The Globalization of Economic Relations Is Economic Globalization a New Phenomenon?
(Istvan Benczes) - Gills and Thompson, globalization has been
- Held et. Al. “may be thought as widening,
deepening, and speeding up of worldwide
interconnectedness in all aspects of
contemporary social life.
What is economic globalization?
- Economic globalization is a historical process,
the result of human innovation and
technological progress. It refers to the
increasing integration of economies aroung the
world, particularly through the movement of
goods, services, and capital across borders. The
term sometimes also refers to the movement of
people (labor) and knowledge (technology)
across international borders. (IMF,2000)
Interconnectedness dimension:
1. globalization of trade of goods and services
Convergence Versus Divergence
2. globalization of financial and capital markets
3. globalization of technology and communication
4. globalization of production
- Economic globalization is rather a qualitative
transformation than just a quantitative change.
- Szentes (2003) “In economic terms globalisation is
nothing but a process making the world economy an
‘organic system’ by extending transnational economic
processes and economic relations to more and more
countries and by deepening the economic
interdependencies among them”
- Reich (1991) “Globalization transforms the national
economy into a global one where there will be no
national products or technologies, no national
corporations, no national industries”
- Boyer and Drache “globalization is redefining the role
of the nation state as an effective manager of the
national economy”
- TNC (Transnational Corporations) the main driving
forces of economic globalization of the last 100 years.
As economic integration is becoming more intensive,
production disintegrates as a result of the outsourcing
activity of multinationals (Feenstra, 1998)
ongoing ever since Homo Sapiens began
migrating from the African continent ultimately
to populate the rest of the world.
- Frank and Gills Archaic globalization (Silk Road)
- Adam Smith “An Inquiry into the nature and
causes of the wealth of nations),
America=Christopher Columbus (1492), Route
to India= Vasco de Gama (1498)
- The breathtaking technological advances and
British Industrial revolution became the
greatest achievement of human.
- 18th century- If globalization exists only in the
sense of trade and exchange, rather than
production.
- 19th century- The annual average compound
growth rate of world trade saw a dramatic
increase over the past following years. By 1913,
trade equaled to 16-17 percent of world
income.
- Dollar and Kraay (2002) argue that only non-
globalizer countries failed to reduce absolute
and relative poverty in the last few decades. On
the other hand, countries that have embraced
globalization have benefited from openness
considerably.
- World Bank, globalization can indeed reduce
poverty but it definitely does not benefit all
nations.
- Bairoch (1993) argues that while in the
developed part of the world, industrial
revolution and intensified international
relations reinforced growth and development
on an unprecedented scale, the rest of the
world did not manage to capitalize on these
processes.
- Bairoch claimed that ‘the industrialization of the
former led to the de-industrialisation of the
latter.
- Reasons why developing countries unable to
catch up to developed one; Structuralism
(analysis of cultural anthropology) and
capitalism (products are owned by individual
people or company instead of the government).
- Imperialism—product of world capitalist system
which has perpetuated unequal change.
International Monetary Systems
- Refers to the rules, customes, instruments,
facilities, and organizations for effecting
international payments (Salvatore, 2007)
- Facilitates cross-border transactions, especially
trade and investments.
The Gold Standard
- Gold was believed to guarantee a non-
inflationary, stable economic environment, a
means for accelerating international trade
(Einaudi,2001).
- Sa pagsali ng US noong 1879, naging
international monetary regime ang gold
standard noong 1880.
- The gold standard functioned as a fixed
exchange rate regime, with gold as the only
European Monetary Integration
international reserve.
- David Hume (1752) was the first to elaborate on
this mechanism by developing his quantitative
theory of money. Accordingly, as a deficit
nation’s gold reserves diminished, its general
price level started to decline as well, which
restored its competitiveness on international
markets.
- The role of IMS ‘is to lend order, to encourage
the eliminations of balance-of payments
problems, and to provide access to
international credits in the event of disruptive
shocks.’
- The outbreak of World War I brought an end to
the classical gold standard. Participating nations
gave up convertibility and abandoned gold
export in order to stop the depletion of their
national gold reserves.
The Bretton Woods System and its Dissolution
- Delegates of 44 countries managed to agree on
adopting an adjustable peg system, the gold-
exchange standard.
- The US dollar was the only convertible currency
of the time, so the United States committed
itself to sell and purchase gold without
restrictions at US$35 an ounce.
- John Maynard Keynes proposed ambitious
reforms for the post-war era and recommended
the creation of an international clearing union,
a kind of global bank, along with the
introduction of a new unit of account, the
‘bancor’.
