integrated into the world economy grew faster
than those that were less integrated.
• When countries grow, the income of the lowest
fifth of the income distribution rises at about the
same rate as aggregate income.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
17 of 44
CHAPTER 22: Globalization
How can trade help to reduce poverty?
a. By increasing exports from the richer to the
poorer countries.
b. By adopting polices that restrict trade between
poor and rich countries.
c. Through increases in the demand for labor in the
export sectors of the poor country.
d. None of the above. Trade is likely to increase,
not reduce poverty.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
18 of 44
CHAPTER 22: Globalization
How can trade help to reduce poverty?
a. By increasing exports from the richer to the
poorer countries.
b. By adopting polices that restrict trade between
poor and rich countries.
c. Through increases in the demand for labor in
the export sectors of the poor country.
d. None of the above. Trade is likely to increase,
not reduce poverty.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
19 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
THE GLOBALIZATION OF LABOR MARKETS:
THE ECONOMICS OF IMMIGRATION AND
OUTSOURCING
Many agricultural firms in Texas and California
rely on immigration from Mexico, Central
America, and South America to supply them
with labor during the peak growing season.
But does immigration reduce domestic wages
and increase unemployment nationally? The
evidence is mixed.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
20 of 44
CHAPTER 22: Globalization
With respect to the international mobility of labor, the
United States is:
a. Substantially more globalized than we were at the
beginning of the twentieth century.
b. Only slightly more globalized than we were at the
beginning of the twentieth century.
c. No more or less globalized than we were at the
beginning of the twentieth century.
d. Less globalized than we were at the beginning of
the twentieth century.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
21 of 44
CHAPTER 22: Globalization
With respect to the international mobility of labor, the
United States is:
a. Substantially more globalized than we were at the
beginning of the twentieth century.
b. Only slightly more globalized than we were at the
beginning of the twentieth century.
c. No more or less globalized than we were at the
beginning of the twentieth century.
d. Less globalized than we were at the beginning
of the twentieth century.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
22 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
A Brief History of Immigration into the United
States
Immigration Reform and Control Act
(1986) Granted amnesty to about 3
million illegal aliens and imposed a strong
set of employer sanctions designed to slow
the flow of immigrants into the United
States.
Immigration Act of 1990 Increased the
number of legal immigrants allowed into the
United States each year by 150,000.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
23 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
TABLE 22.1 Immigrants into the United States by Country of Origin: 2004
CHAPTER 22: Globalization
RANK
COUNTRY
IMMIGRANTS
1
Mexico
173,664
2
India
65,472
3
Philippines
54,632
4
China
45,942
5
Vietnam
30,064
6
Dominican Republic
30,049
7
El Salvador
29,285
8
Haiti
13,502
9
Cuba
15,385
10
Jamaica
13,565
11
Korea
19,441
12
Poland
13,972
13
Canada
22,437
14
Colombia
17,887
Source: Statistical Abstract of the United States, 2002, Table 7.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
24 of 44
CHAPTER 22: Globalization
In 2004, the largest number of immigrants came from
these countries:
a. Poland, , Canada, and Colombia.
b. China, Vietnam, and Dominican Republic.
c. Mexico, India, and Philippines.
d. El Salvador, Haiti, and Cuba.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
25 of 44
CHAPTER 22: Globalization
In 2004, the largest number of immigrants came from
these countries:
a. Poland, , Canada, and Colombia.
b. China, Vietnam, and Dominican Republic.
c. Mexico, India, and Philippines.
d. El Salvador, Haiti, and Cuba.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
26 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
Economic Arguments for Free Immigration
• If the productivity of low-wage workers is higher in
the United States than in Mexico, the same labor
force produces more total output after immigration,
and world output rises.
• Immigrants do not necessarily displace U.S.
workers but rather take jobs that Americans simply
do not want.
• Almost all U.S. citizens except Native Americans
have recent ancestors who came to this country as
immigrants.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
27 of 44
CHAPTER 22: Globalization
Fill in the blanks. Between 1880 and 1924,
___________ immigrants entered the United
States. Between 1990 and 2000, immigration
averaged close to __________ immigrants
annually.
a. 2 million; 300,000
b. 300,000; 2 million
c. 25 million; 1 million
d. 1 million; 25 million
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
28 of 44
CHAPTER 22: Globalization
Fill in the blanks. Between 1880 and 1924,
___________ immigrants entered the United
States. Between 1990 and 2000, immigration
averaged close to __________ immigrants
annually.
a. 2 million; 300,000
b. 300,000; 2 million
c. 25 million; 1 million
d. 1 million; 25 million
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
29 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
The Argument against Free Immigration
• The distribution of income is likely to change in
response to immigration, affecting the returns to
both labor and capital.
