International Finance

International Economy and Globalization

Lecturer: Mam Amnot

Prepare by: Cheang Sok Hor Touch KalyanSun Sokunthea Hi Srey OunSao Sokha

International Economy and Globalization

Content

1.Introduction2.Globalization of Economic Activity3. Waves of Globalization4.The United States as an Open Economy5. Common Fallacies of International Trade6.Is International Trade An Opportunity or a Threat to workers• Backlash Against Globalization • Terrorism Jolts Global Economy• Conclusion

Introduction

• The high degree of economic interdependence among today’s economies reflects the historical evolution of the word’s economic and political order .

• Export and imports as a share of national output have risen for most industrial nations, while foreign investment and international lending have expanded.

Globalization of Economic Activity

What does globalization mean? • Globalization is the process of greater

interdependence among countries and their citizens. • In terms of people’s daily lives, globalization means

that the residents of one country are more likely now than they were 50 years ago to consume the products of another country, to invest in another country, to earn income from other countries, to talk by telephone to people in other countries, to visit other countries, to know that they are being affected by economic developments in other countries, and to know about developments in other countries.

Globalization of Economic Activity

Forces are driving globalization:

1. Technology Changes.

2. Continuing liberalization of trade and investment

3. Lower trade barriers financial liberalization

Waves of Globalization

First wave of globalization: 1870-1914

Second wave of globalization: 1945-1980

Latest wave of globalization

The United State as an Open Economy

Trade Patterns• To appreciate the globalization of the U.S. economy, go to a localsupermarket. Almost any supermarket doubles as an internationalfood bazaar.

•The Table 1.3 show a global fruit basket that is available forAmerican Consumers.

The United State as an Open Economy_ Trade Pattern

The United State as an Open Economy

• As a rough measure of the importance of theimportant of international trade in a nation’seconomy, we can look at the nation’s exportsand imports as a percentage of its grossdomestic product (GDP). This ratio is known asopenness

Openness = (Exports + Imports)/ GDP

The United State as an Open Economy

• Table 1.4 shows measures of openness forselected nations as of 2006. In that year, theUnited States exported 11% of its GDP, whileimports were 15% of GDP, the openness of theU.S. economy to trade thus equal 26%.Although the U.S economy is significantly tieto international trade, this tendency is evenmore stinking for many smaller nations, asseen in the table.

The United State as an Open Economy

Labor and Capital

Beside trade of goods and services, movements in factors of production are a measure of economic integration. A nations become more interdependent, labor and capital should moves more freely across nations.

Why is globalization important?

Specialize in the production of things and

To purchase from others those items for which they are high-cost producers.

provide stability for producers

Corporation, an Ohio-base manufacturer of wheelchairs and other health.

Common Fallacies of International Trade

1. Trade is Zero sum activity : If one trading party gains, the other party must lose.

• In fact both partners gain from trade

e.g. Brazil & United State.

coffee

wheat

Brazil U.S.A

Common Fallacies of International Trade

• Brazil specialize in coffee production export

• U.S.A specialize in wheat production export

2. Import reduce employment and export promote growth and employment.

Example:

machinery

computer software

German U S A

Common Fallacies of International Trade

• If German export German import computer

software from U.S.A income U.S.A income

employment in US.

3. People often feel that tariffs, quotas andother import restriction will save jobs andpromote a higher level of employment.

- when we restrict foreigners from sellingto us, we also are restricting their abilities toobtain the dollars needed to buy from us.

Is International Trade An Opportunity or a Threat to Workers?

Is International Trade An Opportunity or a Threat to Workers?+ Benefits:

- Shop for the cheapest consumption goods and permits employers to purchase the technologies and equipment that best complement their workers’ skill.

- Allow workers to because more productive as the goods they produce increase in value.

- Product goods & for export generate jobs and income for domestic workers.

Common Fallacies of International Trade

+Threat:

- losing jobs because of cheap export produce by low-cost, foreign workers.

- Rims are relocating abroad in search of low wage However, free-trade agreement will be more easily reach if these who may lose by new trade are helped by all of the rest of us who gain.

Backlash Against Globalization

• Who are involve with Backlash AgainstGlobalization?

WTO

World Bank and

International Monetary Fund

Advantages and Disadvantage of Globalization

Terrorism Jolts the Global Economy

• What is the result after Terrorism Jolts on The United State on Sep 11, 2001:

Ignore poor people

Tragic loss of life

Increasingly concerned about safety and livelihood

Key Term

• Agglomeration economies: a rich country specializes in manufacturing niches and gains productivity through groups of firms clustered together, some producing the same product and others connected by vertical linkages.

• Economic interdependence: all aspects of a nation’s economy are linked to the economies of its trading partners

Key Term

• Globalization: The process of greater interdependence among countries and their citizen.

• Law of comparative advantage: When each nation specializes in the production of that good in which it has a relative advantage, the total output of each good increase, thus, all countries can realize welfare agains.

• Openness: The ratio of a nation’s exports and imports as a percentage of its gross domestic product(GDP).

Q&A