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Unformatted text preview: ex for various countries (prepared by Foreign Policy magazine at was compared to life expectancy. A strong correlation appears between the degree to which a country has globalized and that country’s life expectancy. 46 Chapter 2 Economic Systems and the Global Economy people, at greater distances, than they once did. They are trading different things: money for goods, their labor services for money, their savings for expected returns, and so on. In other words, expanding trade—which is what globalization is about—is no more than extending the benefits of trading to people one might not have traded with earlier. Standard of Living As both India and China opened up their economies to globalization in recent decades, they experienced increases in income per person. For example, between 1980 and 2000, income per person doubled in India. Between 1940 and 2000, income per person increased by 400 percent in China, much of this increase coming in recent years. According to the International Monetary Fund, these dramatic increases in income per person accompanied the expansion of free international trade (which is a key component of globalization). Also, according to the International Monetary Fund, in the last 30 years hunger and child labor have been cut in half and life expectancy has dramatically increased in developing countries. According to the World Bank, 200 million people in the world were raised up out of poverty in the past 20 years. People in the United States have benefited as well. According to work done by two economists, globalization increases U.S. income by roughly $1 trillion a year, or $10,000 per household. In other words, without the United States globalizing, Americans would be poorer by $1 trillion a year. Another benefit to globalization seems to be longer life expectancy. One study compared the globalization index (a rating based on how globalized a country is; the higher the number, the more globalized) with life expectancy as computed by the United Nations. The study found that generally the more globalized a country was, the greater the life expectancy. See Exhibit 2-4. QUESTION: How do we know that the ben- efits you say are a result of globalization are, in fact, caused by globalization? Couldn’t they be caused by something else? 11/17/05 4:14 PM Page 47 ANSWER: Economists are fairly sure that globalization leads to an increased standard of living based on their comparisons of countries with similar characteristics. For example, take a look at Exhibit 2-5, which shows that the annual percentage change during the 1990s in output per person is positive in globalized developing countries but negative in less globalized countries. Or consider an extreme case, North and South Korea. The two countries share a people and a culture, but North Korea avoided the process of globalization during the period in which South Korea embraced it. What we observe is that South Koreans enjoy a much higher standard of living than North Koreans. Cost...
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