Global Economy


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  • Containerization of Goods, Computers, Internet (ARPANET) combined with fiber optics, Jet Planes- “Tinder Box”, new open international system “experts in Tanzania, UN peacekeepers
  • Beginning of American Hegemony after WWII, 1973 Oil Crisis, Fall of the Soviet Union, 2008-2009 Recession
  • Mercantilism, Protectionism-colonies were only for the benefit of the colonizer, Now neo-liberalism
  • As you see the total wealth worldwide increased at at least double the rate of population growth.Trade clearly increased.Labor was mobile, and has been increasing even further. Finally, capital is being distributed much more now than before as both a percentage and in total amount. One big beneficiary of Taiwan, Korea, Singapore’s FDI has been China (we are talking close to a trillion dollars between 1984 and 2001)
  • Interactive Activities
  • They lead to increased capacity and human capital that can then be used by domestic producers (multiplier effect)
  • Established after WWII-they are traditionally headed by a European and American, respectivelyThe World Bank Group is now composed of for smaller agencies which all help develop countries
  • President Robert Zoellick replaced Paul Wolfiwitz in 2007-the biggest improvement appears to be diversifying their business model -e.g. efforts to better adapt to local situations (post-conflict, middle income, strong private sector)Then also notice how part-time employees are integral to this IFI- this is not how the IMF is. If you go to the HR page, don’t bother applying because they almost always promote friends from within (there is a big risk of cronyism)
  • Bi-yearly-it offers guidance to the international economic communityRecently updated-downward in both the developing and developed world-argued the epicenter is where? Europe-Asia is still doing well but is being held back
  • Pretend you are PresidentHumala – the average developing country
  • No, in fact, they usually use a system of certification of origin (rules of origin) to determine if a good meets a minimum extreme of local merial inputs and local transformations adding value to the goods.These policy-focused regulatory requirements has led to a lot of strange arrangements: Foxconn has a massive facility in Mexico so that the final goods are tariff free in Canada and the US markets. In Europe, Belarusian produce many of the finest coats in Europe – how? They are shipped German-made cloth and stitch it together. Likewise, expensive German steel is taken to Ukraine to produce cars.
  • Maquilladoras have brought Mexico into the global supply chain and improved the lives of the workers and the quality of Mexican productsMeanwhile, Walmart has absolutely destroyed many producers who could not lower their price enough
  • Council on Foreign Affairs- has begun arguing that FTAs will increasingly affect trade flowsASEAN-China FTA has the largest population of any such agreementAnswer of Question is debatable – think back to the trucking example; now think of the rule of law
  • Kennedy Round: tarrif concessions worth $40 billion, anti-dumpingTokyo: tarriff reductions worth more than $300BUruguay: First where developing countries have an active role=>it increased agricultural access to developed markers -Cairns Group: included ag exporters including Australia, Brazil, Canada, Peru, and Indonesia! -Established the World Trade Organization (most favored nation status) excluded China until 2001 and Russia even today
  • Intel chose Costa Rica over Brazil, Mexico, and ChileWhy?: Government was willing to install infrastructure and power to Intel’s requirements. Bureau was professionally run by bilingual, business professionals who received competitive wages
  • No tax revenues. In India, 90% of the population has an informal job – vendors, construction, small farmersBut much more labor flexibility than occurs in labor-controlled countries (Peru)China
  • Global Economy

    1. 1. Introduction to Globalization, Development, andConditions in the Developing World
    2. 2.  Globalization generally refers to international integration in commodity, capital, and labor markets. (WTO) Itnot simply a post-WWII phenomenon. What other eras in history have been marked by expansions of trade, capital, and labor markets? anrep_e/wtr08-2b_e.pdf
    3. 3. What are key events in the latest round of globalization?
    4. 4.  Originally,concerned the trade of raw materials, intermediary products, and final goods Now it can also include trade-in-services  Offshoring (a subset of outsourcing)  Element of the current Doha Round negotiations
    5. 5.  Foreign Direct Investment Stock/Bond investments across borders Evenbeing able to take your own money across borders was once universally subject to controls. What political ideologies and structures might explain the origin of controls?
    6. 6.  US-1/4 of American Doctors are foreign-born  France recruits at the top Senegalese medical school Bottom-line for Skilled Labor: movement is much more common and financially they become better-off in the developed world Integration is also at play. Where does this exist? Refugees?
    7. 7. anrep_e/wtr08-2b_e.pdf
    8. 8.  There are winners and losers in trade liberalization  For example, NAFTA caused issues on both sides: Mexican stores and manufacturers struggled with the „Walmart Effect‟ and some US/Canadian manufacturing is now made in maquilladoras. Overall, though total GDP increased in all countries. Human Rights Concerns Environmental Concerns Fears of Neo-Imperialism *Some misatribute their loses to free trade when it was actually technological advances that made them obsolete
    9. 9.  AIDS/HIV  Spread from a few remote villages to the new factories of Kinshasa, following the colonization of Cameroon (by Germany).  Brought by returning UN peacekeepers to Haiti  Quickly goes global via jet plane travel  “Tinderbox” by Dr. Halperin & Timberg “Dallas” Effect  Senegalese television shows & film were very advanced, then came the US soap opera “Dallas”  Suddenly, attitudes towards wealth changed and more and more shows were imported rather than locally produced!
