Logic of Economic Globalization

Rota Hanada(1M171028-4),Hyerim Kim(97180044-2),

Kazutora Sellers (1M161129-6)Li Yijin(1M150297-2)

Ayumi Oda (1M170347-0)

Introduction: What is Economic Globalization ?Rota Hanada

What is Economic Globalization? ➢ Economic Globalization

○ Free movement of capitals, trades, services, technology and information.

➢ Cause○ Improvement in trade, communication, transportation, labor skill/availability

➢ Views on Economic Globalization○ Is economic globalization beneficial?

○ The Global Financial Crisis

○ Today?

Embedded Globalization ➢ Globalization

○ Often associated with liberalization, Westernization, internationalization, ect.

○ Although more accurately “process” rather “fixed outcome”

○ Associated with specific historical moments

➢ Effects○ Harder to distinguish the difference between domestic and world economy

○ Conflicts

➢ Two Sides of Ideology ○ Globalist - consider world economic trends

○ Skeptist - regionalism, existence of geo-eco competition

Trade and FinanceLi Yijin

1M150297-2

World Trade/World Output● The post-war period

○ World trade has grown much faster than world output, significantly so since 1990s

● World exports/World Output○ 3 times greater in 1995 than in 1950

○ WTO: 12.5%(1970)→17%(1990)→27%(2005)→25%(2007)→30%(2015)

○ Despite 9/11 and its subsequent downturn, the ratio remained well

● Word Trade/World GDP○ Even many years after GFC, this ratio stands at 60% comparing 25% in the 1960s

● World merchandize trade○ 365 billions in 1980→3,778 billions in 2008(peak)

○ Almost 700% increase

The “Great Trade Collapse” ● By the end of 2009

○ World Trade: fell by an unparalleled 33%

○ Goods exports volume: fell by 22%

○ World exports volume: fell by 12%

● Unprecedented in both scale and speed of its transmissions○ Early in 2009, all world’s trading economies recorded negative trade growth

● Major exports○ Especially Japan and China: export declines over 20%

● Rebound in 2012 to $18.2 trillions ○ Trade volumes were back but well below trend growth

○ A further decline in trade values in 2014/15

A Profound Change ● Under the background of sluggishness of trade

○ WTO: A significant fracturing of the relationship between global economic growth and

world trade.

○ More precisely: The relationship of two-to-one, which prevailed for many years appears

to break down

● If permanent○ A fundamental change in the structure of world economy

○ Potentially significant if there is not reversal

● Sources of this slowdown→Subject of debate○ An open question: Whether the great moderation in trade globalization is the new

normal

Factors of Trade Collapse● Countries becoming enmeshed in world trade as the rise of global

production networks○ Global supply chains: 36% (1995)→49% (2011)

● Emerging economies: growing share of world export markets:○ Intensified further as a result of GFC: 19.2%(1970)→32.1% (2005)→47% (2011)

● Trade became important to national economy welfare:○ Developing countries: Trade/GDP=5.5%(1950)→17.2% (1998)

○ OECD countries: doubled

● Change in world economy associated with a new global division of labour:○ Market share of world merchandise exports for Developed countries: 75%(1970)→47%

(2011)→64.8% (2003)→54% (2014)

○ BRICs: Rising

International Finance● Irrelevant with trade since the 21st century

● Daily turnover on foreign exchange markets: ○ $590 billions (1989)

○ $1,210 billions (2001)

○ $3,500 billions (2008)

○ $5,344 billions (2013)(peak)

○ $5,088 billions (2016)

● Foreign exchange vs. World trade:○ 2 times(1973)→60 times(2008)

○ Growth rate: 19% vs. 10% (1964-2001)

Transborde capital flows● 2-6% of GDP during 1980-95→ 15% of GDP by 2006

● International issues of shares:○ $8 billion (1980s)

○ $300 billion (2000)

○ $307.5 billion (2005)

● Derivatives:○ $618.3 billion (1986)

○ $4,224 billion (2001)

○ $10,650 billion (2005) = annual value of world merchandise trade

● Transborder bank lending:○ $2,095.3 billion (1983)

○ $30,000 billion (2008)

○ $25,000 billion (2009)

“Flight to Safety” --- Aftermath of GFC● Financial globalization reversed

● Banks and other financial institutions reducing international exposure

● Gross cross-border capital flows:○ Fell by 82% from $10.5 trillion(2007) to $1.9 trillion(2008)

● Banks stopped lending and reduced exposure in overseas markets○ Fell from $4.9 trillion(2007) to $1.3 trillion(2008)

● Eurozone crisis: reinforced this trend

Emerging Economies Integrating into World Financial Markets ● GFC accelerated a profound shift in patterns of cross-border capital flows

