Globalization and the Developing Countries · 6 11 Net Resource Flows to Developing...
Transcript of Globalization and the Developing Countries · 6 11 Net Resource Flows to Developing...
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Globalization and the Developing Countries(for GAD-II 2004)
Prof. Shigeru T. OTSUBO
GSID, Nagoya University
April 2004
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What is “Globalization”?--a traditional definition--
Globalization, defined as the integration of production, distribution, and use of goods and services among the economies of the world, has been evolving since the end of World War II. The signs of globalization are manifested at a factor level in the increasing flows of capital and labor, and at the product level in a resounding growth in world trade above and beyond the growth of world output…..
From an old WB report written by Prof. Otsubo
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Growth in World Trade and GDP, 1960-1997(trade in goods and services)
100
200
300
400
500
600
700
800
900
1000
1960
1965
1970
1975
1980
1985
1990
1995
Year
(Index 1960=100)
World Trade(Volume)
World Outp(Volume)
Source: World Bank, World Bank Development Indicators, 1999.
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Globalization of What?
Globalization of GoodsGlobalization of ServicesGlobalization of InvestmentGlobalization of FinanceGlobalization of Human ResourcesGlobalization of Corporate ActivitiesGlobalization of InformationGlobalization of (Harmonization of) StandardsMore…(Democracy, Market Mechanism,
i.e. American Standards?)
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Benefits of GlobalizationWider variety of Goods and Services have become available at lower prices.Enlarged Investment opportunity that results in higher average rate of return, more investment, and technology transfer (FDI).More choices for (possible diversification in) development Finance.Flows in Human Resources complement initial endowments and mitigate bottlenecks in the supply of (un)skilled labor.Global Corporate Activities connect national economies-consumers and producers alike, create marketing channels, and diffuse technology (technical and managerial).Lower-cost and timely access to Information that reduces transaction costs, and accelerates the process of catch up. Lower costs of cross-border trade and spot operations due to a harmonization of Standards.
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Risks associated with GlobalizationG. of Goods, Services, Investment often calls for agglomeration (scale economies) that leads to monopoly power, and uneven presence of economic activities resulting in both cross-country and regional disparities.G. of Finance creates ‘hot money’ and calls for good governance (by western standard) that often limits policy options in developing countries.G. of Human Resources accelerates brain drain.G. of Corporate Activities often goes against sovereignty and impedes the growth of indigenous firms and industries. G.of Information creates digital divide, and thus widens gaps in opportunity (ex-ante gaps) as well as welfare gaps (ex-post gaps).G. of (H. of) Standards forces social changes (democracy, market mechanism, western corporate culture, contracts, judicial system, etc.).
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Trade Integration(exports plus import volumes, ratio to GDP*)
Note: * Based on national income accounts. Trade in goods and services.
Source: DEC Analytical Database, World Bank; World Bank, World Development Indicators, 1999.
10
15
20
25
30
35
40
45
501960
1965
1970
1975
1980
1985
1990
1995
Year
Percent Deve loping
Countries
High IncomeCountries
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Trade Integration by Developing Regions(exports plus import volumes, ratio to GDP*)
0
10
20
30
40
50
60
70
80
1960
1965
1970
1975
1980
1985
1990
1995
Year
Percent
East Asia & Pacif ic
Latin America &Caribbean
Sub-Saharan Africa
Note: * Based on national income accounts. Trade in goods and services.
Source: DEC Analytical Database, World Bank; World Bank, World Development Indicators, 1999.
