Econ 338 � Globalization Trade, Investment and Exchange Rate by PaulBrodie

VIEWS: 324 PAGES: 34

									Econ 338 – Globalization:

Trade, Investment and Exchange Rate
Lecture 1: Introduction of the course September 1, 2008 Heiwai Tang

Agenda







 

Syllabus Answer any questions about the syllabus and the requirement of the course What is globalization? Why do we care? How to measure globalization? What will we learn in this course?

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

2

Instructor


 

 

Time and Venue: Monday 12:00-1:20pm and Wednesday 1:30-2:50 pm, Room 4333 Instructor: Heiwai Tang (hwtang@ust.hk) Office hour: 10:00-11:30am Tuesday, and by appointment Office: Room 2340 http://www.bm.ust.hk/~hwtang/econ338.html

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

3

Teaching Assistant






Peter Tsui (ecpeter@ust.hk) Office hour: 3:00-4:00pm, Tuesday, room: 2393. Tutorial: 12:00-12:50pm, Tuesday, room 2464

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

4

Highlight of the Syllabus (1)




 

Pre-requisites: ECON 101, 111 or 191 (or other equivalent knowledge of microeconomics) Textbook: Paul Krugman and Maurice Obstfeld, International Economics: Theory & Policy 7th (2005) or 8th edition (2008) Other readings either in library reserve or posted on course website
Tang - Econ 338:Globalization - Fall 2008 5

Lecture 1

Highlight of the Syllabus (2)
1. 2.


 



3. 4. 

Participation (10%) Group Presentation (20%) Students are required to form groups on voluntary basis, on or before September 17 (Wednesday), 2008. Each group consists of 5 to 6 people. I will assign a topic to each group during the semester and some groups will be asked to make a presentation (20-30 minutes, including Q&A) during the semester. Each group is given 2 weeks to work on its project. Grading: anonymous peer assessment. Midterm exam (25%) Final exam (45%) No electronic devices, including computers, mobile phones and games
Tang - Econ 338:Globalization - Fall 2008 6

Lecture 1

Agenda







 

Syllabus Answer any questions about the syllabus and the requirement of the course What is globalization? Why do we care? How to measure globalization? What will we (do you expect to) learn in this course?
Tang - Econ 338:Globalization - Fall 2008 7

Lecture 1

What is globalization?


 

A very fuzzy concept. Different people refer to different things. A slightly better term: International Integration. Generally speaking, there are at least 4 “kinds” of globalization people talk about

 



Economic globalization (our focus) Cultural globalization (e.g. Westernization) Institutional globalization (e.g. Convergence of government policies) Political globalization (e.g. Euro zone?)

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

8

What is economic globalization?



[Economic] globalization is often used to refer to … integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. (Bhagwati (2002) In Defense of Globalization)

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

9

Alternative definition ..




Worldwide processes of “convergence” in terms of prices, products, wages, rates of interest, profits, growth rates … But do we really see great convergence of prices or wages, for example? Maybe fairly recently. China?

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

10

Why do we care about globalization? (1)




One of the most discussed topics in policy debates Globalization and Income




“Globalization has done far less to raise the incomes of the world's poorest people than the leaders had hoped, many officials here say.” New York Times (2002) “Globalisation backlash in rich nations” Financial Times (2007)

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

11

Why do we care about globalization? (2)


Globalization and Inequality




“The best evidence available shows [that] . . . the current wave of globalization, which started around 1980, has actually promoted economic equality and reduced poverty” (Dollar & Kraay, World Bank, 2002). “[G]lobalization has dramatically increased inequality between and within nations” (Jay Mazur, US union leader, 2000).