• Immigrants take jobs away from low-income
Americans and drive up unemployment rates.
• Immigrants end up on welfare rolls and become
a burden to taxpayers.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
30 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
The Evidence: The Net Costs of Immigration
• A number of recent studies have found that
metropolitan areas that have greater numbers of
immigrants seem to have only slightly lower
wages and only slightly higher unemployment
rates.
• A more recent study argues that the effects of
immigration on wages and unemployment must
be analyzed at the national level, not at the city
level.
• On the issue of immigration’s effects on
government costs, mixed evidence also exists.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
31 of 44
CHAPTER 22: Globalization
A recent study of the impact of immigration on wages
suggests that the group that appears to
experience the largest wage decline as a result of
immigration is:
a. Recent college graduates.
b. Blue-collar workers.
c. High school dropouts.
d. White-collar workers.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
32 of 44
CHAPTER 22: Globalization
A recent study of the impact of immigration on wages
suggests that the group that appears to
experience the largest wage decline as a result of
immigration is:
a. Recent college graduates.
b. Blue-collar workers.
c. High school dropouts.
d. White-collar workers.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
33 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
Is Immigration Bad or Good?
The evidence on the effects of immigration is
mixed, and theory gives us arguments on both
sides of the issue. Only time will tell whether the
recent wave of immigrants will assimilate as well as
past waves.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
34 of 44
THE BENEFITS AND COSTS OF
GLOBALIZATION
CHAPTER 22: Globalization
CAPITAL MOBILITY
In the global economy, domestic households can
put their wealth to work in foreign or domestic
financial markets; domestic firms can finance
investment projects by looking to domestic or
foreign financial markets.
The argument for free and open financial market
mobility is that capital should flow to its highest and
best use. Rapid and free flows of financial capital
have, however, had adverse consequences for
some nations.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
35 of 44
CHAPTER 22: Globalization
The United States can buy more goods than it sells to
other countries for an extended period if those
purchases are balanced by:
a. Purchases of U.S. stocks and bonds by
foreigners.
b. Purchases of foreign stocks and bonds by U.S.
citizens.
c. Acquisitions of real assets by U.S. citizens in
other countries.
d. All of the above.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
36 of 44
CHAPTER 22: Globalization
The United States can buy more goods than it sells to
other countries for an extended period if those
purchases are balanced by:
a. Purchases of U.S. stocks and bonds by
foreigners.
b. Purchases of foreign stocks and bonds by U.S.
citizens.
c. Acquisitions of real assets by U.S. citizens in
other countries.
d. All of the above.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
37 of 44
PUBLIC POLICY AND GLOBALIZATION
CHAPTER 22: Globalization
GLOBAL EXTERNALITIES AND PUBLIC GOODS
public goods, or social goods Goods or
services that bestow collective benefits on
members of society.
externality A cost or a benefit resulting
from some activity or transaction that is
imposed or bestowed on some party outside
the activity or transaction.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
38 of 44
CHAPTER 22: Globalization
In order to internalize a global externality, it is
preferable if:
a. Every country is invited to participate and those
who want to participate are included.
b. The number of countries involved is large.
c. The number of countries involved is small.
d. Bargaining and negotiation and prohibited
between the participating countries.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
39 of 44
CHAPTER 22: Globalization
In order to internalize a global externality, it is
preferable if:
a. Every country is invited to participate and those
who want to participate are included.
b. The number of countries involved is large.
c. The number of countries involved is small.
d. Bargaining and negotiation and prohibited
between the participating countries.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
40 of 44
PUBLIC POLICY AND GLOBALIZATION
CHAPTER 22: Globalization
NONGOVERNMENTAL ORGANIZATIONS AND
INTERNATIONAL ECONOMICS: THE
WASHINGTON CONSENSUS
Washington Consensus A set of 10 goals
prescribed for countries receiving IMF
grants and loans.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
41 of 44
CHAPTER 22: Globalization
GLOBALIZATION, CAPITALISM, AND
DEMOCRACY
Very often, the issue of openness and globalization
intersects with issues concerning political and
economic systems. Advocates of globalization
often are staunch supporters of laissez-faire
capitalism.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
42 of 44
CHAPTER 22: Globalization
A FINAL WORD
A powerful logic exists in support of economic
openness: The free flow of resources and goods
and services across national borders, driven by
efficient economic incentives, including the desire
to maximize profit, is likely to make citizens better
off than if borders were closed and economies
turned inward.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
43 of 44
CHAPTER 22: Globalization
REVIEW TERMS AND CONCEPTS
comparative advantage
economic globalization
externality
genetically modified
(GM) foods
globalization
Immigration Act of 1990
Immigration Reform and
Control Act (1986)
public goods, or social
goods
Washington Consensus
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
44 of 44