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Net Resource Flows to Developing Countries1970-1999
Source: World Bank, Global Development Finance, 2001 Advanced Release
0
50
100
150
200
250
300
350
400
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
Year
US$ billion
Portfolio equity flows(US$)
Foreign directinvestment, net inflows(US$)
Net flows on debt, totallong-term (NFL, US$)
Grants, excludingtechnical cooperation(US$)
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Net Resource Flows to Developing Countries,1970-1999Private vs. Official
Source: World Bank, Global Development Finance, 2001 Advanced Release
0
50
100
150
200
250
300
350
400
1970197319761979198219851988199119941997
Year
US$ billion Private net resource
flows (US$)
Official net resourceflows (US$)
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Net Resource Flows to Developing Countries,1970-1999Private vs. Official
Source: World Bank, Global Development Finance, 2001 Advanced Release
0%10%20%
30%40%50%60%70%
80%90%100%
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
Year
Share (%) Private net resource
flows (US$)
Official net resourceflows (US$)
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Average MFN Tariffs in Industrial Countries(on imports of manufactures from various regions)
Post-RoundPre-RoundOECD 3.0 5.5Latin Amer 3.2 4.4Asia 5.2 7.8Africa 6.7 8.4Europe 7.3 9.5
0
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2
3
4
5
6
7
8
9
10
OECD LatinAmerica
Asia Africa Europe
Percent
Post-Round
Pre-Round
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Average Tariffs in Developing Countries(on imports of manufactures from various regions)
From industrial countries From developing countriesPost-Round Pre-Round Post-Round Pre-Round
Latin America 18.2 22.1 Latin America 19.7 24.9Asia 8.4 12.4 Asia 6.3 9.1Africa 23 23 Africa 19 19.1Europe 15.5 26.4 Europe 15.2 22
0
5
10
15
20
25
30
Latin
America
Asia
Africa
Europe
Latin
America
Asia
Africa
Europe
From industrial countries From developing countries
Percent
Post-Round
Pre-Round
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Goods vs. Service Trade
0
100
200
300
400
500
600
700
800
900
1975 1980 1985 1990 1995
(current US$, 1975=100)
Merchandise exports
Service exports
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Service Trade Components
0
200
400
600
800
1000
1200
1400
1975 1980 1985 1990 1995
(US $ billion)
Professional services
Travel services
Transport services
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Price index of information processing, 1975-94(100=1US$ per instruction per second)
IBM Mainframe (1975)
Digital Vax (1979)
Cray I (1976)
IBM PC (1981) SUN Microsystems 2 (1984)
Pentium chip (1994)
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Cost of a 3-Minute Telephone Call,New York to London
(Constant 1990, U.S. $)
188.51
244.65
45.86 31.583.324.8
53.2
050
100150200250300350
1920 1930 1940 1950 1960 1970 1980 1990 2000
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Gross Income of Bank Credit Clerks*, 1994
(US$ per year)
Zurich 78,100 Tokyo 63,400 Abu Dhabi 47,800 Paris 42,000 New York 29,000 Bangkok 14,200 Tel Aviv 15,800 Rio de Janeiro 7,600 Jakarta 3,900 Bombay 1,900 Nairobi 1,600
Note: * With completed banking training, 10 years of experience, around 35 years of age, and married with two children.
Source: World Bank, database for Global Economic Prospects and the Developing Countries, 1995.
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Number of MNEs and Their Affiliates in Major Countries Number of
MNEs (A) Number of
Affiliates (B) (B)/(A) Data year
U.S.A. 3,470 18,608 5.36 1994 Japan 3,967 3,405 0.86 1995 Germany 7,292 11,581 1.59 1994 France 2,126 8,682 4.08 1995 U.K. 1,467 3,894 2.65 1992 Canada 1,691 4,583 2.71 1995 China 379 45,000 118.73 1993 Korea 4,806 3,878 0.81 1996 Singapore n.a. 19,160 n.a. 1994 Total Developed Countries
36,380 93,628 2.57
Note: 1. MNEs are defined as enterprises which run their business in more than two countries. 2. (A) is the number of MNEs originating from the corresponding country, and (B) is the number of
foreign affiliates in said country. Source: United Nations, World Investment Report, 1997; Kaigai Jigyou Katsudou Chousa, 1995.
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Regionalization under Globalization
There is a surge in the formation of regional arrangements in the 1990s, even with the successful completion of the Uruguay Round.New motives for new arrangements.—Deep integration—Safe haven— Insurance—Buy out
Open regionalism can be conducive to free world. Developing countries can utilize regional arrangements to effectively negotiate in multilateral organizations such as the WTO.
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Number of GATT/WTO Member Countries
1980 1987 1990 1999 2000* Non-OECD members
61 65 76 110 116
OECD members 24 24 24 24 24 Source: Adopted from World Bank, World Development Report 1999/2000, Table 2.1.
