Globalisation and Anti globalisation

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					Globalisation and Anti-
    globalisation
  The World Economic System
    The World Economic System
Introduction
Globalisation receives an enormous amount of attention in the popular press,
much of it unfavourable. Unfortunately, the term “globalisation” is vague with
many meanings:
The World Bank defines globalisation as “the growing integration of economies
and societies around the world”.
Wikipedia, the Internet Encyclopedia, describes globalisation as “the changes
in societies and the world economy that result from dramatically increased
international trade and cultural exchange”.
The economist, Edward Leamer describe it as “Globalization is the increased
international mobility of goods, people, contracts (including financial claims)
and thought (facts, ideas, and beliefs)”.

In general, it is some notion of interdependence among national economies or,
even more generally, of interconnectedness among nations. It is broader than
interdependence of markets and includes non-economic aspects such as
cultural exchange. But we shall consider the economics of globalisation and
treat it in terms of links between the markets of different nations.
   The World Economic system
1.The  World Economic System
The Historian‟s View
Some economic history helps.
Francis Fukuyama, in a famous article and later a book,
coined the phrase “The end of history”. By this he meant
that the economic-political systems of individual nations
had all converged to one model, the liberal-democratic
model. In the realm of economics, this meant that
“liberalism”, the belief in free markets, had triumphed over
Marxism, Socialism, Fascism and other rival ideologies.
This occurred in the last quarter of the Twentieth Century,
after the fall of the Berlin Wall and the break up of the
USSR.
  The World Economic System
2. The Economist‟s View
Look at the world economic system as a unit.
Markets across national borders are linked by
international trade.
There are four general categories of economic
markets
Markets for goods
Markets for services
Markets for capital, i.e. capital assets
Markets for labour, i.e. labour services
These markets have become increasingly linked through the
liberalisation of trade, i.e. the removal of various restrictions on goods,
services, capital and labour moving across national borders.
[Slides from WTO, WB, and IMF]

Freeing international trade occurs at three different levels
Multilateral
Regional/bilateral
Unilateral, i.e. one nation acting alone


We will study mostly multilateral actions, especially those regulated by
the WTO, and also regional/bilateral, especially those formed by
regional trading agreements (RTAs).
In addition to the reduction in national
restrictions on international trade, the
opening up of economies has taken place
through other domestic reforms, particularly,
Privatisation and marketisation
      [Slide]
Deregulation of markets
If globalisation of markets is to be given a
   precise meaning, it must mean more than
   the linking of growing international trade.

I shall call the growth of trade and the
   growing interdependence of national
   economic because of this
   “Internationalisation”.
              Economic Integration
The term “globalisation” is still useful if we use it not as a general description for
trends in the world but as a more particular economic phenomenon.
All of this globalisation/liberalisation of markets is best approached through the
analysis of markets.
Globalisation will be taken to mean the development of global markets.
To make this precise, economists have developed the notion of economic
integration. Loosely, economic integration is the process of merging national
markets.
To be more precise, one can define the limit of this process. A completely
integrated world economy is one in which the Law of One Price holds in every
market; that is, in each market, there is only one price. We must for this
purpose define products as homogeneous products and we must allow for the
costs of transport and insurance which involve real costs and are unavoidable.
Economic integration is a movement towards a completely integrated economy.
For the Law of One Price to hold in a market, we
require
 the removal of all border barriers to international
trade in this market
National Treatment to ensure that foreign goods
or services or, in the case of capital flows, foreign-
owned enterprises are treated in the same way
legally as domestic goods, services or enterprises
 the harmonisation of national laws and
regulations which otherwise hinder international
trade, e.g. industrial standards and other
standards
With this concept of economic integration, we can
see that the world is still a long way from being
fully integrated. However, groups of nations in
some regions have become fully or highly
integrated, notably those in the EU.
Some former socialist/communist countries are in
transition to market economies. We call them
“transition economies”.
Thus, history has not yet ended.
               Globalisation

The term has a particular meaning when applied to
multinational corporations (= “International
Business”). Here “globalisation” is taken to mean
the development of an integrated production
process within a corporation. This treats all
affiliates and subsidiaries of a parent corporation
as a single entity which acts as one to maximise
the interests of the corporate group collectively.
This leads to concepts of integrated production
chains, outsourcing and the like.
Another particular meaning of globalisation is in “financial
globalisation”. This refers to the linking of financial markets
across national borders. One can approach this in terms of
reducing barriers to trading financial assets across borders.
One can again apply the Law of One Price to these
markets to see the extent to which they are integrated.
Finance specialists look at the similarity or convergence of
rates of return on various assets across national borders as
a test of financial market integration.

