Topics for today What does globalization means? Forces behind globalization Positive and negative effects Consumerism International Trade FDI Foreign Direct Investment Protectionism The World Bank
Is it the integration of economic, political, and culturalsystems across the globe?Is globalization a force for economic growth, prosperity,and democratic freedom?Is it the dominance of developed countries in decision-making, at the expense of poorer, less powerful nations?Does globalization only benefit the rich or can the poor takeadvantage of it to improve their well-being?
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import quotas. Globalisation is the homogenisation of people’s tastes and demand patterns around the world, due to increased access to international communication of information about products and services as well as increased access to transportation of products and people across borders
Increased expansion and technological improvements in transportation and communications networksl Development of services that support international business activities Growing consumer demand for foreign products Increased global competition Expanded cross-national treaties and agreements
Positive Negative Outsource their Increased competicion in domestic industry manufacturing and white- Increased Employment- collar jobs to developing create new jobs economies Poor countries suffering Capital Inflow: creation of firms, leads to disadvantage (export-import) It has led to an increase in increase income levels- consumer demand activities such as: child Spread of technology: labour and hard working raise worker´s skills conditions Consumerism habits has Economies of scale increase junk food, branded Spread of Culture products, Environmental degradation
Inequalities in consumption:The 20% of the world’s people in thehighest-income countries account for86% of total consumption.The poorest 1.3%. Accounts 20% ofconsumptionConsumption in the past 50 years isputting strains on the environmentnever before seen. Opponents of consumerism argue that many luxuries and unnecessary consumer products may act as social mechanism allowing people to identify like-minded individuals through the display of similar products, again utilizing aspects of status-symbolism to judge socioeconomic status and social stratification Critics of consumerism often point out that consumerist societies are more incline to damage the environment, contribute to global warming and use up resources at a higher rate than other societies.
Sustainable consumption is: ‘the use of goods and servicesthat respond to basic needs and bring a better quality oflife, while minimising the use of natural resources, toxicmaterials and emissions of waste and pollutants over the life-cycle, so as not to jeopardise the needs of futuregenerations’ (OECD, 2002)The great challenge faced by economies today is to integrateenvironmental sustainability with economic growth and welfare byseparating environmental degradation from economic growth and doingmore with less.This is one of the key objectives of the European Union, but theconsequences of climate change and the growing demand for energyand resources are challenging this objective.
Internationaltrade is theexchange ofcapital, goods,and servicesacrossinternationalborders orterritories. Inmost countries,such traderepresents asignificantshare of grossdomesticproduct (GDP).
FDI is a major source of external finance which means thatcountries with limited amounts of capital can receive financebeyond national borders from wealthier countriesWhy Do Companies Invest Overseas?Market seeking: Firm may go to find new buyers for thier goods andservicesResource seeking: A company may find it cheaper to produce its productin a foreing subsidiary. The foreing facilities may be able to superior orles costly access to the imputs: (land, labour, natural resources) than athomeStrategic seeking: firms may seek invest in other companies abroad toimprove distribution network or new technologyEfficiency seeking: Multinationals may seek to be more competitive, inresponse to economic changes
Buyer insolvency (purchaser cannot pay);Non-acceptance (buyer rejects goods as different from the agreedupon specifications);Credit risk (allowing the buyer to take possession of goods prior topayment);Intervention (governmental action to prevent a transaction beingcompleted);Political risk (change in leadership interfering with transactions orprices); andWar, piracy and civil unrest or turmoil;Natural catastrophes, freak weather and other uncontrollable andunpredictable events
Concerns About Shifting Production Due to ForeignInvestment Corporations in wealthier countries are shutting down their cost domestic manufacturing operations and sending them overseas to developing countries (“outsourcing”) Corporations switch from domestic production toward reliance on imports, and to cause higher unemployment domestically workers overseas may be exploited as a result of this shifting production. moving manufacturing operations overseas reduce the competitiveness of the domestic economy.Certain sectors, such as agriculture, textile do continue to seek outcheap labour sources, these sectors represent small fraction of theglobal production of goods and services.With the service sector more international investors seek higherproductivity workforces as opposed to low wage ones, and thus lookfor countries with more skilled workers, despite the higher wagesassociated with those skills.
Protectionism is the economic policy of restricting tradebetween states through methods such as tariffs on importedgoods, restrictive quotas, and a variety of other governmentregulations designed to discourage imports and prevent foreigntake-over of domestic markets and companies.The main reasons for protectionism are:Protect local jobs and fight unemploymentEncourage local production to replace importsProtect infant industriesReduce dependence on foreign suppliersEncourage local and foreign investmentReduce balance payment problemsPromote export activities
The mission of the World Bank is to reduce poverty in middle-incomeand creditworthy poorer countries by promoting sustainabledevelopment, through loans, guarantees, and advisory services.The World Bank aims at issues such as building infrastructure (roads,dams, power plants), natural disaster relief, humanitarian emergencies,poverty reduction, infant mortality, gender equality, education, andlong-term development issues.Why is the World Bank Controversial? Governments lose some of their sovereign ability to set the rules ofthe game for their citizens/residentsi The power of the World Trade Organisation (WTO) to force membercountries to eliminate some policies that interfere with free tradem The lending power of the IMF and World Bank certainly coerceemerging markets to follow economic policies that they might nototherwise choose