Global Economy
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Transcript of Global Economy
GLOBAL ECONOMY
Introduction to Globalization, Development, and Conditions in
the Developing World
WHAT IS GLOBALIZATION? Globalization generally refers to
international integration in commodity, capital, and labor markets. (WTO)
It not simply a post-WWII phenomenon. What other eras in history have been marked by expansions of trade, capital, and labor markets?
http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-2b_e.pdf
ROLE OF TECHNOLOGY
THINK LIKE ABERNATHYWhat are key events in the latest round of
globalization?
COMMODITIES Originally, concerned the trade of raw
materials, intermediary products, and final goods
Now it can also include trade-in-servicesOffshoring (a subset of outsourcing)Element of the current Doha Round
negotiations
CAPITAL Foreign Direct Investment
Stock/Bond investments across borders
Even being able to take your own money across borders was once universally subject to controls. What political ideologies and structures might explain the origin of controls?
LABOR US-1/4 of American Doctors are foreign-
bornFrance recruits at the top Senegalese
medical school Bottom-line for Skilled Labor: movement
is much more common and financially they become better-off in the developed world
Integration is also at play. Where does this exist?
Refugees?
IDEAS
GLOBALIZATION HAS LED TO GREAT PROSPERITY
http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-2b_e.pdf
SO WHY ARE SOME SO OPPOSED?
SO WHY ARE SOME SO OPPOSED? There are winners and losers in trade
liberalization For example, NAFTA caused issues on both sides:
Mexican stores and manufacturers struggled with the ‘Walmart Effect’ and some US/Canadian manufacturing is now made in maquilladoras. Overall, though total GDP increased in all countries.
Human Rights Concerns Environmental Concerns Fears of Neo-Imperialism
*Some misatribute their loses to free trade when it was actually technological advances that made them obsolete
PLUS, UNINTENDED CONSEQUENCES AIDS/HIV
Spread from a few remote villages to the new factories of Kinshasa, following the colonization of Cameroon (by Germany).
Brought by returning UN peacekeepers to Haiti Quickly goes global via jet plane travel
“Tinderbox” by Dr. Halperin & Timberg
“Dallas” Effect Senegalese television shows & film were very
advanced, then came the US soap opera “Dallas”
Suddenly, attitudes towards wealth changed and more and more shows were imported rather than locally produced!
JAMAICA BAUXITE INDUSTRY 1970s-Jamaican Government
nationalizes the bauxite industry (raw material for aluminum)American companies continue to buy
bauxite at a higher rate, while they secure new sources in Africa
THEN suddenly, the companies went elsewhere and Jamaica’s output went into free fall
Lessons: Commodities are hard to nationalize, but
does this mean countries must give up everything to MNCs?
LETS TAKE A LOOK AT ANOTHER EXAMPLE Post-conflict Liberia was desperate for
investment and gladly accepted Mittal’s subsidiary’s FDI contract to mine to find iron ore with nearly no regulations
But as the Liberian economy became stronger and a new government came to power, it demanded the company to implement environmental and human rights regulations or leave. Did Mittal Leave?
NO This is referred to as the “obfuscating
bargain” Mittal had already spent a lot of money
building mines, processing facilities, and a railroad to export the iron ore.
The more fixed infrastructure, the more power shifts more towards Liberia
BACKWARD LINKAGES China has also done very well by
allowing MNCs into the country by maximizing the number of backward linkages. Domestic Partners/SuppliersMandatory EducationFactories are part of global supply chain
What do all of these strategies have in common
TO RECAP: DEVELOPING WORLD REACTIONS VARIED AS DID THEIR SUCCESS Accept Free Trade
Chile, Nigeria Some Free Trade/Some Authoritarianism
China, Indonesia, Liberia Reject Free Trade
Nationalize Industries Jamaica in 1970s, Venezuela
MARCH 8TH GLOBAL ECONOMY OBJECTIVES International Financial Institutions
World Bank IMF
Free Trade AgreementsWhat countries are most using these?What trends are likely to occur in the future?
Multilateral NegotiationsWTO RoundsAre there any alternatives?
Investment Promotion AgenciesDo differing Political Structures impact their
success?
