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Globalization v - Globalization ECN 306 1 Lecture Objective...

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1 Globalization ECN 306
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2 Lecture Objective Historical perspective on globalization. Shed some light on the economic issues related to globalization. Issues coming on the horizon.
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3 What is Globalization? MOST ACCEPTED DEFINITION G lobalization is a process of increasing integration of economies and markets around the world, through the movement of goods, capital, people, and knowledge across international borders. MORE SIMPLY It is the process of having separate national markets increasingly operate as one.
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4 How to Measure Prices and wages Narrowing of price differences Narrowing of interest rates or wage differences Flow or stock relative to a benchmark Exports/GDP or (Exports + Imports)/GDP - Stock of FDI/GDP Growth rates or volumes transacted Rate of export growth vs GDP growth
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5 Globalization has always existed – but is also very new. Ancient “globalizations” … fundamental role of “barriers” distance time policy means of payment
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6 Globalization 1 st Great Period of Globalization -- From 1860s to WWI: trade, capital flows, and immigration flourished. Falling barriers and upsurge in productivity.
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7 Transatlantic Price Gap 1870 1913 Boston US-Manchester UK Cotton Textiles 14% 0% Boston-London Hides 28% 9% Wool 59% 28% Philadelphia-London Iron Bar 75% 25% Pig Iron 85% 19% Copper 33% 0% Chicago-Liverpool UK Wheat 58% 16% New York-Liverpool UK Wheat 56% 0% Source: Philippe Aghion and Jeffrey Williamson, Growth, Inequality and Globalization , 1998
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8 Size of Capital Flows Selected Annual Average Periods Percentage 1870 - 1889 4.0 1890 -1913 3.7 1914 -1918 5.8 1919 -1926 3.9 1927 -1931 2.7 1932 -1939 1.5 1940 -1946 3.9 1947 -1959 2.0 1960 -1973 1.3 1974 -1989 2.6 1980 -1996 2.6 measured by current account as a percentage of national income
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9 Total Trade to GDP _______________ 1870 1910 1950 1995 -------------- in percent --------------- UK 41 44 30 57 France 33 35 23 43 Germany 37 38 27 46 Italy 21 28 21 49 Denmark 52 69 53 64 US 14 11 9 24 Canada 30 30 37 71 Japan 10 30 19 17 Total trade measures as sum of exports and imports. Source: R. Baldwin and P. Martin, “Two Waves of Globalization: Superficial Similarities, Fundamental Differences”, NBER Working Paper 6904, January 1999
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10 Positive Effects Period of fastest growth of living standards in history up to that time Effects fueled by trade expansion and movement of capital and labor. All measures of openness & integration rise to levels not surpassed until 1970 Also, unmeasured gains in living standards due to falling prices and increased product variety
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11 Growth in GDP p.c. 1820-1950 Region 1820- 1870- 1913- 1870 1913 1950 Western Europe 0.95 1.32 0.76 British Offshoots 1.42 1.81 1.55 Japan 0.19 1.48 0.89 Latin America 0.10 1.81 1.42 Asia (exc. Japan) -0.11 0.38 -0.02 Africa 0.12 0.64 1.02 World 0.53 1.30 0.91 Source: Angus Maddison, The World Economy: A Millennial Perspective , 2001
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12 Causes? Two Factors Policy: relatively unfettered cross-border mobility of goods, labor & capital, gold standard Technological Change: industrial revolution , major innovations in communication and transportation technology; unparalleled even by today’s standards
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13 Factor # 1: Policy Introduction of Liberal Policies toward: Goods : Great Britain unilaterally moved to free trade with the repeal of Corn Laws in 1846; this
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