Factors Affecting International Trade

• One core analysis object: multinational enterprises.
• Ngozi Okonjo-Iweala is the Director General of the World Trade Organisation (WTO).

Defining Economic Globalization

• Modern globalization traces back to the 19th century with wheat as a key element due to its economic value.
• Before globalization, prices were set by national supply and demand, making them sensitive to national conditions and shocks.
• Price volatility reveals issues; countries unable to trade experience price increases, impacting consumers.
• At the start of the 19th century, countries like Great Britain compensated for negative shocks by importing wheat from the USA, stabilizing prices.
• Start of the 1820s, wheat prices in Britain began aligning with international supply and demand.

Consequences of Globalization

• As countries gained import capabilities, domestic labor markets were affected, leading to shifts in employment sectors.
• Cheaper food imports to the UK caused its workers to move from agriculture to manufacturing.
• Adam Smith criticized tariffs on imported corn in 1776 as protection for landlords, arguing against laws hindering international competition.

Richard Baldwin's View on Globalization

• Baldwin identifies four phases of globalization
• Phase 1: Humanizing the globe (200,000 – 10,000 BC) involved climate-driven migrations and adaptation of consumption to production.
• Phase 2: Localizing the global economy (10,000 BC – 1820 AC) saw the rise of agriculture, cities, and trade but limited globalization.
• Phase 3: Globalizing local economies (1820 – 1990) was defined by industrial revolutions, urbanization, and increased international trade.
• Phase 4: Globalizing factories (1990 – present) involves ICT revolution, de-industrialization of the North, and micro-clustering of production.

Key Costs in Globalization

• Three relevant cost types: trade costs, communication costs for information transfer, and personal contact costs for knowledge exchange.
• Globalization started with decreasing trade costs, followed by communication and then personal contact costs decreased
• Boats reduced trade costs, while telegraphs reduced communication costs.

Defining Economic Globalization

• It's a historical process from human innovation and technological progress.
• Integrates economies via trade and financial flows and movement of people (labor) and knowledge, alongside cultural, political, and environmental aspects.
• Four central pillars: trade, capital movements, migration, and knowledge spreading.

International Trade Trends

• General upward trend, but not homogeneous across regions where different regions face different speeds of increase
• Developing countries experienced share of world trade increase from 19% (1971) to 29% (1999).
• The trend is increasing by 11% in merchandise exports
• Developed economies have a rising trade deficit, importing more than exporting
• Annual growth rate analysis (2021-2022) shows imports grew more in developed economies and exports in developing ones.

Trade Balances and Structures

• Terms of Trade for Africa and America have growth of import dominating over export
• Asian economies are export oriented
• Developed countries face trade deficits from importing more than exporting.
• Trade deficits for developed countries increase over time, opposite for developing countries.
• Germany and other countries have large manufacturing industries while they are import-oriented

Service Trade Expansion

• Rapid growth post-pandemic with projections pointing towards even higher levels
• Service sector counts for 7% of world GDP and is rapidly expanding.
• Advanced economies serve 70% of the global market, led by US, with developing economies catching up and serving 30% of it.
• The US and the UK dominates service exporting, with rising contributions from China and India.

Specialization Patterns

• Developed countries concentrate on ICT and business services.
• Developing economies specialize in transport and travel.

Capital Movement

• Involves financial flows and currency movements
• After the 1990s, an increase in private capital flows to developing countries.
• Policies liberalized in the 1980s that eased cross-border transactions by reducing the net official flows of aid.
• Shifts happened, increasing foreign direct investment whilst bank investments increased to become more unstable
• Official flows consist of funds from governmentments (Aid for public)
• A positive net offical flows means the developing economy attracts goods from other countries

Portfolio and Direct Investment Distinctions

• It consist of private investment for speculative reasons, is highly volatile.
• Direct investments rising with much more stability where it keeps rising and it's profile is much less volatile.
• Since 1990s private is becoming the major one in investments when regarding economy

Movement of People and Knowledge

• Major migration between developing countries until 1990s then south-north migration.
• Besides technical information, direct foreign investment expands capital and innovation.

Technology Transfer

• It can occur by different channels including the following
• Direct investments which involve intangible capital assets technology and knowledge.
• Increased rates for scientific collaborations among universities, labs and companies.
• Offshoring of research and development is strategic affiliates knowledge transfer and increases technology transfer.
• Low costs + management techniques + expert markets + economic policies = highly valuable resources for developing countries

Driving Forces Behind Globalization

• Increased liberalization capital movements and deregulation of financial services in particular, leading to lower controls and investment attraction.
• Opening of markets to trade and reduced tariffs.
• China's entry into the WTO in 2001 caused an inflow of Chinese products into the world.
• Key event in the economic integration by president Clinton and president Zemin
• Trade war occurred + there were non-price barriers to trade

Measuring and Defining Direct Investments

• Flows of capital + foreign direct investments + global value chains + migration follows e.g. patent flows
• Direct Category of international investment that establishes a lasting interest in enterprise who's object from an investor that is placed in another country
• Lasting interest should be a significant influence and long-term

Forms of Direct Investments

• Subsidiaries: foreign investor controls voting power, or has the right to appoint remove shareholders or advisory body.
• Associates: direct investor controls between 10% and 50% shares.
• Branches: uncorporated that is a permanent.