- The International Banks for Reconstruction and
Development (IBRD) became responsible for
post-war reconstruction
- The International Monetary Fund (IMF) is
responsible for the promotion of international
financial cooperation and buttress international
trade.
- By mid-1960s, the dollar became excessively
overvalued vis-à-vis major currencies. As a
response, foreign countries started to deplete
the US gold reserves.
- The unregulated and free flow of capital, the
huge current account deficits and the soft
pegging regimes made these economies highly
vulnerable, resulting in a financial crisis that
first hit Mexico in 1994n and reached East Asia
in 1997-8.
- The United States activated its post-war
reconstruction programme, the Marshall Plan,
in 1948, which was administered by the
Organization for European Economic
Cooperation, the predecessor of the
Organization for Economic Cooperation and
Development.
- The miraculous growth performance of Western
Europe prompted a closer cooperation on a
regional level, resulting finally in the European
Coal and Steel Community in 1951. This was
followed by the signing of of the Rome Treaty in
1957, which established the European
Economic Community (EEC), and was the first
major step towards an ‘ever closer union’.
- The original six founding members (Germany,
France, Italy, Netherlands, Belgium, and
Luxembourg) (GFINBL) aimed at the creation of
a common market, where goods, services,
capital and labour moved freely.
- The EMS (1979) was a unique system, since
neither US dollar, nor gold could pay a role in
the stabilization process of exchange rates.
Instead, a symmetric adjustable peg
arrangement, the European Exchange Rate
Mechanism, was created.
- Jacques Dolores, the President of the European
Commission.
International Trade and Trade Policies
- David Ricardo’s comparative advantage—Every
single nation must have a comparative
advantage in something irrespective of its initial
conditions.
- Alexander Hamilton and Friedrich List
recognized quite early on that voluntary trade
can have very different distributional effects
and it can also hinder the long-term
development prospects of the country
producing the lower value added products.
- Realist and (Neo)Mercantilist school, protection
is, in fact, still a natural way of securing national
objectives.
- Reformist and radical theorists, such as
Emmanuel or Amin, argued, however, that
unequal exchange is a fundamental and
systematic distinguishing characteristic of
modern world economy.
- According to Amin (1993), if the world economy
is such that it benefits core countries at the
expense of the periphery, the latter should
adopt protectionism in its extreme form of de-
linking.
Unilateral Trade Order
- The surge of international trade arrived only
with Europe’s industrial revolution and the
consequent repeal of the British Corn Laws in
1846 in particular.
- The so-called Cobden-Chevalier treaty of 1860
allowed the UK and France to specialize in
commodities based on their respective
comparative advantages and to achieve further
advances in industrialization.
- Voluntary trade also helped to avoid the
eruption of an abrupt war between the two
countries.
- Several other bilateral trade agreements
followed suit across Europe, each built upon the
so-called most-favoured nation (MFN) principle,
which stated that any negotiated reciprocal
tariff reductions between two parties should be
extended to all other trading partners without
conditions.
- Europe witnessed the emergence of a sort of
multilateral system of bilateral agreements,
giving birth to the ‘first common market’ in the
second half of the nineteenth century.
- The Smooth-Hawley Act of 1930 increased
tariffs to record-high levels in the United States.
Retaliation was the rational response from
trading partners and international trade
dropped by one-to two-thirds as a
consequence.
- The enactment of the US Reciprocal Trade
Agreements Act in 1934 eventually put a stop to
any further decline in international trade.
Multilateralism: From the GATT to the WTO
- In a place of a unique trade organization,
nations committed to a world of lowered tariffs
decided to coordinate their actions under the
auspices of the General Agreement on Tariffs
and Trade (GATT).
- The GATT exerted influence via a series of
multilateral trade negotiations
- After almost 50 years of rules-based trade
negotiations, the Uruguay Round gave birth to a
‘real’ international trade institution, the World
Trade Organization. The WTO was launched on
1 January 1995 and has become an official
forum for trade negotiations. As opposed to the
GATT, it is a formally constituted organization
with legal personality.
Developing Countries and International Trade
- United Nations Conference on Trade and
Development (UNCTAD) aims to promote trade
and cooperation between the developing and
the developed nations.
- Uruguay Round meant to be a grand bargain
between developed and developing economies.
The former were expected open the markets,
especially to agricultural and textile products,
whereas the latter accepted the new regulation
on intellectual property rights and services.
While developing countries have opened up
their service markets, their export of
agricultural products is still blocked by
advanced nations.
- The current trade regime and especially its main
propagator, the WTO, is heavily criticized for ‘a
striking asymmetry’.