    10. 10.  1970s-Jamaican Government nationalizes the bauxite industry (raw material for aluminum)  American companies continue to buy bauxite at a higher rate, while they secure new sources in Africa  THEN suddenly, the companies went elsewhere and Jamaica‟s output went into free fall Lessons:  Commodities are hard to nationalize, but does this mean countries must give up everything to MNCs?
    11. 11.  Post-conflict Liberia was desperate for investment and gladly accepted Mittal‟s subsidiary‟s FDI contract to mine to find iron ore with nearly no regulations But as the Liberian economy became stronger and a new government came to power, it demanded the company to implement environmental and human rights regulations or leave. Did Mittal Leave?
    12. 12.  This is referred to as the “obfuscating bargain” Mittal had already spent a lot of money building mines, processing facilities, and a railroad to export the iron ore. The more fixed infrastructure, the more power shifts more towards Liberia
    13. 13.  Chinahas also done very well by allowing MNCs into the country by maximizing the number of backward linkages.  Domestic Partners/Suppliers  Mandatory Education  Factories are part of global supply chain What do all of these strategies have in common
    14. 14.  Accept Free Trade  Chile, Nigeria Some Free Trade/Some Authoritarianism  China, Indonesia, Liberia Reject Free Trade  Nationalize Industries  Jamaica in 1970s, Venezuela
    15. 15.  International Financial Institutions  World Bank  IMF Free Trade Agreements  What countries are most using these?  What trends are likely to occur in the future? Multilateral Negotiations  WTO Rounds  Are there any alternatives? Investment Promotion Agencies  Do differing Political Structures impact their success?
    16. 16.  IMF  Keep international economic stability  Traditionally for the developing world  Loans are made in SDRs (a basket of major currencies)  1 SDR = $.648 World Bank Group  Promotes Development through loans  Mostly to the governments  Now more loans through public-private partnership
    17. 17.  Role is to reduce poverty through loans and suggestions for policy choices  Includes IBRD & IDA Great Source of Data: me
    18. 18. President Robert ZoellickPermanent Employees Part-timers for amaximum of 6 months per year
    19. 19.  Lets see how our case studies have interacted with the IMF: ( xtarr1.aspx) Zimbabwe Peru Indonesia China
    20. 20. Your country is not geographically near an economic heavyweight like Mexico or Turkey.Nor does it have a large abundance of Natural Resources like Nigeria.But unlike Zimbabwe, your country is well- governed and takes part in the WTO.What policies can the Peruvian government put in place to increase trade and thus its development?
    21. 21. Eliminates tariffs, import quotas, and preferences on most goods and services traded between the countriesDo FTAs apply to imports from other countries?
    22. 22.  Signed in 1994, with the intention of fully implementing by 1996 However, as often happens, implementation of the politically sensitive Mexican Trucking Provision, was not finish until a few months ago (2011)! Maquilladoras
    23. 23.  Policy priority in several countries  Chile leads the world with over 50  The Southern Tiger?  China has been increasing its array throughout Southeast Asia (China-ASEAN FTA) Trans-Pacific Partnership  Would include most countries around the Pacific rim including US, Japan, Indonesia, & Mexico  But do all the political institutions have the strength to implement controversial trade liberalization?
    24. 24.  China-Peru FTA Canada-Peru FTA US-Peru Trade Promotion Agreement (PTPA)  Not quite an FTA, but made legal frameworks for investors regarding:  Intellectual Property Rights  Labor Human Rights  Environment
    25. 25.  1947-United Nations negotiates the General Agreement on Tariffs and Trade  45000 tariff concessions 1964-8:Kennedy Round 1973-1979: Tokyo Round 1986-1994: Uruguay Round  World Trade Organization 2001-?: Doha Round
    26. 26.  Most tarriffs were reduced in the early rounds Negotiations are now about technical issues and last longer  This may explain the spread of FTAs that are bilateral/multilateral – not global
    27. 27. Source:
    28. 28.  IPAs can be public, private or a public-private partnership Mostpublic bureaus are more like “investment prevention bureaus” Privatetend to not have power to make things happen Public-Private is rare but seems to work  Costa Rica convinced Intel to set up manufacturing there in 1996
    29. 29.  PublicAgency Website is fancy  Unclear if the quality extends to face-to-face Canyou think of any changes to its political structure that might boost its effectiveness?
    30. 30. Up to this point we‟ve dealt only with the Formal Sector. The Informal Sector are those jobs that are not taxed or monitored by the government.Income is NOT included in GDP figures.The majority of jobs in the developing world are in the Informal Sector.Here are some I encountered in Africa..
    31. 31. While many in the Informal Sector do legitimate business, a subgroup is committing crimes.The next three photos refer to one black market I saw throughout Benin. What is it? And make your best guess as to why it sprout up in Benin.
    32. 32. Oil is illegal obtained from pipelines in the Delta.It is then transported on motorcycles to BeninBenin turns a blind eye because its citizens get lower prices at “the pump”Nigeria‟s reasons are less clear: bribery? jobs for the poor?
    33. 33.  Low income countries lose out on a lot of potential revenue that could be used for development Most individuals rarely encounter the government  Subject, Rather Participatory Relationship Bribery, Bribery, and more Bribery  As a result the Millenium Challenge Corporation (US), incentivizes countries to reduce corruption as a prerequisite for funding