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Chapter Six - Globalization & Trade

Chapter Six - Globalization & Trade - Chapter Six...

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Chapter Six Globalization and Trade
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Trade and globalization Why is trade important? How are globalization and trade related? Why do countries trade? What benefits do they hope to gain?
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The importance of trade and its relationship to globalization During the last 50 years, world GDP has grow six-fold in real terms while world trade has grown more than twenty-fold (i.e. more than three times as fast). World trade now accounts for 20% of world GDP. Increasing global trade results in an ever increasing interconnectedness of national economies – i.e. globalization. Traded products are the most visible aspect of globalization (Note: while multinational companies are its most visible agent )
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Why trade? “The International division of labor” : people have traded for centuries to improve their standards of living, either for things that they don’t make or for things that someone else makes better or cheaper Countries who trade with each other generally don’t go to war with each other Availability : to gain access to products and materials which are either unavailable in your country or of which there is a shortage (e.g. raw materials – minerals). Lower cost : to gain access to cheaper products or materials than are available in your country. Increased sales and profits : by selling some of your production/ goods overseas. Central question: does trade result in world economic (i.e. GDP) growth or does it simply redistribute wealth from one country to another with no net growth? i.e. does it “expand the size of the pie” or does it “change the size of the slices” that each country gets (some smaller, some larger)?
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Trade is not a new phenomenon Trade has existed for over 5,000 years: In the Mediterranean: Rome and Carthage in the 1 st and 2 nd centuries BC. The Arabs throughout the Arabian peninsula, North Africa and later South and West Africa. The Genoans and Venetians starting in the 12 th century AD and the development of the silk route (e.g. Marco Polo) to China. This period also lead to the rise of international banking (to replace bartering), culminating in the emergence of Florence and the Medicis as the capital of global banking in its day.
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