Original source: WTO, Annual Report, various years.
* As of November 30, 2000.
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Number of Existing Regional Integration Schemes(by their establishment year)
Regions Prior to 1969 1970-79 1980-89 1990- Total Europe 1 2 0 36 39 Americas 2 1 15 22 40 Asia and Oceania 0 0 1 2 3 Middle East 0 0 3 1 4 Africa 2 2 0 4 8 Other (across multiple regions)
1 1 1 4 7
Total 6 6 20 69 101 Source: JETRO, White Paper on International Trade, 1996.
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Uneven Process of Globalization
Many countries have become less integrated with the world economy.Growth and integration go together.Slow integrators will continue to lag behind in their growth.Much can be done to promote integration.
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Average Growth in Real Per Capita Income and Exports(106 Low and Middle Income Countries)
1.9
-0.6
-2.5-3-2-10123
Percent P.C.IGrowth
Top 1/3
(10.2%)
Middle 1/3
(3.5%)
Bottom 1/3
(-3.2%)
Export Performers:
(Export Growth)
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But there were large disparities across regions(Changes in trade to GDP ratios*)
-1
-0.5
0
0.5
1
1.5
2
High Income East Asia Latin America Europe &Cent. Asia
South Asia Mid.East &No.Africa
Sub-SaharanAfrica
1975-84 1985-94
* Annual Average Changes
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FDI up significantly, but mostly for a few countries(FDI to GDP Ratios*)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
High Income East Asia Europe & C. Asia Latin America Mid. E. & N.Africa Sub-Saharan A. South Asia
81-83
91-93
* GDP in purchasing power parity terms.
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Most developing countries lack access tointernational credit markets
(Distribution of countries by credit rating in 1995)
Credit Rating Quartile
Region A B C D TotalHigh income 19 7 1 27
Developing Countries 13 32 54 99East Asia 5 2 3 10South Asia 3 2 5Latin America and the Caribbean 1 10 13 24
Middle East and North Africa 4 4 6 14Sub-Saharan Africa 6 19 25
Europe and Central Asia 3 7 11 21
Source: Institutional Investor, March 1995.
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Growth is associated with the initial level of integration(initial level: 1981-83 average, real p.c. gdp growth: 1984-93)
-1.5
-1-0.5
00.5
1
1.52
2.5
High Moderate Weak Low
75m25
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East and South Asia had the highest proportion of fast integrating countries in the 1980s
(Speed of integration classes)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
E.Asia S.Asia ECA LAC MENA SSA
Fast Moderate Weak Slow
(early 1980s to early 1990s)
Percent of countries in integration class
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Share in Private Flows to LMICs(Percentage, 1991-94)
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13
8 6 6 6 5 4 4 3 3 2
05
101520253035
China
Mexico
Argen
tina
Korea
Malays
ia
Portugal
Brazil
Thailan
dIndia
Turkey
Hungary
Indonesia
Total 12 countries 89%
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What can developing countries doto improve integration?
(Standard Answers before the Asian Crisis)Liberalization of trade and investment regimes
Macroeconomic stability
“Micro” policies– Infrastructure development– Privatization– Technology transfer
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Low tariffs mean high trade ratios
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10
20
30
40
50
60
70
80
0 5 10 15 20 25 30 35
*Trade to GDP ratio adjusted for country size.
Tariff Rate
Trade/GDP Ratio*
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Foreign investors don’t like instability
0
0.5
1
1.5
2
2.5
3
3.5
4
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Exchange rate volatility 1984-93
FDI as % of GDP 1991-93
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Private players reduceagricultural marketing costs...
(Cocoa marketing costsas a share of the selling price, 1989)
0
10
20
30
40
50
60
70
Cameroon Cote D'Ivoire Ghana Malaysia Nigeria Brazil Indonesia
Source: World Bank staff estimates base on Ruf (1993)
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Actions by industrial countries...Persist on liberalization—Agriculture—Textiles/garments
Enhance WTO negotiations with proper treatments of developing country members—TRIM—Trade and environment
Enhance the “rules-based” system—Antidumping—Safeguards
Encourage North-South arrangements—Association agreements
Monitoring and regulating international financial flows— IMF (and BIS?) on crisis prevention, pre-crisis dialogue
Stabilize exchange rates among key currenciesAssisting IT strategies of developing countries
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Spending per Capita on Information Infrastructurein 1998 (US$)
19.93
28.28
22.89
13.49
11.56
129.11
0 20 40 60 80 100 120 140
OECD Countries
Middle East & North Africa
Sub-Saharan Africa
Latin America & Caribbean
Eastern Europe & Central Asia
Asia Pacific
Source: John Gage, “From Digital Divide to Digital Opportunity: Business Leaders Report for Davos”, Development Outreach, World Bank Institute (Spring 2000).
