Global Economy Mechanisms Lecture 2 (2019-2020) PDF

Global economy mechanisms – Lecture 2 LECTURE 2. GLOBAL ECONOMY – CONCEPT, QUANTIFYING INSTRUMENTS AND PARTICULARITIES Structure of the lecture The current concept of global economy and the stage of the globalization of the economy...

Global economy mechanisms – Lecture 2 LECTURE 2. GLOBAL ECONOMY – CONCEPT, QUANTIFYING INSTRUMENTS AND PARTICULARITIES Structure of the lecture The current concept of global economy and the stage of the globalization of the economy Main forms of globalization Quantifying instruments of the global economy New paradigms in the evolution of the global economy mechanisms Case study: Advantages/disadvantages of globalization What is globalization? Globalization describes the process of Tremendous advances have been creating networks of connections made by large segments of the world among actors at intra- or multi- population in this age of globalization. continental distances, mediated The term globalization is generally used Yet, there is a fear that globalization through a variety of flows including to describe an increasing is exacerbating inequality, and people, information and ideas, capital, internationalisation of markets for perhaps even worsening the lot of the and goods. Globalization is a process goods and services, the means of poor by eroding their incomes, that erodes national boundaries, production, financial systems, increasing their vulnerability, and integrates national economies, competition, corporations, technology adding to their disempowerment. This cultures, technologies and and industries (OECD). fear may not be universal, but it does governance, and produces complex play a role in the public perception relations of mutual interdependence. that cannot be ignored (World Bank, Clark (2000), Norris(2000) 2000)  ”Numbers prove Some facts about globalization... theories” – Hans Bethe 830 million people live below the international extreme poverty line of Almost 800 million 1.90 $ a day (2016) people estimated undernourished (2016) 9.7 billion people in 2050. This will require a 60% increase in global food (2016) 98% of undernourished people live in Average income Top 1% of population Life expectancy at developing countries US$290 a day birth has increased Bottom 50% of from 63 to 68 years population US$7 a day since 2000 in less developed countries Source: UNCTAD 2016: Development and globalization: Facts and figures, available at: http://stats.unctad.org/Dgff2016/DGFF2016.pdf  ”Numbers prove Some facts about globalization... theories” – Hans Bethe From 1990 to 2015 Labour productivity main driver of economic world GDP almost growth doubled Accounting for: 92% in developing economies 86% in developed economies of GDP per capita growth From 1991 to 2015 Each year rich GDP per capita countries waste 222 Average proportion of increased million tons of food – women in parliament Developing economies almost the entire net has nearly doubled +3,6% each year – 1,5x over the last 20 years production of Sub- more than developed Saharan Africa economies Source: UNCTAD 2016: Development and globalization: Facts and figures, available at: http://stats.unctad.org/Dgff2016/DGFF2016.pdf  ”Numbers prove theories” – Hans Bethe Some facts about globalization... Total number of Nike retail stores worldwide from 2009 to 2020 1,182 1,142 1,152 1,096 1,045 931 858 826 756 753 674 689 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: https://www.statista.com/statistics/250287/total-number-of-nike-retail-stores-worldwide/ Source: PwC, The World in 20250. The long view, The World in 2050: PwC Source: PwC, The World in 20250. The long view, The World in 2050: PwC  Dimensions of globalization Economic Political Cultural Technological Old New The Nation state and Globalization Social arrangements for - E-mail and Videoconferencing the production, exchange - Internet and World Wide State sovereignty? and expression of Web Free market EU symbols that represent - Company Intranets and The emergence of Extranets Division of facts, meanings, beliefs, labour NAFTA intergovernmental tastes and values. - Advancements in organizations Transportation Technologies Competition Globalization – the path It‘s a small world after all Trend 16-19th centuries 19-20th centuries 21st century Crisis of capitalism Economy Capitalist Multinational Lifestyle (Liberalization) World system corporatism consumersim Policy International Bourgeois state Value politics (Democratization) relations Culture Divided Integrated national Global idealization (Universalization ) subcultures traditions Crisis of the state  Dimension Ideal – typical Current state of pattern of affairs globalization Trade Absolute freedom of Minimum tariff exchange between countries/regions. barriers. Substantial non-tariff and cultural DIMENSIONS OF barriers. GLOBALIZATION – Production Balance of production International social ECONOMIC activity in any area division of labor being GLOBALIZATION determined only by geographical displaced by a technical division of labor. AND TRADE advantages. Financial market Decentralized, Globalization largely instantaneous and accomplished. ”stateless” Labor market Free movement of Considerable pressure labor. for opportunities for ”economic” migration.  Dimensions of globalization – Economic globalization and trade The main principles of operating the commercial ❑History of trade arrangaments relationships between the ❑1947 – GATT formed by 23 164 members coutries including USA ❑WTO – 1995 ❑WTO – International Non- discrimination in organization trade ❑WTO – 164 member states The gradual liberalization of that run aproximatively 94% of trade through negotiation global trade flows. Promote free competition Encouraging development ❑HQ at Geneva, has legal and economic reforms personality and a staff of over Predictability and http://1.1.1.2/bmi/upload.wikimedia.org/wikipedia/ro/c/c4/Logo_WTO.gif 600 employees. transparency Openness  Dimensions of globalization – Political globalization The nation-state is becoming too small for the big problems of life, and to big for the small problems of life (D.Bell) ❑(Held, 1991) stated that: ✓ Increasing economic and cultural connections reduce the power and effectiveness of governments at the nation state level; ✓ State power is reduced because transnational processes grow in scale as well in number; ✓ Many traditional areas of state responsibility (defence, communications, economic management), must therefore be coordinated on an international basis; ✓ States have to surrender sovereignty within larger political union (EU, ASEAN), international organizations (WTO, IMF, World Bank) or multilateral treaties (NATO, OPEC) ✓ This provides the basis for the emergence of a supranational state with dominant legislative power.  