INTERNATIONAL FINANCIAL INSTITUTIONS IMF
Keep international economic stability Traditionally for the developing world
Loans are made in SDRs (a basket of major currencies) 1 SDR = $.648
World Bank GroupPromotes Development through loansMostly to the governments
Now more loans through public-private partnership
WORLDBANK Role is to reduce poverty through loans
and suggestions for policy choices Includes IBRD & IDA
Great Source of Data:http://povertydata.worldbank.org/poverty/home
STRUCTURE
President Robert Zoellick
Permanent Employees
Part-timers for a maximum of 6 months
per year
THE WORLD BANK AT WORK:GROUP ASSIGNMENT
IMF Lets see how our case studies have
interacted with the IMF:(http://www.imf.org/external/np/fin/tad/extarr1.aspx)
Zimbabwe
Peru
Indonesia
China
IMF WORLD ECONOMIC OUTLOOK (WEO)
PUT YOURSELF IN PERU’S PLACE:Your country is not geographically near an
economic heavyweight like Mexico or Turkey.
Nor does it have a large abundance of Natural Resources like Nigeria.
But unlike Zimbabwe, your country is well-governed and takes part in the WTO.
What policies can the Peruvian government put in place to increase trade and thus its development?
FREE TRADE AGREEMENTS (FTA)Eliminates tariffs, import quotas, and
preferences on most goods and services traded between the countries
Do FTAs apply to imports from other countries?
NORTH AMERICAN FREE TRADE AGREEMENT Signed in 1994, with the intention of
fully implementing by 1996 However, as often happens,
implementation of the politically sensitive Mexican Trucking Provision, was not finish until a few months ago (2011)!
Maquilladoras
PROLIFERATION OF FREE TRADE Policy priority in several countries
Chile leads the world with over 50 The Southern Tiger?
China has been increasing its array throughout Southeast Asia (China-ASEAN FTA)
Trans-Pacific PartnershipWould include most countries around the
Pacific rim including US, Japan, Indonesia, & Mexico
But do all the political institutions have the strength to implement controversial trade liberalization?
PERU & FTAS China-Peru FTA Canada-Peru FTA US-Peru Trade Promotion Agreement
(PTPA)Not quite an FTA, but made legal
frameworks for investors regarding: Intellectual Property Rights Labor Human Rights Environment
MULTI-LATERAL TRADE NEGOTIATIONS 1947-United Nations negotiates the
General Agreement on Tariffs and Trade45000 tariff concessions
1964-8: Kennedy Round 1973-1979: Tokyo Round 1986-1994: Uruguay Round
World Trade Organization 2001-?: Doha Round
MULTI-LATERAL TRADE NEGOTIATIONS TAKE-AWAYS Most tarriffs were reduced in the early
rounds Negotiations are now about technical
issues and last longerThis may explain the spread of FTAs that
are bilateral/multilateral – not global
AND PERU?- YES IT IS A MEMBER OF THE WTO
Source: http://www.wto.org/english/thewto_e/countries_e/peru_e.htm
INVESTMENT PROMOTION AGENCIES IPAs can be public, private or a public-
private partnership
Most public bureaus are more like “investment prevention bureaus”
Private tend to not have power to make things happen
Public-Private is rare but seems to work Costa Rica convinced Intel to set up
manufacturing there in 1996
PERU-PROINVERSION Public Agency Website is fancy
Unclear if the quality extends to face-to-face
Can you think of any changes to its political structure that might boost its effectiveness?
THE INFORMAL SECTORUp to this point we’ve dealt only with the
Formal Sector. The Informal Sector are those jobs that are not taxed or monitored by the government.
Income is NOT included in GDP figures.
The majority of jobs in the developing world are in the Informal Sector.
Here are some I encountered in Africa..
STREET VENDORS
TRANSPORTERS
SUBSISTENCE AGRICULTURE
BLACK MARKETWhile many in the Informal Sector do
legitimate business, a subgroup is committing crimes.
The next three photos refer to one black market I saw throughout Benin. What is it? And make your best guess as to why it sprout up in Benin.
HINT 1: THAT IS NOT COKE!
HINT 2: HE IS COMING FROM THE EAST
HINT 3: WHY NOT A GAS STATION?
BLACK MARKET FOR NIGERIAN OILOil is illegal obtained from pipelines in the
Delta.
It is then transported on motorcycles to Benin
Benin turns a blind eye because its citizens get lower prices at “the pump”
Nigeria’s reasons are less clear: bribery? jobs for the poor?
CONSEQUENCES OF INFORMAL JOBS Low income countries lose out on a lot
of potential revenue that could be used for development
Most individuals rarely encounter the government Subject, Rather Participatory Relationship
Bribery, Bribery, and more BriberyAs a result the Millenium Challenge
Corporation (US), incentivizes countries to reduce corruption as a prerequisite for funding