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Globalization and Domestic Disparity
Uneven process of globalization in domestic economy, as well.Spatial (Geographical) DisparityIntegration, Growth,
and Income InequalityManagement/Governance matters
in controlling disparity in Development under Globalization.
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Economic Integration and Income Inequality in China
0
1
2
3
4
5
6
7
8
9
101978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Year
Percent
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
Persent
Trade (% ofGDP, PPP)
Gross FDI (% ofGDP, PPP)
Gini-1
Gini-2
Gini-3
40
Is the East Asian Growth (Model) Invincible?
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Speed of Integration and GDP Growth, 1970-1992(18 Major Developing Economies)
0
2
4
6
8
10
-6 -4 -2 0 2 4 6
GD
P G
row
th R
ate
(per
cent
)
Speed of Integration (percent)
Korea
China
ThailandMlaysia
Indonesia
Mexico
Argentina
BrazilChile
Philippines
Venezuela
NigeriaIran
FSU South Africa
India
Saudi Arabia
Algeria
Correlation Coefficient = +0.51
Source: International Economics Department, World Bank.
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Asian Financial CrisisChanges in Exchange Rates(vs. US$, Benchmark: end June 1997)
Source: IMF, International Financial Statistics CD-ROM (March 2001).
-100.00
-80.00
-60.00
-40.00
-20.00
0.00
20.00
1997Q2
1997Q4
1998Q2
1998Q4
1999Q2
1999Q4
2000Q2
2000Q4
Japan (Yen)
S. Korea (Won)
Hong Kong (HK$)
Singapore (S$)
Malaysia (Ringgit)
Thailand (Baht)
Indonesia (Rph)
Philippines (Peso)
China (RMB)
Russia (Ruble)
Brazail (Reals)
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Asian Financial CrisisChanges in Output
(GDP Volume Index, 1995=100)
Source: IMF, International Financial Statistics CD-ROM (March 2001).
90.00
100.00
110.00
120.00
130.00
140.00
1995 1996 1997 1998 1999
Year
GDP Volume Index
S. Korea
Hong Kong
Singapore
Malaysia
Thailand
Indonesia
Philippines
China
Brazil
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East Asia, too, is vulnerable to violent forces of globalization…..
East Asian Growth Model has been robust to trade integration.has been robust to investment integrationthrough FDIs.is not yet robust to financial integrationthrough portfolio equity and other S-T flows.
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East Asian Financial Crisis was…..
Not a Current Account Crisis.But a Capital Account Crisis.That requires different kind of medicine (rescue package), different from the standard IMF package.And that requires deeper and more sophisticated institutional reform.
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How to Manage Development under Globalization
How to form the virtuous cycle of integration and growth.Asian crisis shows …..A need for Good Governance.— Sound macroeconomic management.
— Fiscal (revenue and expenditure) & debt management.— Monetary policy rules (incl. exchange rate schemes).— Re-regulations and monitoring.
— Domestic reform efforts.— Financial sector reform.— Corporate sector reform.— Public sector reform.— Market reform (incl. deregulations and competition laws).
— Institutional development (incl. judicial system).— Global governance (incl. global financial architecture).
Decentralization and national strategies. And more …..
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Issues of Global GovernanceWTO Trade and Investment Negotiations.
Global Financial Architecture.IMF reform
From post-crisis rescue package to pre-crisis monitoring and dialogue.
Regional IMF?Environmental Issues.
Trade and environmentInvestment and environmentGlobal market for environment?
Global IT Development.New International Organization?Make IT cooperation mainstream in ODA agenda
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Globalization and the Developing Countries
The End …..