GLOBAL ECONOMY

Introduction to Globalization, Development, and Conditions in

the Developing World

WHAT IS GLOBALIZATION? Globalization generally refers to

international integration in commodity, capital, and labor markets. (WTO)

It not simply a post-WWII phenomenon. What other eras in history have been marked by expansions of trade, capital, and labor markets?

http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-2b_e.pdf

ROLE OF TECHNOLOGY

THINK LIKE ABERNATHYWhat are key events in the latest round of

globalization?

COMMODITIES Originally, concerned the trade of raw

materials, intermediary products, and final goods

Now it can also include trade-in-servicesOffshoring (a subset of outsourcing)Element of the current Doha Round

negotiations

CAPITAL Foreign Direct Investment

Stock/Bond investments across borders

Even being able to take your own money across borders was once universally subject to controls. What political ideologies and structures might explain the origin of controls?

LABOR US-1/4 of American Doctors are foreign-

bornFrance recruits at the top Senegalese

medical school Bottom-line for Skilled Labor: movement

is much more common and financially they become better-off in the developed world

Integration is also at play. Where does this exist?

Refugees?

IDEAS

GLOBALIZATION HAS LED TO GREAT PROSPERITY

http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-2b_e.pdf

SO WHY ARE SOME SO OPPOSED?

SO WHY ARE SOME SO OPPOSED? There are winners and losers in trade

liberalization For example, NAFTA caused issues on both sides:

Mexican stores and manufacturers struggled with the ‘Walmart Effect’ and some US/Canadian manufacturing is now made in maquilladoras. Overall, though total GDP increased in all countries.

Human Rights Concerns Environmental Concerns Fears of Neo-Imperialism

*Some misatribute their loses to free trade when it was actually technological advances that made them obsolete

PLUS, UNINTENDED CONSEQUENCES AIDS/HIV

Spread from a few remote villages to the new factories of Kinshasa, following the colonization of Cameroon (by Germany).

Brought by returning UN peacekeepers to Haiti Quickly goes global via jet plane travel

“Tinderbox” by Dr. Halperin & Timberg

“Dallas” Effect Senegalese television shows & film were very

advanced, then came the US soap opera “Dallas”

Suddenly, attitudes towards wealth changed and more and more shows were imported rather than locally produced!

JAMAICA BAUXITE INDUSTRY 1970s-Jamaican Government

nationalizes the bauxite industry (raw material for aluminum)American companies continue to buy

bauxite at a higher rate, while they secure new sources in Africa

THEN suddenly, the companies went elsewhere and Jamaica’s output went into free fall

Lessons: Commodities are hard to nationalize, but

does this mean countries must give up everything to MNCs?

LETS TAKE A LOOK AT ANOTHER EXAMPLE Post-conflict Liberia was desperate for

investment and gladly accepted Mittal’s subsidiary’s FDI contract to mine to find iron ore with nearly no regulations

But as the Liberian economy became stronger and a new government came to power, it demanded the company to implement environmental and human rights regulations or leave. Did Mittal Leave?

NO This is referred to as the “obfuscating

bargain” Mittal had already spent a lot of money

building mines, processing facilities, and a railroad to export the iron ore.

The more fixed infrastructure, the more power shifts more towards Liberia

BACKWARD LINKAGES China has also done very well by

allowing MNCs into the country by maximizing the number of backward linkages. Domestic Partners/SuppliersMandatory EducationFactories are part of global supply chain

What do all of these strategies have in common

TO RECAP: DEVELOPING WORLD REACTIONS VARIED AS DID THEIR SUCCESS Accept Free Trade

Chile, Nigeria Some Free Trade/Some Authoritarianism

China, Indonesia, Liberia Reject Free Trade

Nationalize Industries Jamaica in 1970s, Venezuela

MARCH 8TH GLOBAL ECONOMY OBJECTIVES International Financial Institutions

World Bank IMF

Free Trade AgreementsWhat countries are most using these?What trends are likely to occur in the future?

Multilateral NegotiationsWTO RoundsAre there any alternatives?

Investment Promotion AgenciesDo differing Political Structures impact their

success?

