Topic 2 Globalization: Importance & Impact PDF

ECON1001 – Global Economic Concepts STUDENT NOTES TOPIC 2 – Globalization: Importance & Impact ECON1001 - Global Economics Concepts GLOBAL ECON...

ECON1001 – Global Economic Concepts STUDENT NOTES TOPIC 2 – Globalization: Importance & Impact ECON1001 - Global Economics Concepts GLOBAL ECONOMIC CONCEPTS Topic 2 Globalization: Importance and Impact Textbook Reference: Chapter 9 Key Concepts Globalization & its Importance 1. Growth in trade 2. Inward-looking policies 3. Economic Liberalization 4. Immigration and Economic Impact What is Globalization? Globalization is the spread of business & trade from domestic to global markets the way in which national economies are getting more interconnected with each other The process of getting “interconnected” and “interdependent” is by technology & transport Page 1  ECON1001 – Global Economic Concepts STUDENT NOTES TOPIC 2 – Globalization: Importance & Impact The Importance of Globalization The importance of Globalization includes 1. Growth in world trade 2. Inward looking domestic protectionist policies 3. Economic Liberalization 4. Immigration 1. Growth in World Trade (annual) 1. Before WWI (1914-18) world trade grew at an average of 5% 2. After WWI it grew but collapsed in 1930’s due to the Great Depression of US. The US imposed Protectionist measures on imports. Other countries retaliated leading to a fall in Global trade 3. After WWII governments cooperated to create international institutions like IMF, World Bank and WTO which has accelerated the growth 2. Inward-looking “Protectionist” plans It is done to develop domestic industries The use of the “Infant industry” argument It is done by Import substitution Substitute imports with domestic goods Concerns about protectionism Raises price of capital Increases price of goods for consumers Page 2  ECON1001 – Global Economic Concepts STUDENT NOTES TOPIC 2 – Globalization: Importance & Impact 3. Economic Liberalization 0.9 0.8 0.7 0.6 Electricity and Telecoms 0.5 Domestic Financial Sector Agriculture 0.4 Capital flows 0.3 Trade (ex. rate) Trade (tariff) 0.2 0.1 0 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Globalization leads to economic liberalization which is the removal of trade restrictions. It includes deregulation & the reduction of tariffs by countries. Liberalization & Growth: Pros and Cons Impact of Tariffs on GDP per capita Lower have more growth in GDP. Liberalization & Growth: Pros and Cons PROS Benefits of comparative trade Long term growth, peace and stability Increase in number of Foreign Direct Investors (example India) and Multi National Companies (MNCs) CONS Large MNCs can influence government officials Tax avoidance and restructuring companies to o pay lower taxes Page 3  ECON1001 – Global Economic Concepts STUDENT NOTES TOPIC 2 – Globalization: Importance & Impact Liberalization & Growth: Years before and after liberalization 4. Immigration Immigration is another way by which globalization has increased. Immigration into OECD (richer) countries has risen steadily Immigration: Economic concerns Studies show the economic concerns of increase in unemployment and reduction in wages of native workers is baseless. Page 4  ECON1001 – Global Economic Concepts STUDENT NOTES TOPIC 2 – Globalization: Importance & Impact Summary Importance of Globalization Impact of Economic Liberalization Global Capital Flows Immigration Page 5