● Much of the decline is from advanced economies○ Developing economies account for ⅓ of the global capital flows

Global Financial Integration ● Since 1980s

● A considerable debate ○ Different measures lead to contradictory conclusions

● Feldstein-Horioka puzzle:○ Levels of national savings and national investment: highly correlated

○ Recent studies: empirical evidence of saving-investment correlation weakened since the

1990s --- A period a financial liberalization

○ The observed correlations: an imperfect measure of global financial integration

● Other measures:

○ The stock of foreign assets/ World GDP: 6%(1960)→25%(1980)→92%(2000)

○ Capital flows/World GDP: grown substantially since 1960s

○ Significant declines of capital controls: since 1970s for OECD states, and since 1980s for

developing economies

Other Tendencies towards Global Financial Integration

● Process of Financial deepening: ○ Finance pervades the operation and management of all modern economies, borrowing a

new epoch of “financial capitalism”

● Financial crisis or volatility abroad is magnified, diffusing rapidly at home:○ GFC spread as production and trade collapsed

○ the loosening of monetary policy after GFC: unprecedented low interest rate, QE→huge

capital flows to emerging economies→deepening integration but generating new

systemic risk

● Stocks Market: highly synchronized since 1970s

● Banks: Transboard finance agencies became regularized and

systematized through the activities of global agencies （e.g. SWIFT to

make gloabl financial interbank payments）

Production, Labor Migration, and GlobalizationKazutora Sellers

1M161129-6

Changes in Foreign Direct Investment (FDI)● Overall, FDI has trended downward in recent years, especially in the wake

of the GFC

● Investments have started to also trend toward developing countries○ This trend points to increased integration in the future

○ From record breaking figures in 2007 to the fasted rate of decline post-war

Capital Mobility● As the world becomes connected through advances in technology,

outsourcing certain types of labor has increased

● Now, a company’s network spans across different countries and has

moved the world toward integration

● These trends have changed market perceptions○ No longer isolated blocs, move toward singular global market

Labor Migration● Economic migration typically occurs south-north

● Labor is much less mobile than capital

● Remittance to migrants’ home countries is a huge form of investment○ Remittance to India in 2005 totalled $20.5 Billion whereas FDI was $11.9 billion

● The GFC halted much of this sort of migration ○ Unemployment in host country/ border controls

Skepticism on Globalization● Critics would say that the extent of globalization is overstated

● Geographical distance still impacts trade

● Regionalism still dominates much of the trade market○ For most countries, it is easier to trade with countries that are physically close

○ Chiefly rely on regional PTA’s and FTA’s

● The GFC has made many skeptical of interconnectedness○ International sectors such as finance have struggled to return to pre-GFC levels

The logics of economic globalizationHyerim Kim

The logics of economic globalization➢ Thickest conceptions of causation

○ Causality implies determination

○ Both necessary and/or sufficient to produce a phenomenon

➢ Thinner conceptions of causation○ Refer to dispositions

○ Enabling conditions, tendencies, or factors

➢ Thinnest conceptions of causation○ Emphasize contingent explanations

○ Globalization results from a coincidence of unique circumstances

Principal logics➢ Technics(technological change & social organization)

○ Central to any account of globalization

○ Drives liberalization, especially in the financial sector

○ ‘Technology is inherently globalizing’

➢ Economics(markets & capitalism)○ Orthodox & radical

○ Orthodox : globalization is considered to be a direct consequence of market competition

○ Radical : locates economic globalization in the expansionary & universalizing logic of

modern capitalism

➢ Politics(ideas, interests, agency & institutions)○ All accounts of contemporary globalization along with associated policies

Principal theories

Making sense of the logics of economic globalizationCompeting or complementary?

There is no universally accepted set of criteria

The second age of globalizationAyumi Oda

The second age of globalization ➢ It cannot be determined conclusively whether this second age of

globalization is more intensive than the belle epoque one. ○ Financial integration is similar, gross flows are greater today

Qualitative differences ❏ Real-time world financial markets

❏ The breadth and depth of trade and financial cross-border activity

❏ The speed of economic exchange

❏ The scale of gross economic flows of goods, and short term capital

❏ The institutionalization of economic relations at an inter-regional level

❏ twenty-first -century globalization is experienced much more unevenly

Differences in relation to the global division of labor➢ First age of globalization

○ Involved deindustrialization on the periphery and industrialization at the core

➢ The second age of globalization ○ Reverse

“Global market integration is qualitatively different and

deeper today”

Conclusion ● The politics of and the future of economic globalization will be

increasingly dependent in the economic fortunes and interests of the

world’s emerging economic powers