Generally speaking financial markets are more integrated
than goods or services markets.
    The Movement towards Global
           Governance
If economies are to be more closely integrated, the laws
    and regulations of countries have to change.

This can occur at three levels
 The evolution of international laws - through the WTO
  and other multilateral bodies and through other
  international treaties
 Regional law under RTAs
 Harmonisation of national laws though agreements,
  codes, mutual recognition and other instruments
The growing demands for greater uniformity of laws and
regulations has given rise to the rapid development of new
agreements and laws in a number of areas that were
previously thought to be the exclusive domain of sovereign
nation states. For example, we shall have lecture topics
devoted to international agreements and laws relating to
Corporate taxation
Corporate governance
Competition policy
The environment


These lectures explore international agreements relevant to
each of these areas, and their effects on MNCs.
         Question of the Day
Take your home country.

Is it a member of the following organisations
 The World Trade Organisation (WTO) ?
 The International Monetary Fund (IMF) ?
 The World Bank ?
 The Bank for International Settlements (BIS) ?
 The International Competition Network (ICN) ?
              Anti-globalisation
The process of “globalisation‟ or, more precisely, the linking
of national markets for goods, services, capital and labour,
has led to a counter-movement “anti-globalisation‟. There
have been street protests at meetings of the WTO, World
Bank and IMF and of business meetings such as the World
Economic Forum. There is a whole raft of discontent
emanating from NGOS - environmental and civil rights
groups, labour organisations and others aimed at the
perceived costs of unbridled liberal global capitalism. Much
of this is emotion-charged and badly informed. We can
focus on some specific allegations such as the charge that
„globalisation” has increased the gaps between rich and
poor nations or, even more seriously, that it has
impoverished people in poor nations.
       Globalisation and Economic
                  Growth
What effect has the growing economic integration of national
economies had on rates of economic growth?
This topic is hotly debated among economists (see references). There
is a positive statistical correlation between the rate of growth of per
capita income and an index of openness
[see slides from the Fraser Institute]
However, it is not clear what is cause and what is effect.
The scientific approach is to treat this association as an hypothesis.
Economic theory predicts that the countries with lower per capita
incomes should grow faster because they have a higher rate of return
on capital and can adapt freely the technologies of more advanced
countries. This is called the Convergence Hypothesis. To test it, one
should regress the initial per capita income at the beginning of a
sample period on the rate of growth of per capita incomes of different
nations over the period.
There is evidence of convergence.
[slides from Sachs and Warner]

One also needs to consider other factors which affect the
rate of economic growth and to test for causality.
The consensus view among economists is that opening up
economies to international trade has promoted growth in
rich and poor nations alike, with the obvious proviso that
countries that have not lowered their own border barriers to
trade have received less or little benefit.
          Globalisation and Income
                  Inequality
A growth in income inequality is another alleged cost of “globalisation”.
This is another hotly debated aspect. There is a weaker consensus on
this topic. Much depends on what you mean by “inequality”. One can
look at absolute poverty or relative poverty. One can look at the
distribution of real incomes within a nation, or among sub-groups of
countries or throughout the whole world.
The dominant view among economists is that growing economic
integration has not impoverished poor people generally and it has
reduced absolute poverty generally, especially in China and India, but it
has created some losers in particular markets.

Where growing economic integration in the world economy has left
some nations behind, we need to study why. To the extent that it is
due to particular international agreements, we need to address this,
e.g. the African cotton exporting nations in WTO negotiations. We need
also to consider bad national laws and governance and national
restraints on trade as a cause of poverty.
 Globalisation and Financial Market
              Instability
One generally accepted cost of “globalisation” or, more precisely,
increased economic integration is a greater vulnerability in some
countries to financial market instability. This has become a big concern
since the 1997 Asian Crisis.
[see handout from ADB]

We refer to the “emerging market” economies, i.e. poorer countries that
have opened up their financial markets to a greater or lesser extent but
still have underdeveloped financial markets. In particular, they lack the
governance structure to adequately regulate these markets, e.g. they
have poor prudential control over bank lending and deposit-taking. And
they often have volatile exchange rates and lack instruments of risk
reduction such as derivative markets for hedging. These economies
need to establish better governance of financial markets and to
stabilise the macro-economies before wholesale capital market
liberalisation.

				
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posted:10/19/2011
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