Dimensions of globalization – Political globalization - The emergence of intergovernmental organizations Extreme poverty rate ❑ World Bank - International financial institution; 1990 2018 ◦ Developed during the Second World War; 36% 8,6% ◦ Formed by five organizations: The International Source: World Bank Bank for Reconstruction and Development; The International Development Association; The International Finance Corporation; The World Bank targets regarding extreme poverty rate Multilateral Investment Guarantee Agency; The International Centre for Settlement of Investment Disputes. Below 9% by 2020 Below 3% by 2030 ◦ Objectives: ◦ End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3% ◦ Promote shared prosperity by fostering the income growth of the bottom 40% for every country Dimensions of globalization – Culture and globalization Why is the American market so dominant within the force of globalization? ✓ With nearly 300 million consumers, the United States is one of the largest markets in the world. When a company has access to the U.S. market and these 300 million people, it can take advantage of economies of scale. ✓ Although the United States contains only four percent of the world's population, it accounts for nearly 25 percent of global economic output. The combined effects of being one of the richest countries in the world and one of the largest in terms of population put the U.S. market in a dominant position. Only the European Union now exceeds the U.S. market in size and wealth. How do we measure globalization? Indicators for measuring globalization Synthetic Single index index Trade Financial globalization globalization  How do we measure globalization? (1) 1. Synthetic index ❑KOF index - The KOF Globalization Index (Dreher, 2002) measures the economic, social and political dimensions of globalization. Via these three dimensions, the overall index of globalization tries to assess current economic flows, economical restrictions, data on information flows, data on personal contact, and data on cultural proximity within surveyed countries. Top 10 countries in the Globalization Index ❑ In 2022, Switzerland was the most 2022 strongly globalized country in the FRANCE 86.94 world, followed by Netherlands and FINLAND 87.22 Belgium. The next places in the DENMARK 87.86 AUSTRIA ranking were occupied by Sweden, 88.36 GERMANY 88.44 UK, Germany and Austria. UNITED KINGDOM 88.58 ❑ Romania was situated on the 33 rank. SWEDEN 89.20 BELGIUM 90.09 NETHERLANDS 90.48 SWITZERLAND 90.61 85.00 86.00 87.00 88.00 89.00 90.00 91.00 Source: https://www.statista.com/statistics/268168/globalization-index-by-country/  How do we measure globalization? (2) in GDP and trade volume worldwide from 2007 to 2024 Growth GDP (RHS) Trade 15% 10% Year-on-year percent growth 5% 0% -5% -10% -15% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022* 2023** 2024** 2025** Note(s): Worldwide; 2007 to 2023 Further information regarding this statistic can be found on page 8. 2 Source(s): World Bank; ID 1032199  How do we measure globalization? (3) 2. Single index – Financial globalization ❑ FDI (Foreign direct investments) – According to UNCTAD, FDI refers to an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. Foreign direct investment, net inflows (% of GDP) Foreign direct investment, net outflows (% of GDP) 60 60 50 50 40 40 30 30 20 20 10 10 0 0 HUN LUX HKG MOZ IRL COG MLT LBR SGP NLD GIN Hungary Luxembourg Hong Kong SAR, Mozambique China Ireland Congo, Rep. Malta Liberia Singapore Netherlands Guinea Source: World Bank Global FDI flows decreased by 3% to USD 788 billion in the first half of 2017 compared to the second half of 2016. Threats to globalization Covid- 19 pandemic Rise in non-tariff barriers to trade Growing environmental risks energy security and water scarcity Backlash against the free flow of labour with calls for tighter control of immigration Case study: Advantages/disadvantages of globalization Advantages Disadvantages ❑ Cheaper goods and services for consumers ❑ Trade imbalances ❑ More competition in ❑ Dominant TNCs and less consumer markets cultural diversity ❑ Reduction in extreme ❑ Corporate tax avoidance poverty rates ❑ External costs from ❑ Gains from specialisation unsustainable growth of production ❑ Brain drain effects ❑ Transfer of ideas that stimulates innovation  Case study: Advantages/disadvantages of globalization ▪ Health: A child born in one of the countries with the worst health is 60- times more likely to die than a child born in a country with the best health. ▪ Education: In the countries where people have the best access to education – in Europe and North America – children of school entrance age today can expect 15 to 20 years of formal education. In Australia, school life expectancy is 22.9 years. ▪ Income: If you look at average incomes and compare the richest country – Qatar with a GDP per capita of almost $117,000 – to the poorest country in the world – the Central African Republic at $661 – then you find a 177-fold difference. Source: https://ourworldindata.org/global-economic-inequality, accessed in 10.09.2020  Further reading: Please access: https://hbr.org/2023/07/the-state- of-globalization-in-2023 Question: Why does globalization increase the pressure for international collaboration especially in 2023? QUESTIONS/SUGGESTIONS Thank you, see you next session...