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Globalization and its effects (some evidence) Jože P. Damijan University of Ljubljana

Globalization and its effects (some evidence) Jože P. Damijan University of Ljubljana. Trade routes and the shrinking Globe What defines globalization? Trade liberalization, capital account deregulation, IT rev. Why is it proceeding rapidly? Evidence Global trade flows

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Globalization and its effects (some evidence) Jože P. Damijan University of Ljubljana

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  1. Globalization and its effects (some evidence) Jože P. Damijan University of Ljubljana

  2. Trade routes and the shrinking Globe • What defines globalization? • Trade liberalization, capital account deregulation, IT rev. • Why is it proceeding rapidly? • Evidence • Global trade flows • Foreign direct investment (FDI) flows • Globalization: good or bad? Globalization

  3. Evolution of globalization

  4. History of globalization • Traits of globalization can be traced to as far back as the Roman Empire • The Silk Road started in China, reached portions of the Parthian Empire and ended in Rome • The trade route helped to integrate the three economies of the Han Dynasty, Persian and Roman Empires.

  5. The word "globalization" has been used by economists since 1981. • The concepts only became popular in the later half of the 1990s. • The first era of globalization (in the fullest sense) during the 19th century: • rapid growth of trade between the European imperial powers, the European colonies, and the United States. • After World War II, globalization was restarted • driven by major advances in technology, which led to lower trading costs. History of Globalization

  6. World wide integration and deepening of economicactivities • Integrated production and consumption systems • Facilitated by IT revolution, liberalization andderegulation • Unprecedentedmobilityof goods, services, capitaland people • Events all over the world strongly interdependent • i.e. global financial and economic crisis GlobalizationDefinitions

  7. open markets - it could not happen if import quotas or high tariffs prevented the sales. • cheap air transport-the beat-up old Boeings that have become the tramp steamers of modern trade. • modern telecommunications-the vegetables are delivered to order, i.e. messages must be sent to the farmers in a way that used to be possible only in advanced countries with good phone systems. Drivers ofGlobalization

  8. Evidence

  9. 1970-1980: increase by 1.7 t$ (6.4x) 1980-2000: increase by 4.2 t$ (3.2x) 2000-2001: increase by 12 t$ (2.9x) Global trade flows 1948-2011 Source: UNCTADstat.

  10. until 1972: advanced countries peaked at 77% 1974-1985: oil boom after 1986: devel.c. up from 21% to 43%, advanced down to 53% Global trade 1948-2011 Source: UNCTADstat.

  11. after 1970: export boom started in Asia, revival after 1985 (from 300 b$ to 4.2 t$ China export boom only after 1999 (from 200 b$ to 1.9 t$) Export boom in developing countries Source: UNCTADstat.

  12. Africa down to 8%, Latin Am. down to 14% China up to 24%, other Asia stabilized at 54% Oil exporters down from 30% to 19% Export shares of developing countries Source: UNCTADstat.

  13. goods’ exports up to 18 t$, services’ exports up to 4 t$ lower growth rates of services’ trade Another dimension of global trade - services Source: UNCTADstat.

  14. goods’ trade by far contributes more to GDP than services’ trade Global trade openness: goods vs. services Source: UNCTADstat.

  15. In 1980-2011, trade openness increased by 10 ppt Developing countries more open than advanced (by 10 ppt) Global trade openness Source: UNCTADstat.

  16. Similar trends of global FDI stocks as with global exports 2/3 of global FDI stocks directed to advanced countries Global FDI stocks Source: UNCTADstat.

  17. Similar trends in exports and FDI between advanced and develp. countries, …though faster growth in exports than FDI in develp. countries Global FDI stocks Source: UNCTADstat.

  18. Advanced: moderate export growth and decreasing trend of FDI growth Developing: increasing trend of export growth along FDI growth Trade and FDI trends by decades Source: UNCTADstat.

  19. Developing c. gain shares after 2004 (from 21% to 32%) Share in global FDI stocks Source: UNCTADstat.

  20. Advanced: North Am. losing shares in attracting FDI against Europe (54% -->31%) Developing: Asia losing shares against Lat. Am (67% -->60%) Inward FDI stocks by regions Source: UNCTADstat.