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

12

Why do we care about globalization? (3)


Globalization and Jobs






“In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future.” Wall Street Journal (2006) “If [the workers] complain too loudly, their jobs might either be outsourced overseas or given to illegal immigrants.” Wall Street Journal (2006) “Battered by slumping demand for its vehicles, high labor costs and intense global competition, General Motors has said it will cut jobs and employee benefits and close factories ...” International Herald Tribune (2006)
Tang - Econ 338:Globalization - Fall 2008 13

Lecture 1

Why do we care about globalization? (4)


Many other discussions on the relationship between globalization and
  

Environment Cultural changes Financial crises/ contagion “Globalisation is a word that is on everyone's lips these days, from politicians to businessmen.” BBC News (2007)
Tang - Econ 338:Globalization - Fall 2008 14



Because everyone is talking about it


Lecture 1

Debates (Pro-globalization)
1. 2. 3. 4. 5. 6. 7. 8.

Globalization creates wealth and opportunities Enhances civil liberties (openness + transparency) More efficient allocation of resources Growth Increase life expectancies Lower prices More jobs Faster transmission and exchange of ideas and information
Tang - Econ 338:Globalization - Fall 2008 15

Lecture 1

Debates (Anti-globalization)
1.

Increase wealth?
Yes, but only to the rich, especially in developed countries.

2.

Enhances civil liberties?
Yes, but does one size fit all? Policies determined by international organizations (WTO, IMF, World Bank, etc.)

3.

More efficient allocation of resources?
Okay, but high volatility, unstable economy (e.g. massive layoffs)

4.

Growth
Does growth cause trade instead? e.g. China?

5.

Increase life expectancies
Well … We care about more urgent issues.

6.

Lower prices
Yes, but also lower wages?

7.

More jobs
NO!

8.

Faster transmission and exchange of ideas and information But it also homogenizes cultures and destroy traditional values …the increasing dominance of Starbucks, McDonalds, Walmart …

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

16

Agenda







 

Syllabus Answer any questions about the syllabus and the requirement of the course What is globalization? Why do we care? How to measure globalization? What will we learn in this course?

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

17

Measuring Globalization (Trade)


Trade Volume($)/GDP($)
Rank 1 2 3 4 5 6 7 8 9 10 Country Singapore Hong Kong, China Malaysia Belgium Estonia Slovak Republic Thailand Ireland Jordan Vietnam Total Trade as a Share of GDP (Includes imports + exports) 456.0% 385.0% 223.2% 168.3% 165.2% 160.0% 148.9% 148.7% 145.1% 141.7%

Source: “Measuring Globalization” Foreign Policy (2007)

China (Rank: 44) 69%; Japan (Rank: 69) 28.2%; U.S. (Rank: 71) 26.2%
Lecture 1 Tang - Econ 338:Globalization - Fall 2008 18

Measuring Globalization (Capital Flows)


Capital flows($)/GDP($) (e.g. Foreign Direct Investment)
Rank Country FDI as a Share of GDP (Includes inflows + outflows) 38.51% 25.89% 25.13%

1 2 3

Hong Kong Netherlands Estonia

4
5 6 7 8 9 10

Denmark
Singapore Ireland Panama Switzerland Belgium Jordan

24.08%
21.94% 17.79% 14.06% 13.27% 12.51% 12.05%

China (Rank: 35) 3.73%; Japan (Rank: 66) 1.07%; U.S. (Rank: 69) 0.9%
Lecture 1 Tang - Econ 338:Globalization - Fall 2008 19

Globalization Trend (1): We are globalizing, but it’s not new.


Exports($)/GDP($)

Source: World Bank
Lecture 1 Tang - Econ 338:Globalization - Fall 2008 20

Globalization Trend (2): We are globalizing, but it’s not new.


Foreign Capital Stocks($)/GDP($) (*not flows)

Source: World Bank
Lecture 1 Tang - Econ 338:Globalization - Fall 2008 21

Globalization Trend (3): it’s not a very recent phenomenon


The world was more open in the late 19th century, than right after the second world war:”

Source: Baldwin and Martin (1999).