INTERNATIONAL FINANCIAL INSTITUTIONS IMF

Keep international economic stability Traditionally for the developing world

Loans are made in SDRs (a basket of major currencies) 1 SDR = $.648

World Bank GroupPromotes Development through loansMostly to the governments

Now more loans through public-private partnership

WORLDBANK Role is to reduce poverty through loans

and suggestions for policy choices Includes IBRD & IDA

Great Source of Data:http://povertydata.worldbank.org/poverty/home

STRUCTURE

President Robert Zoellick

Permanent Employees

Part-timers for a maximum of 6 months

per year

THE WORLD BANK AT WORK:GROUP ASSIGNMENT

IMF Lets see how our case studies have

interacted with the IMF:(http://www.imf.org/external/np/fin/tad/extarr1.aspx)

Zimbabwe

Peru

Indonesia

China

IMF WORLD ECONOMIC OUTLOOK (WEO)

PUT YOURSELF IN PERU’S PLACE:Your country is not geographically near an

economic heavyweight like Mexico or Turkey.

Nor does it have a large abundance of Natural Resources like Nigeria.

But unlike Zimbabwe, your country is well-governed and takes part in the WTO.

What policies can the Peruvian government put in place to increase trade and thus its development?

FREE TRADE AGREEMENTS (FTA)Eliminates tariffs, import quotas, and

preferences on most goods and services traded between the countries

Do FTAs apply to imports from other countries?

NORTH AMERICAN FREE TRADE AGREEMENT Signed in 1994, with the intention of

fully implementing by 1996 However, as often happens,

implementation of the politically sensitive Mexican Trucking Provision, was not finish until a few months ago (2011)!

Maquilladoras

PROLIFERATION OF FREE TRADE Policy priority in several countries

Chile leads the world with over 50 The Southern Tiger?

China has been increasing its array throughout Southeast Asia (China-ASEAN FTA)

Trans-Pacific PartnershipWould include most countries around the

Pacific rim including US, Japan, Indonesia, & Mexico

But do all the political institutions have the strength to implement controversial trade liberalization?

PERU & FTAS China-Peru FTA Canada-Peru FTA US-Peru Trade Promotion Agreement

(PTPA)Not quite an FTA, but made legal

frameworks for investors regarding: Intellectual Property Rights Labor Human Rights Environment

MULTI-LATERAL TRADE NEGOTIATIONS 1947-United Nations negotiates the

General Agreement on Tariffs and Trade45000 tariff concessions

1964-8: Kennedy Round 1973-1979: Tokyo Round 1986-1994: Uruguay Round

World Trade Organization 2001-?: Doha Round

MULTI-LATERAL TRADE NEGOTIATIONS TAKE-AWAYS Most tarriffs were reduced in the early

rounds Negotiations are now about technical

issues and last longerThis may explain the spread of FTAs that

are bilateral/multilateral – not global

AND PERU?- YES IT IS A MEMBER OF THE WTO

Source: http://www.wto.org/english/thewto_e/countries_e/peru_e.htm

INVESTMENT PROMOTION AGENCIES IPAs can be public, private or a public-

private partnership

Most public bureaus are more like “investment prevention bureaus”

Private tend to not have power to make things happen

Public-Private is rare but seems to work Costa Rica convinced Intel to set up

manufacturing there in 1996

PERU-PROINVERSION Public Agency Website is fancy

Unclear if the quality extends to face-to-face

Can you think of any changes to its political structure that might boost its effectiveness?

THE INFORMAL SECTORUp to this point we’ve dealt only with the

Formal Sector. The Informal Sector are those jobs that are not taxed or monitored by the government.

Income is NOT included in GDP figures.

The majority of jobs in the developing world are in the Informal Sector.

Here are some I encountered in Africa..

STREET VENDORS

TRANSPORTERS

SUBSISTENCE AGRICULTURE

BLACK MARKETWhile many in the Informal Sector do

legitimate business, a subgroup is committing crimes.

The next three photos refer to one black market I saw throughout Benin. What is it? And make your best guess as to why it sprout up in Benin.

HINT 1: THAT IS NOT COKE!

HINT 2: HE IS COMING FROM THE EAST

HINT 3: WHY NOT A GAS STATION?

BLACK MARKET FOR NIGERIAN OILOil is illegal obtained from pipelines in the

Delta.

It is then transported on motorcycles to Benin

Benin turns a blind eye because its citizens get lower prices at “the pump”

Nigeria’s reasons are less clear: bribery? jobs for the poor?

CONSEQUENCES OF INFORMAL JOBS Low income countries lose out on a lot

of potential revenue that could be used for development

Most individuals rarely encounter the government Subject, Rather Participatory Relationship

Bribery, Bribery, and more BriberyAs a result the Millenium Challenge

Corporation (US), incentivizes countries to reduce corruption as a prerequisite for funding