  21. Gaining: CHN, BR, CH, SNG, RU, IND, PL Losing: US, UK, HK, DE, CND, AU, IT Top-30 FDI locations by decades Source: UNCTADstat.

  22. Top locations: HU, CZ, PL Latecomers: SK, BG, RO FDI trends in EU-NMS Source: UNCTADstat.

  23. Increased global openness for trade and FDI • Three waves of export boom • second one in Asia after 1985 • China export boom only after 1999 • FDI boom • but a real boom only after 1998 • Exports and FDI trends highly correlated • Services trade increasing, but slower than goods Summary of evidence

  24. EffectsGood or bad?

  25. Open economies grow faster • clear evidence • What about the effects on manufacturing and employment? • Advanced vs. developing countries • Other effects • Poverty, unequality • labor standards, child & women labor Effects of globalization

  26. Average growth rate in open econ. bigger by 3.3 ppt Open economies grow faster Source: UNIDO

  27. Fastest avg. growth in OECD, followed by Asia and Lat. Am, Africa slow Clear differences between regions Source: UNIDO

  28. Asian countries on top Fastest growing open economies Source: UNIDO

  29. Increased choice, lower prices • Greater potential for growth • Increase international economies of scale • Greater employment opportunities • Led to massive increases in wealth for many countries • World poverty decreased Benefits of globalization

  30. World poverty decreased Source: Worldbank/Poverty gap.

  31. … however, mostly effect of China Source: Worldbank/Poverty gap.

  32. Income inequality for the world as a whole is diminishing • Infant mortality has decreased in every developing region of the world • Life expectancy has almost doubled in the developing world since World War II • Hans Rosling: “200 years that changed the world” Other benefits (1)

  33. Between 1950 and 1999, global literacy increased from 52% to 81% of the world. • female literacy as a percentage of male literacy has increased from 59% in 1970 to 80% in 2000. • The percentage of children in the labor force has fallen from 24% in 1960 to 10% in 2000. • Similar increasing trends toward electric power, cars, radios, and telephones per capita, as well as a growing proportion of the population with access to clean water. Other benefits (2)

  34. Unregulated power of large, multi-national corporations, which damage • the democratic rights of citizens, • the environment, particularly air quality index and rain forests, • as well as national governments sovereignty to determine labor rights • right to unionize for better pay, and better working conditions • women and child labor The flip sideDeveloping countries

  35. De-industrialization trends • The shift to service work: the low cost of offshore workers enabled corporations to move production abroad. • the laid off unskilled workers are forced into the service sector where wages and benefits are low, but turnover is high. • widening economic gap between skilled and unskilled workers. • The loss of these jobs has also contributed greatly to the decline of the middle class which is a major factor in the increasing economic inequality • Economic instability The flip sideAdvanced countries (1)

  36. Effects of globalization on wages in US (BLS study, 2001) • in the period 1979-1999, 31% of those who lost a job due to trade were not fully re-employed. • only 36% of the displaced workers were able to find a new job with matching or higher wages, • 55% were at best working for 85% of their former wages, • and 25% were working for 70% or less of their former wage • Effects on employment in US (BLS study, 2011) • 6 million jobs lost in U.S. manufacturing between 1979 and 2007 (from 19.6 to 13.7 million), • more than half of it after 2001 (trade liberalization with China) The flip sideAdvanced countries (2)

  37. Global imbalances in trade and capital flows starting in the latter half of the 1990s • These imbalances reflected a chronic lack of saving relative to investment in the US and other industrial countries, • combined with an extraordinary increase in saving relative to investment in many emerging market nations. • In turn, • the increase in excess saving in the emerging countries (resulted from rapid economic growth reduced investment rates, large buildups in foreign exchange reserves, and substantial increases in revenues by exporters of oil and other commodities) … • resulting in large capital inflows for more than a decade in the US and some other advanced • … made the foundations of the current global financial crisis The flip sideAdvanced countries (3) Ben Bernanke (2009)

  38. Has globalization shifted global political powers? • From US to China? • Chinese Professor Ad: "Now They Work for Us" Global shift

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