Drivers of Globalizations Unit I

8/3/2019 Drivers of Globalizations Unit I

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Perfect Drivers of Global BusinessDivers of Global Business and Advantages

Definitions of Globalization


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Globalization I:Increased trade in goods and services

Trade has grown faster than GDP

10

15

20

25

30

35

40

1980 1985 1990 1995

Trade(%G

DP)

World High income Low & middle income

mostly for East Asia; it has fallen for Africa

0

15

30

45

E-Asia &Pac.

Lat. Am. &Carib.

Mid East, NAf

South Asia Sub-S.Africa

Exports(%G

DP)

1960 1970 1980 1990 1998

International Trade involves mostly exchanges among high income

countries.

Developing countries have increased their relevance, particularly East Asia,

but are still a small part.


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Trade in services and merchandise

Most of world trade is in goods(merchandise) 82%.

Services trail behind, but are

the fastest growingcomponent.

Outsourcing is the latest trend

Share of goods and commercial services in total trade

(Percentages, based on balance of payments data)

Export Shares Import Shares

GoodsCommercial

Services GoodsCommercial

Services

World 81.4 18.6 81.4 18.6

North America 77.2 22.8 85.9 14.1

Latin America 86.0 14.0 84.1 15.9

Western Europe 78.8 21.2 79.4 20.6

Africa 81.5 18.5 76.8 23.2

Egypt 42.5 57.8 68.2 31.8

Nigeria 93.8 6.2 71.1 28.9

Asia 85.7 14.3 81.3 18.7

India 71.4 28.6 73.4 26.6

Indonesia 92.8 7.2 72.3 27.7

Japan 87.1 12.9 74.8 25.2


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Globalization II:Foreign Investment - complex strategies ofmultinationals

Global FDI Flows 2000 1995 1990 1985 1980 1975 1970

FDI in millions of dollars 1,270,764 331,068 202,297 56,583 54,725 25,850 12,542

FDI per capita (dollars) 210.3 58.8 41.4 12.8 13.6 9.8 5.3

FDI as percentage of GDP 3.12 1.13 0.96 0.48 0.52 0.49 0.48

FDI as percentage of exports 19.99 6.45 6.05 3.10 2.95 3.33 4.56

Gross foreign direct investment (% of GDP)

0

2

4

6

8

1976 1981 1986 1991 1996

World High income Low & middle income

Share of FDI flows, by group

0%

25%

50%

75%

100%

1980 1985 1990 1995

Low income

Middle income

High income


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Drivers of Modern Globalization

Lower transport and

communication costs

Development of international

institutions

The WTO

Regional Trade Agreements

Political decisions toward de-regulation and liberalization of

trade and FDI regulations


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Theory and practice of international tradeand foreign investmentWHAT WE WILL LEARN

Why do countries export certain goods and imports others?

What do countries and populations gain and loose from trade?

Why do multinationals exist and what are their effects?

Why do governments protect their industries and what are the costs andbenefits?

What are the effects of different protectionist instruments?

How do the institutions that regulate global trade work?

What have been the economic and social consequences of the rise in tradeand foreign investment with developing nations?

What has globalization brought to developing countries?


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Organization of the course

Theories of international trade

Comparative advantage

Gains from trade: static anddynamic

Losers and winners

Trade policy

Policy Instruments

The case for free-trade and

exceptions Policies for Strategic sectors

Political economy and the realistview

The effects of modernglobalization

Trade and the developingcountries

Multinationals and FDI The effects in industrialized

countries

Institutions of global trade

The W.T.O

Regional agreements


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Materials and exams

course website: www.danieltraca.com

Download class slides before class from website

Also available at GES

Practice exams and answer keys available at website.

List of required sections available from website

Recommended textbook

International Economics, 7thedby Krugman P. and Obstfeld M., Addison-Wesley

Available in French

Additional readings available at website
http://www.danieltraca.com/http://www.danieltraca.com/


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How does the market work?

Does the decentralized international market achieve this pattern ofspecialization? How?

Who benefits and who looses from international trade in the free-market?

Among individuals within a country? Among countries?


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In Autarky...

Food

Manuf

North

Northern workerThey work in bothsectors, and tradeamong them at theautarky relative price

The relative price

P=pManuf/pFoodIn equilibrium, workers

must be indifferentbetween the twosectors.They must get thesame wage

South


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Relative prices, relative supply,relative demand

1

Manuf/Agro

Relative demand (RDW)It is the same in both countriesif preferences are the same

P

Relative Supply(RSN)NorthPN=

3Relative Supply (RSs)SouthPS=

[Manuf/Agro]S [Manuf/Agro]N


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Wages and productivity

Are the wages the same in both sectors? Why?