Multinational Enterprises

• These enterprises have equity share of the company that takes place in another country that is apart of a network
• Management can decide upon strategies that transfer or adapt to the other units
• Transnational differs cause the corporation has headquarters that are located within different countries
• High revenues of Walmart are leading along the gang

Types of Direct Investment

• Greenfield investments = investor creating new plant or activity from scratch.
• Brownfield FDI consist of expansion and mergers if there is ownership of an enterprise.
• Direct investor aquires at least 10% of company
• A Horizontal: firms activities in a foreign country where sector of statistical remains the same as the business of direct investment
• Vertical: transfer of firm to get access access to low coast inputs with main investment having a different investor sector

International Production Organization

1. Domestic supply national location and performance internally stages process.
2. Domestic outsourcing production or outside the activity, the control remains but outsources.
3. International Insourcing control remains internally within a company but imports from them, since you are at least 10%

Franchising

• International model with high service, sub is called Franchisor while the entrepreneur is the Franchisee
• Franchisee and Franchisor involves control but expand operation + knowledge of market
• In franchising, there is usually licensing, which involves the domestic part allows foreign partner commercial license and get royalty

Stylized FDI Facts

• In the late 1900s, FDI surpasses trade.
• Since 2001 trend reversed decreasing because prices and income decreased since financial crisis with time

Industries with the Increase of Sectors

• Greenfield and projects in 2023 due to the decrease of industry by development for specific sector

MNE Characteristics

• MNE are very peculiar agents by multinational. They have the potential to grow depending on sources that can also be efficient
• Efficiency to produce due to tech in scale industry of data with the ability to help with ICT pay higher domestic and compensation more
• wages high with need to attract talent and retain, while low helps with being loyal reduces exploitation cost average

Aspects of MNE Character

• MNE are import and export more to the world, with 30% cars value goes to Korea
• Lobbying with high power for bank dispute is higher or larger
• Value = out and intermediate by company

Global Value Chain

• Definition that means the internationalizing production with the full market value to the product but distributes or supports
• All steps and processes in multiple countries adding value to a product with supplies
• Global value chain increase trade from industries through countries and geography
• USA relates to LATAM , China, Asia to Europena GVC can be small or big on market material which helps by region: Nutella is based in Luxembourg and Barbie in China. The Value Chain steps need design + manufactoring with the critical part taking place within the supply base of automized sector. Value change increase business in different industry of raw material with marketing process involved in coordination where it all generates profit Global chain help with account with gross income

GVC & Value-Added

• Share value originates within inputs while the final destination can increase by DVX and IVX
• Value is measured by participating within exports, which can have depended exports or not with 0.

Trends in Globalized Participation

• Asia lead by forward and backward particpation in trade but mainly the main portion comes from inside the country high participation has trend which goes to a recession state as of later on
• Global can increase participation of regional factors through relations that can be explained via law and policy based on what a country wants in terms of regional relations
• It can be either trade or value added which depend on value to make choices

Drivers of Direct Investments

• Must exploit abroad the technology and unique proprietary advantage
• The market, location and the internatilonaslisation if the process is more valuable. The more
• There are only few motivation in resource for natural or in other things + markets or assets. There is the choice now depending on the country's environment since internal structure matter but the economic relation should also be valuable

Economic Investments of Foreign Direct

• There are main questions of growing economy in host countries with development of growth regarding labour with mechanisms and corporations
• It's a positive direction of capital and R&D especially if developing and investments are increased
• Is it even more negative to see if it could even lead to MNE or concentration low competition + price and welfare is at stake

MNE Negative Effects on Economies

• MNE has low survival and increasing effects with a u shape for better conditions when having the required quality to succeed.
• The right to take advantage of FDI if not as great, there comes effects from horizontal spillover
• If not there then come processes with managerial with the high value depending on how you add it to them

FDI and Institutions

• Important relation with rights of quality can be measured in relations to having development in economy based on law.
• Analysis show that the increase of the FDI occurs when institutions such as governmental based
• Can be measured with FDI and analysis showed the increasing effects since democracy based on 50%
• It is even also more negative to even lead to even less

Social Effects on Human Resources

• To even improve standard and conditions of workers in terms of labor rights there must a good set for how to have MNE.
• For first generation MNE there's a small chance for benefits with a spotlight showing what's
• MNE has new dynamism within countries and media with pressures due to corporate. Responsiblity
• Strategy is that firm needs responsbility which isn't even as strong to show. It Is helpful is to determine and not be so threating

Corporate Social Responsibility (CSR)

• Does it follow as a means for a country to get the best and reduce the impact of negative factors
• The chance for good behavior and ethical to improve HR+ a great deal of investment is essential
• Does help to give them great chance with reducing costs of violations, but the managers should take a trade off with there responsibility of different behaviors.

CSR Effects in Numbers

• Results show some connections where CSR increase the change of probability abusing HR with the sector impacting HR
• There will be an increase of power depending how the world affects a company.

MNE factors

• There could be the main component of the nation, such a civil force and society
• Good MNE does depend how they operate in nation based on investment with the process

Explore the dynamics of international trade flows and the factors influencing them. Understand trade balances, the role of international organizations, and the impact of economic events. Discover trends in merchandise exports and the volatility of investments in developing countries.