Lesson Outline

The International Economy

LESSON #01A
THE INTERNATIONAL ECONOMY AND Globalization of Economic Activity
GLOBALIZATION
ECON103 INTERNATIONAL ECONOMICS A
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The International Economy

High degree of economic interdependence
The International Economy
No nation exists in an economic isolation
Except perhaps one. (Can you identify the country?)
All aspects of a nations economy are linked to the
economies of its trading partners
Reflects the historical evolution of the worlds
economic and political order
Complex and its effects uneven

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 The International Economy The International Economy
What are 2 key observations you can infer from this table?

High degree of economic interdependence

Steps toward international cooperation
Mutually advantageous for trading nations
Specialization, efficiencies of large scale production
Wider variety of products at lower cost
Protectionist pressures
Developing nations
Liberalized trading system - serves to keep the
developing nations in poverty

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Globalization of Economic Activity

Globalization of Economic Activity Globalization

Greater interdependence
Countries and their citizens
International flows
Goods and services
People
Investments in equipment, factories, stocks, bonds
Non-economic elements
o Culture and the environment

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 Globalization of Economic Activity 3 Waves of Globalization

What forces are driving globalization?

Technological changes
Multilateral trade negotiations
Continuing liberalization of trade and investment
Widespread liberalization of investment
transactions
Development of international financial
markets
Read: World Bank (2002), Globalization, Growth and Poverty. Chapter 1: The New Wave of
WONG FOT CHYI Globalization
WONG FOT CHYI and Its Economic Effects.

3 Waves of Globalization First Wave of Globalization (18701914)

Decreases in tariff barriers

Technological Developments
Declining transportation costs
Shift from sail to steamships; Railways
Driven by European and American businesses and
individuals
Exports as a share of world income
Nearly doubled to 8%
Per capita incomes increased 1.3% per year
Previous 50 years: 0.5% per year
Nations that actively participated in globalization
Became the richest countries in the world
Read: World Bank (2002), Globalization, Growth and Poverty. Chapter 1: The New Wave of Brought to an end by World War I
Globalization
WONG FOT CHYI and Its Economic Effects. WONG FOT CHYI
 3 Waves of Globalization The Great Depression of the 1930s

Governments practiced protectionism

Beggar-thy-neighbour
Raised tariffs on imports
Try to shift demand into domestic markets
Promote sales for domestic companies
Promote jobs for domestic workers
Exports as a share of national income
Falls to 5% from 8%

Read: World Bank (2002), Globalization, Growth and Poverty. Chapter 1: The New Wave of
Globalization
WONG FOT CHYI and Its Economic Effects. WONG FOT CHYI

3 Waves of Globalization Second Wave of Globalization (19451980)

Trade liberalization not uniform

Bretton Woods Developed countries, manufactured goods
Agreement, 1944:
IMF
Largely freed of barriers
World Bank Greatly increased the exchange of manufactured goods
GATT (WTO)
Raised the incomes of developed countries
Developing countries
Exports from developing countries faced no barriers only for
agricultural/primary goods that were not produced in
developed countries
Exports of manufactured goods - sizable barriers
Read: World Bank (2002), Globalization, Growth and Poverty. Chapter 1: The New Wave of
Globalization
WONG FOT CHYI and Its Economic Effects. WONG FOT CHYI
Second Wave of Globalization (19451980) 3 Waves of Globalization

Most developing countries

Did not participate in the growth of global trade in
manufacturing and services
Continuing trade barriers in developed countries
Unfavorable investment climates
Antitrade policies in developing countries
Dependence on agricultural and natural-resource
products
Developing countries as a group were being left
behind; World inequality
Read: World Bank (2002), Globalization, Growth and Poverty. Chapter 1: The New Wave of
WONG FOT CHYI Globalization
WONG FOT CHYI and Its Economic Effects.

Third Wave of Globalization (1980 ) Third Wave of Globalization (1980 )

Many developing countries participated led by World

China, India, and Brazil More globalized - international trade, capital flows
Entered the world markets for manufactured goods Less globalization - labor flows
Other developing countries Foreign outsourcing
Increasingly marginalized in the world economy Certain aspects of a products manufacture are
Decreasing incomes performed in more than one country
Increasing poverty Manufacturing - moved to wherever costs were the
Significant international capital movements lowest
Job losses for blue-collar workers
Cries for the passage of laws to restrict outsourcing
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 Third Wave of Globalization (1980 ) Globalization of the PC Notebook

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United Nations
United of PC
Nations Component
of PC Makers
Component Makers Globalization of White Collar Jobs
Globalization of White Collar Jobs

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 End of Lesson

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