If not, where are they higher? Why?

Are they the same in both countries? Why?

If not, where are they higher? Why?


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The beginnings of Trade

Manuf is relatively cheaper in the North.

An enterprising Northerner takes 1 Manuf to the South andexchange it for 3 Foods.

Back in the North, she could sell 1 Foods for 1 Manuf with a netgain of 1 Food.

There are gains from exchange because prices aredifferent: Trade occurs!

What happens to the relative price of Manuf in North?

And in the South?


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Some unrealistic features of themodel, so far

What if there are transport costs?

What if there are more than two goods?

What if factors cannot adjust to other sectors?

What if there are more than one factor?

Why is there always complete specialization?


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Transport Costs and Non-tradedgoods

If there are transport costs, the competitiveness edge of a country

must more than make up for this transport cost.

Otherwise, the good will not be traded, even if it is cheaper toproduce in one country. This good is called non-tradable.

In reality, economies spend large proportions of their income in these

type of goods.

It can become tradable, if transport costs fall or the productivity

advantages widen (globalization).


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Global markets vs. local marketsTRADABLES and NON-TRADABLES

Tradable goods can travelacross borders and haveinternational markets that setprices.

Non-tradable goods have theirprices set by supply anddemand in local markets. Often, the same good exists in

different countries because itis produced locally.

With globalization, many goodsand services have becometradable.

Consulting

BankingTelecoms

Tourism

Hairdressers

Governmentservices

Auto-repair

Almost allservices

Services

Textiles

Machinery

Almost allgoods

Cement

Housing

McDonaldsHamburger

Goods

TradablesNon-

tradables


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Some Questions Related to theDrivers of Globalizations

MAJOR DRIVERS OF GLOBALIZATION - List the major drivers ofglobalization and give 3 examples of each.

Globalization Questionnaire - A. What is globalization, and what are some ofthe traditional international trade theories that support the concept ofglobalization? b. List the major drivers of globalization and give three exam...

Globalization - How have changes in technology contributed to globalization?Would globalization have been possible without these changes intechnology?

What is globalization? - What is globalization? Why has globalization become

so important during the last 10 years? How will globalization changefinancial management in the future?

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Globalization - What is globalization? Why has globalization become so

important over the last ten years? How will globalization change financialmanagement in the future? What risks does globalization pose for the ...

Globalization and total quality management - Can you help me identify whatimpact globalization may have on an organziations's total quality managementposition?

What are the major drivers of globalization and how do they affect anorganization financially? - What are the major drivers of globalization and howdo they affect an organization financially?

What are some drivers of globalization? - What are some drivers ofglobalization and how do these drivers impact an organization financially. Arethere drivers that are more important and why would they be considered so.

Value Chain Analysis - - As per the attached "Components-Drivers-Globalization" presentation; how does 'value chain analysis' impactglobalization of markets and production? - Also, considering resources likeCulturegram ...

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Globalization and Localization - Describe the following: 1. Factors impedeglobalization 2. Factors support globalization 3. Factors that impededlocalization 4. Factors that support localization Thank you.

Management & Globalization - Explain in detail how management has changedin the last 80 years with respect to globalization.

Globalization of business requires a fundamental change in business practices.Why or Why not? - Globalization of business requires a fundamental change inbusiness practices. Why or Why not?

Globalization - What are the two concepts of globalization that meant the mostto you?Why?

Strategic Development - How does globalization increase the complexity ofTQM?

Global Business Strategies/Globalization - Two factors seem to underlie thetrend toward globalization: declining trade barriers and changes in

communication, information, and transportation technologies. Tell me, do youthink this global tren ...

What is globalization and what are some of the traditional international tradetheories that support the concept of globalization? - What is globalization andwhat are some of the traditional international trade theories that support the

concept of globalization? List the major drivers of globalization and threeexamples of each ...
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How does globalization affect customer expectattions? - How does globalization

affect customer expectattions? Two major drivers of globalization - What are two major drivers of globalization

in the modern era?

What is globalization - What is globalization? Why has globalization becomesuch an important issue over the last ten years? How will globalization change

financial management in the years ahead? What are some companies tha ... What is globalization, and what are some of the traditional international trade

theories that support the concept of globalization? - What is globalization, andwhat are some of the traditional international trade theories that support theconcept of globalization?

Total Quality Management - How does globalization increase the complexity of

total quality management in an organization? Consider the globalization of business and culture, and discuss the ways in

which it can affect international business strategy and management. - Considerthe globalization of business and culture, and discuss the ways in which it canaffect international business strategy and management. Consider the evidenceyou see for the globalization or l ...

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Drivers of Globalizations Unit I

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