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

22

Globalization Trend (4): Trade shifted from agricultural to manufacturing products
Composition of World Trade (2005) Changing Composition of Developing Countries’ Exports (1960-2001)

Source: World Trade Organization

Source: United Nations Council on Trade and Development

What will happen next? To Services?
Lecture 1 Tang - Econ 338:Globalization - Fall 2008 23

Globalization Trend (5): Trade shifted from agricultural to manufacturing products

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

24

Really recent globalization trend (also a frontier of research)


More Recent Trends: 1. Production Fragmentation (or the growing dominance of multinational firms)
2.

Service Outsourcing/ Offshoring

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

25

(1) Global Production Fragmentation (1)






Barbie Dolls Example (Tempest, Los Angeles Times, 1996): Raw materials (plastic and hair) are obtained from Taiwan and Japan. Assembly used to be done in those countries, as well as the Philippines, but it has now migrated to lower-cost locations in Indonesia, Malaysia, and China. The molds themselves come from the U.S., as do additional paints used in decorating the dolls. Other than labor, China supplies only the cotton cloth used for dresses.
Tang - Econ 338:Globalization - Fall 2008 26

Lecture 1

(1) Global Production Fragmentation (2)


US$2 export value for the dolls when they leave Hong Kong for the U.S.
  



$0.35 covers Chinese labor $0.65 covers the cost of materials, the remainder covers transportation and overhead, including profits earned in Hong Kong. The dolls sell for about $10 in the U.S., of which Mattel earns at least $1, and the rest covers transportation, marketing, wholesaling and retailing in the U.S. The majority of value-added is therefore from U.S. activity. The dolls sell worldwide at the rate of two dolls every second (~$1.4 billion annual revenue).
Tang - Econ 338:Globalization - Fall 2008 27

Lecture 1

(1) Global Production Fragmentation (3)
Intra-firm trade of the United States with major trading partners (%)

In Year 1999 Canada China Eastern Europe Japan Mexico Total

Imports 43.1 17.6 32.1 73.7 66.4 46.7

Exports 42.4 11.6 12.3 36.3 44.3 32.1

Source: U.S. Department of Commerce (2001)

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

28

(2) Service Outsourcing/ Offshoring
 







Outsourcing occurs when a firm moves part of the production process to another firm. Offshoring occurs when a firm moves part of the production process to a foreign country. “in the future, and to a great extent already in the present, the key distinction of international trade will no longer be between things that can be put in a box and things that cannot. It will, instead, be between services that can be delivered electronically over long distance …” Alan Blinder, Foreign Affairs (2006) Service outsourcing/ offshoring is currently not a significant part of trade, but about 19% of service jobs are believed to be “tradable” and thus have the potential to be outsourced to other countries (compared to 12% of manufacturing jobs). Example:  "We seek a newspaper journalist based in India to report on the city government and political scene of Pasadena, California, USA." (A classified ad posted by PasadenaNow.com)

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

29

(2) What services are outsourceable/ offshorable?

Source: Jensen and Kletzer (2005)

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

30

(2) Number of jobs offshorable

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

31

Road Map of the Course (1)


In short


2/3 international trade, both theory and policy – a study of physical movement of goods or a commitment of tangible resources (e.g. labor services).
1/3 international finance – a study of financial or monetary transactions across nations.



Lecture 1

Tang - Econ 338:Globalization - Fall 2008

32

Road Map of the Course (2)




First 2/3: Theories and Evidence of International Trade  Why countries trade?  What do they trade?  How international trade affects welfare, and macro-economic outcomes (e.g. growth and income inequality)?  Political economy of trade;  What are the instruments countries use to protect trade?  What do countries depart from free trade? Last 1/3: Exchange Rate Determination  The determinants of a country’s exchange rate;  The relations between output, inflation, interest rates, and exchange rates;  What cause and spread financial crises?

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

33

Next lecture ..


Globalization Debates



Is globalization good or bad? In particular, what are the pro- and antiglobalization groups arguing about?

Lecture 1

Tang - Econ 338:Globalization - Fall 2008

34


								
To top