intb-final - WEEK 9 LECTURE OUTLINES Click to Read What Do...

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WEEK 9 LECTURE OUTLINES: Click to Read “What Do Economists Mean by Globalization” by Jeffrey Frankel What do economists mean by “globalization”? Provide four processes that economists use to measure globalization o Integration through international trade of markets in goods and services. o Financial integration through international trade in assets. o Foreign direct investment, increased trade in intermediate products (especially within multinational corporations), international outsourcing of services, and international movement of persons. o International spread of ideas from consumer tastes to intellectual ideas. The driving force of globalization Provide an example of reduced costs to transportation and communication in the private sector. o Between 1920 and 1990 the average ocean freight and port charges per short ton of U.S. import and export cargo fell from $95 to $29. And between 1920 and 1990 the cost of a 3-minute telephone call from New York to London fell from $244.65 to $3.32. Provide an example of reduced policy barriers to trade and investment on the part of the public sector. o Unilateral liberalization by China and India, bringing 2 billion new people into contact with world markets, ranks as a major recent driver of globalization of its own. Economic integration is not complete Is globalization complete? Is the pace of integration over the last years been unprecedented? Is its continuation inevitable? o Globalization is not complete. (By a conservative calculation the US trade/GDP ratio would have to increase another six- fold before it would be true that Americans trade with foreign residents as readily as with their fellow citizens.) o The pace of integration over the last years has not been unprecedented (the trend was also rapid in the century preceding World War 1). o Its continuation is not inevitable. (Trade contracted between 1914 and 1950. It could happen again.) Provide an example of how we are still far from the day when we buy from across the globe as easily as across the country. o Even in a perfectly integrated world, a typical US citizen would be more likely to trade with another American than with the residents of a random country. Provide examples of barriers to integration of which include geographical, social, and policy factors. o If the two countries do not belong to a free trade area, but have tariffs and other trade barriers between them that are average in level, trade again falls by roughly 2/3. It falls by even more if the trade barriers are at levels typically found in poor countries. If the two share no common historical or cultural links, the barriers are greater still. If they speak different languages, for example, trade falls by half. Implications for more increased trade openness What does the classical theory say about the implications for more increased trade openness?
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