Unformatted text preview: Globalization and Development
April 22 What Is Globalization? Increased interaction, linkages across national borders not a new phenomenon (colonialism, etc.) not a linear process (variation over time) not equivalent to Westernization (Sen) is multidimensional phenomenon has intensified since 1980's along multiple fronts Key Dimensions of Globalization
1. Economic: integration of local, national and regional economies into global marketplace for goods, services, and capital (less so for labor) international trade international investment and capital flows 2. Political dimensions development of international institutions (IMF, World Bank, WTO; less so United Nations) but generally lagging behind economic integration subordination of national governments to global market forces? (i.e., loss of political autonomy, narrowing of policy alternatives, etc. Friedman's "Golden Straightjacket") 3. Cultural dimensions mass media communications consumption patterns, styles, etc. Old vs. New Globalization 1. 2. 3. 4. Old globalization Roots in the colonial era late 15thearly 20th centuries Extensive foreign trade and investment by the dawn of the 20th century Based on natural factor endowments and comparative advantages Classic international division of labor, i.e., wealthy nations producing manufactured goods for global markets, poor nations producing agricultural goods and raw materials New Globalization: Driving Forces Technological revolutions in communications and transportation starting in 1960's, accelerating since 1980's Market competition and opportunities (i.e., profit motive) Two Key Changes with New Globalization 1. 2. 3. 4. Make possible manufacturing and other productive activities virtually anywhere Dramatic shift of basic manufacturing activities to low income developing nations Attracted by low wages, low unionization, low taxes and social welfare costs, lax environmental regulation Losses in labor productivity more than offset by cheaper production costs Erode (but not eliminate) international division of labor; wealthy (postindustrial) nations retain advantages in technological innovation, finance, services 2nd Key Change 1. 2. 3. Dramatic increase in shortterm capital flows that aren't directly linked to production (different from foreign direct investment) Portfolio investment (stocks and bonds) NYSE $50b/day Currency trading $2 trillion/day Highly volatile, often speculative so these capital flows "discipline" foreign governments (i.e., exert enormous pressure to conform to international standards on fiscal, monetary, and exchange rate policies ...
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