Chapter 2 Globalization and its implications

2.1 Globalization

2.1.1 True or False

Globalization is a phenomenon that began in the middle of the 20th century
Globalization has contributed to an increase in the standard of living for Americans
The biggest winners in globalization are members of the middle class in Asia
Globalization makes you happier
At least 60 countries are poorer today than they were 30 years ago
Of the world population, 5% are considered migrants
Globalization is an irreversible phenomenon

2.1.2 Globalization and the World

Economic phenomenon
- Greater economic interdependence between countries
Demographic phenomenon
- Movements of people across countries
Cultural phenomenon
- Diffusion of values and tastes

Globalization: “ongoing process of greater interdependence among countries and their citizens” (Fischer, 2003)

2.1.2.1 Trade (% of GDP)

Trade is the sum of exports and imports of goods and services measured as a share of gross domestic product.

2.1.3 Globalization and Canada

2.1.3.1 Trade (% of GDP)

2.1.4 Globalization and Regions

2.1.4.1 Trade (% of GDP)

2.1.5 Not a New Phenomenon

What is different today?

2.1.6 What is Different Today?

Commercial integration before WWI more limited:
- Trade in good (agriculture, manufacturing, and mining) significantly higher
- Trade in services now part of trade between nations *Intra-firm trade (multinationals) now the norm
Drivers:
- Developments in transportation
- Reduction of barriers of information exchange (Telecommunications)
- Reduction of trade barriers

Source: Bordo, Eichengreen and Irwin (1999)

2.1.7 Developments in Sea Transportation

2.1.7.1 The Container Revolution

As of the1950s, containers have:
- Simplified transshipment of freight from one mode of transportation to another
- Increased security of shipments
- Reduced cost and time involved in moving freight over long distances
Today:
- Roughly 90 percent of total world trade moved in containers on purpose-built ships
- Cost of containers affordable

2.1.8 Developments in Air Transportation

2.1.8.1 Transportation Costs

2.1.8.2 Average US Airfare

The cost of an airline ticket has declined on average by 30% over the past 20 years (estimate adjusted for inflation)

Source: https://www.theatlantic.com/business/archive/2013/02/how-airline-ticket-prices-fell-50-in-30-years-and-why-nobody-noticed/273506/

2.1.9 Developments in Telecommunications

2.1.9.1 Transatlantic Phone System

2.1.10 Transportation and Communication Costs

2.1.10.1 The decline of transport and communication costs relative to 1930

2.1.11 The Internet Revolution

2.1.11.1 Individuals using the Internet (% of population)

2.1.12 What is Different Today ?

Financial integration before WWI more limited:
- Net flow of capital higher at the time when look at in relation to GDP
- Narrower in terms of sectors than today
- Foreign borrowing limited to railways and governments
Why is it greater today:
- Information flows: faster and more abundant
- Contracting problems: geographic ignorance and problems of control
- Macroeconomic risks: new system in place
- Accounting standards: standardization of practices

2.1.13 Case in Point: International Capital Investments

2.1.14 New Developments (but Also New Issues) in Governance

Bilateral and Multilateral Trade Agreements
Institutional innovations:
World Trade Organization
International Monetary Fund
World Bank
United Nations

2.1.15 Tariff Barriers Worldwide

2.1.15.1 Tariff rate, applied, simple mean, all products (%)

2.1.16 Trade Barriers: Free Trade Agreements

2.1.16.1 RTAs currently in force (by year of entry into force)

2.1.17 Free Trade Agreements

Source: World Trade Organization

2.2 Measures and Impacts

2.2.1 Measuring Globalization

How should we measure globalization?
Why should we care?
Based on what we know, who are the “winners”? Who are the “losers”?

2.2.2 KOF Index: Globalization Worldwide

2.2.3 Measuring Globalization: A Country Perspective

KOF Index of Globalization. The KOF Index of Globalization measures the three main dimensions of globalization: Economic, social and political. In addition to three indices measuring these dimensions, we calculate an overall index of globalization and sub-indices referring to actual economic flows economic restrictions data on information flows data on personal contact and data on cultural proximity. Data are available on a yearly basis for 207 countries over the period 1970 - 2011.

Source: http://globalization.kof.ethz.ch

A.T. Kearney/Foreign Policy Globalization Index:

Quantifies the level of personal contact across borders
- International travel
- International phone calls
- Cross-border remittances and other transfers
- Charts the World Wide Web
  - Number of users, Internet hosts and secured servers
Economic Integration
- Movement of goods and services
- Permeability of borders through convergence of domestic and international prices
Financial Integration and movement of money

Source: http://foreignpolicy.com/2009/11/20/measuring-globalization/

2.2.4 Who’s In The Game and Who’s Out?

2.2.4.1 The World’s Most Globalized Countries

2.2.4.2 The World’s Least Globalized Countries

2.2.5 Who’s in the Game and Who’s Out?

2.2.5.1 The WEF’s Travel and Tourism Competitiveness Report and the Passport Index

Source: https://www.passportindex.org/charts.php

2.2.6 Who Has Won? Who Has Lost?

2.2.6.1 Inflation rate, average consumer prices (Annual percent change)

2.2.6.2 Real GDP growth (Annual percent change)

2.3 Trends and Challenges

2.3.1 Trends

Intangible versus tangible goods:
- Modify the way we track data on globalization
- Modify the way states compete
- Modify the way firms compete
Innovation creating new pressures on value chains
Populism and nationalism
Shifting powers

2.3.2 Intangible vs. Tangible Goods

2.3.2.2 Service exports (BoP, current US$)

2.3.2.3 Trade in Services (% of GDP)

2.4 Data Challenge

2.4.1 Political Risk

What do you think of globalization ?