Globalization: The Ups and Globalization: The Ups and Downs of GlobalizationDowns of Globalization

ororWorld economic integrationWorld economic integration

Globalization resultsGlobalization results

Increase in the importance of Increase in the importance of international tradeinternational trade

Increase in the movement of capitalIncrease in the movement of capital Increase in labor migrationIncrease in labor migration Increase in regional integrationIncrease in regional integration

Benefits of TradeBenefits of Trade

Specialization of productionSpecialization of production

Jose the Wheat FarmerJose the Wheat Farmer

SpecializeSpecialize

Teresa the BakerTeresa the Baker

SpecializeSpecialize

Specialization leads to efficiencies.Specialization leads to efficiencies.

The Law of Comparative AdvantageThe Law of Comparative Advantage

Where does Comparative Where does Comparative Advantage Come From?Advantage Come From?

Differences in:Differences in:• Climate and natural resourcesClimate and natural resources

• Relative abundance of labor and capitalRelative abundance of labor and capital

• TechnologyTechnology

• External economiesExternal economies(External economies are a (External economies are a reduction in a firm’s costs that result reduction in a firm’s costs that result from an expansion in the size of an industry)from an expansion in the size of an industry)

How technology affects Global How technology affects Global Trade:Trade:

Information TechnologyInformation Technology collaborative workcollaborative work communicationcommunication

Transportation TechnologyTransportation Technology of peopleof people of goods and servicesof goods and services

The Gains of GlobalizationThe Gains of Globalization

Who gains?Who gains?

The Balance of Payments: The Balance of Payments: Linking theLinking the

United States to the United States to the International EconomyInternational Economy

Learning Objective 29.1

The Current AccountFIGURE 29.1

Trade Flows for the United States and Japan, 2006

Does it raise all Boats?Does it raise all Boats?

Are you better off?Are you better off?

The International Sector and Learning Objective 29.3

FIGURE 29.4

U.S. Imports and Exports, 1970–2006

An Overview of International Trade

• U.S. International Trade in a World Context

• The Eight Leading Exporting Countries

An Overview of International Trade

• U.S. International Trade in a World Context

•

• The Unintended Consequences of Banning Goods Made with Child Labor

•Would eliminating child labor in developing countries be a good thing?

Government Policies That Restrict Trade

• The Argument over Trade Policies and Globalization• “OLD-FASHIONED” PROTECTIONISM

• Protectionism The use of trade barriers to shield domestic companies from foreign competition.

Saving jobs

Protecting high wages

Protecting infant industries

Protecting national security

Trade Agreements

• NAFTA – North America Free Trade –soon AFTA? Amero?

• European Union – 28 countries - 12 Euro

• CAFTA - Central America Free Trade

The Current Exchange Rate SystemThe Euro

Countries Adopting the Euro

International Capital Markets

Learning Objective 30.3

FIGURE 30-6

The Distribution of Foreign Purchases of U.S. Stocks and Bonds by Country, 2006

Summary: Benefits of Trade

• Specialization

• Foreign Investment

• Competition

• Higher Standard of Living

Costs of GlobalizationCosts of Globalization

Who loses?Who loses?

What about the sinking ships?What about the sinking ships?

Household incomeHousehold income

Working more and getting less.Working more and getting less.

The Lorenz curve and the Gini The Lorenz curve and the Gini CoefficientCoefficient

(http://en.wikipedia.org/wiki/Gini_coefficient)(http://en.wikipedia.org/wiki/Gini_coefficient)

In the USIn the US

1967: 0.397 (first year reported) 1967: 0.397 (first year reported) 1968: 0.386 (lowest coefficient reported) 1968: 0.386 (lowest coefficient reported) 1970: 0.394 1970: 0.394 1980: 0.403 1980: 0.403 1990: 0.428 1990: 0.428 2000: 0.462 2000: 0.462 2005: 0.469 (most recent year reported; 2005: 0.469 (most recent year reported;

highest coefficient reported)[3] highest coefficient reported)[3]

Compared with other countries...Compared with other countries...

CountryCountry 1980 Gini1980 Gini 2000 Gini2000 Gini

ChinaChina .320.320 .403.403

IndiaIndia .320.320 .378.378

USAUSA .403.403 .462.462

Hot off the presses...Hot off the presses...““Gap between rich, poor seen growingGap between rich, poor seen growingIncome disparity reaches highest since 1920s, paper reports, with recent Wall Income disparity reaches highest since 1920s, paper reports, with recent Wall Street boom partly to blame.” (CNNMoney.com)Street boom partly to blame.” (CNNMoney.com)

The figures, based on "adjusted gross income" which The figures, based on "adjusted gross income" which incorporates certain deductions such as contributions to incorporates certain deductions such as contributions to individual retirement accounts, revealed that the income individual retirement accounts, revealed that the income level for the tax filer in wealthiest 1 percent of Americans level for the tax filer in wealthiest 1 percent of Americans grew 3 percent...between 2000 and 2005, according to grew 3 percent...between 2000 and 2005, according to the the JournalJournal. .

At the same time, the median American income, At the same time, the median American income, however, slipped 2 percent during that same period...however, slipped 2 percent during that same period...

...was due a combination of factors including ...was due a combination of factors including globalization and technical advances... globalization and technical advances...

Another measure of well being:Another measure of well being:WagesWages

A Race to the bottom?A Race to the bottom?

Real Median Wage in 1973: $12.45Real Median Wage in 1973: $12.45

Real Median Wage in 2000: $12.90Real Median Wage in 2000: $12.90

Up nearly 1/3 of a percent! Is that good?Up nearly 1/3 of a percent! Is that good?

Well...Well...

Factors That Affect the Factors That Affect the Equilibrium Exchange RatesEquilibrium Exchange Rates

A difference in income growth ratesA difference in income growth rates Differences in relative inflation ratesDifferences in relative inflation rates Changes in real interest ratesChanges in real interest rates

In the same time periodIn the same time period

GDP per person went up 72% GDP per person went up 72% Global Trade as a percent of GDP Global Trade as a percent of GDP

doubleddoubled

To put it in perspectiveTo put it in perspective

Between 1948 and 1973 real median Between 1948 and 1973 real median wage increased 80%wage increased 80%

The EnvironmentThe Environment

DeforestationDeforestation

Avoiding Pollution RegulationsAvoiding Pollution Regulations

We are all affectedWe are all affected

Acceleration of Global WarmingAcceleration of Global Warming

AdaptationAdaptation

Homogenizing Properties of Homogenizing Properties of GlobalizationGlobalization

Questions?Questions?

Comments?Comments?