Understanding Globalization: Trade and Development

• Rapid expansion of global interactions, integration of countries, reduction of transport/communication costs, and fewer trade barriers facilitate globalization.
• Globalization involves economic, cultural, and social aspects.
• Globalization can be measured by trade volumes, tariffs, outsourcing, and FDI.

Historical Perspective

• Globalization began with luxury trade in the 1500s.
• Globalization accelerated in the 19th century with trade in basic goods such as wheat and textiles.

Comparative Advantage

• Nations specialize in producing goods they can produce more efficiently.

International Trade

• International trade fosters growth, welfare, and technological transfer.
• It can also cause volatility, inequality, and biased negotiations against poor countries.

Trade Strategies

• Import Substitution Industrialisation (ISI) and Export-Led Industrialisation (ELI) are trade strategies.
• Countries with outward-oriented strategies grow faster, according to Kruger in 1998.
• Economic liberalization generally boosts income growth.
• Integration should follow development, not precede it (Rodrik, 2001).

Washington Consensus

• Market-led theory emphasizing economic openness, privatization, and reducing trade restrictions.

Foreign Direct Investment (FDI)

• FDI is important for investment, technology transfer, and integration.
• FDI can harm local control and create environmental damage.

Global Value Chains (GVCs)

• Offshoring of low-skilled work to low-wage countries takes place within GVCs.
• Developing economies are now more integrated but face inequality issues.

Growth, Income Distribution & Sustainable Development

Economic Growth

• Increase in goods/services production over time, often measured by GDP.

Kuznets' Modern Economic Growth

• High growth rates, productivity increase, structural transformation, urbanization, and technological innovation.

Inequality

• Inequality of opportunity vs. inequality of outcome.
• The Gini Index measures inequality.

Growth-Poverty-Inequality (GPI) Triangle (Bourguignon, 2004)

• Growth reduces poverty but does not necessarily reduce inequality.
• Poverty can slow growth, especially with credit market imperfections.

Kuznets Curve

• Inequality rises with growth initially, then declines as economies develop.

Inequality and Growth

• Excessive inequality shortens growth spells (Berg & Ostry, 2010).

Climate Change & Economic Growth

• Developing countries are more vulnerable to climate change.
• Higher temperatures reduce economic growth, especially in poor countries.

Sustainable Development

• Development that meets present needs without compromising future generations. (Brundtland Commission)

Weak vs. Strong Sustainability

• Whether natural capital can be substituted by manufactured capital.

Technological Change, Digitalisation, and Development

Structural Transformation

• Shift from agriculture to industry and services, with urbanization and declining agricultural labor.
• Developing countries face unique challenges compared to historical transformations of developed countries.

Technological Change

• Schumpeterian creative destruction: Radical innovations create growth waves but also destroy outdated industries.
• Growth is non-linear; technological paradigms shape economic performance over time.

Digitalization

• Widespread adoption of digital technologies, including broadband, cloud computing, and mobile telephony.
• Digitalization promotes efficiency, education, healthcare, governance, and trade.
• It also creates inequality due to skill biases.

Digital Platforms & Development

• Digital platforms facilitate interaction between distant entities.
• They improve access to markets and provide new opportunities for development.
• Developing countries face challenges due to limited infrastructure and human capital.

Digitalisation and Structural Change

• Digitalization can boost productivity.
• However, it may worsen inequality if technological access is unequal.

Energy Transitions & Social Capabilities

Energy Transitions

• Shifts in primary energy sources, e.g., from coal to renewables
• Critical for sustainable development and climate change mitigation

Key Obstacles to Fast Transitions

• Transitions happen in phases rather than simultaneously.
• Investments in fossil fuels slow the shift.
• Wind and solar require backup due to intermittency.
• Replacing fossil fuels is easier in electricity than in transport or industries such as cement and iron.

Global & European Context

• The EU's push to reduce dependence on Russian energy results in complex restructuring & market shifts.
• Developing nations struggle with high clean energy costs.

Climate Change & Economic Growth (Dell et al., 2008)

• Higher temperatures negatively impact economic growth, especially in poorer countries.
• Climate change could worsen inequality.

Social Capabilities & Inequality

Forms of Capital & Economic Growth

• Physical (infrastructure, investments).
• Human (education, skills).
• Social (trust, networks).
• Natural (resources).
• Technological knowledge (innovation).

Social Capital & Development

• Social capital facilitates cooperation and reduces transaction costs.
• Social capital works through networks, trust, and institutions.
• Social capital cannot be bought; it requires time to build.

Inequality & The Capability Approach (Sen, 1993)

• Measures what people can do and be, not just income.
• Capability gaps between rich and poor impact freedoms and opportunities.

Reducing Capability Inequality

• Expand quality education and healthcare.
• Strengthen political & social inclusion.
• Address gender inequality.

Energy Transitions

Key Concepts

• Energy transition is a shift from one dominant energy system to another (e.g., from coal to renewables).
• Energy transition is crucial for reducing carbon emissions and ensuring sustainable development.
• Economic, political, technological, and infrastructure limitations slow down energy transitions.

Why Do Energy Transitions Take Time? (Smil, 2016; Sovacool, 2016)

• Energy transitions happen in phases rather than all at once.
• Existing energy systems (fossil fuels) are deeply embedded in economies; this is called path dependence.
• Infrastructure changes require significant investment leading to high initial costs.
• Renewables (solar/wind) need backup energy storage because of intermittency issues.

Global & European Challenges

• EU policy shift involves moving away from Russian fossil fuels, resulting in restructuring of energy systems and market instability.
• Competing for liquefied natural gas (LNG) with Global South countries causes higher energy prices.
• Developing nations often rely on cheap, fossil-based energy.
• There is a lack of infrastructure for rapid renewable adoption.
• Climate change impacts (Dell et al., 2008) reduce growth potential.

Impact of Climate Change on Economic Growth (Dell et al., 2008)

• Higher temperatures cause economic slowdown, especially in poor countries.
• Climate change leads to increased political instability in affected regions.
• Climate shocks can lower growth rates rather than just reducing output.

Social Capabilities & Inequality

Forms of Capital & Their Role in Development

• Physical Capital: Infrastructure, real estate, financial assets.
• Human Capital: Education, skills, and experience that increase productivity.
• Natural Capital: Renewable & non-renewable resources.
• Technological Knowledge: Innovations improving production methods.
• Social Capital (Putnam, 1993): Networks, trust, norms that enhance cooperation.

Social Capital – Why It Matters

• Social capital helps societies function efficiently through trust and cooperation.
• Unlike physical capital, it cannot be bought; social cpital must be built over time.
• Strong institutions can enhance social capital, while corruption weakens it.
• Social capital impacts development, as seen in successful grassroots movements.

The Capability Approach (Amartya Sen, 1993)

• Traditional measures of inequality (income, wealth) are limited.
• Capabilities = What people are actually able to do and be (e.g., access to education, healthcare). Developmental focus should be on expanding real freedoms, not just economic growth.

Key Inequality Concerns

• Gaps between "capability-rich" and "capability-poor" create lasting disadvantages.

Income vs. capability inequality

• Two people may have the same income but vastly different access to opportunities.
• For example, a disabled person with a high income still faces mobility barriers.

Policy Implications

• There is a need to expand education & healthcare access.
• Promote political inclusion and gender equality.