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Economics Schools Conference, June 27 th 2006 What Are the Economic Benefits of Globalisation?

Economics Schools Conference, June 27 th 2006 What Are the Economic Benefits of Globalisation?. Professor David Greenaway , Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham. Some Questions. What is Globalisation? What Drives Globalisation?

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Economics Schools Conference, June 27 th 2006 What Are the Economic Benefits of Globalisation?

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  1. Economics Schools Conference, June 27th 2006What Are the Economic Benefits of Globalisation? Professor David Greenaway, Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham

  2. Some Questions • What is Globalisation? • What Drives Globalisation? • What are the Benefits of Globalisation? • Why is Globalisation Controversial?

  3. What is Globalisation? Economic Globalisation - a process whereby national markets become more integrated and more interdependent

  4. Growth of World Trade and Output

  5. What’s in a Shirt? This morning I went out and bought a shirt…..the shirt I bought represents a triumph of international cooperation. The cotton was grown in India from seeds developed in the United States; the artificial fibre in the thread comes from Portugal and the material in the dyes from at least six other countries; the collar linings come from Brazil, and the machinery for the weaving, cutting and sewing from Germany; the shirt itself was made up in Malaysia……..(and was bought in the UK). From Paul Seabright The Company of Strangers: A Natural History of Economic Life. Princeton University Press (2004)

  6. What Drives Globalisation? • Key Indicators of Globalisation • International trade • Cross border investment and international outsourcing • Cross border migration • Financial market integration

  7. Recent Trends in Trade • Value of Trade (2004) Merchandise $8,907 billion Services $2,125 billion • Growth of Merchandise Trade 1950-73 7.0% per annum 1974-90 4.0% per annum 1990-04 7.6% per annum • Growth of Services Trade 1990-00 6.5% per annum 2001-04 10.8% per annum

  8. 1982 1990 2004 FDI Inflows 59 209 648 FDI Inward Stock 802 1,954 8,902 Foreign Affiliate Sales 2,737 5,675 18,677 Foreign Affiliate Assets 2,091 5,899 36,008 Global GDP 11,758 22,610 40,671 Recent Trends in Foreign Direct Investment ($billion)

  9. 20th / 21st CENTURY DRIVERS OF GLOBALISATION • Falling man-made barriers • Falling natural barriers • Increased capital mobility • Increasing labour mobility • Technological development

  10. Falling Man-Made Barriers

  11. FallingNaturalBarriers

  12. What are the Economic Benefits of Globalisation? • Specialisation and exchange • more efficient use of scarce resources • lower prices for consumers • Consumer choice • wider range of goods and services

  13. What are the Economic Benefits of Globalisation? • Stimulus to economic growth • access to capital and labour • access to new technology • Poverty alleviation • employment creation • economic growth

  14. Extreme Poverty in the World

  15. Why is Globalisation Controversial? DISTRIBUTIONAL ISSUES • Uneven shares of gains from trade > intra-national (capital vs. labour; skilled and unskilled labour) > international (developed and developing countries) • Uneven shares of gains from FDI > intra-national (capital vs.labour; skilled and unskilled labour) > international (host and source countries)

  16. Why is Globalisation Controversial? INTERNATIONAL RULES • ‘One set of rules for them and one set for us’: > Coverage(e.g. movement of capital vs. movement of people) > Application (e.g. intellectual property vs. anti-dumping) • Ideologically Driven International Organisations > ‘Washington Concensus’ > Marginalisation of Developing Countries

  17. Why is Globalisation Controversial? ADJUSTMENT FRICTIONS • We do not live in a world of perfect competition • Some individuals and groups suffer short-run and maybe long-run losses • Winners are widespread, losers are concentrated • Adjustment policies do not always compensate

  18. Jobs in the United States have been perceived as moving abroad ……. to low wage Japan in the 1950s and 1960s, to low wage Mexico in the 1990’s and most recently to low wage China. We can usually identify in advance which jobs will be displaced by foreign or domestic competition. But in economies at the forefront of technology, most new jobs are the consequence of innovation, which by its nature is not easily predictable. We can thus be confident that new jobs will replace old ones as they always have, but not without a high degree of pain for those caught in the job-losing segment of America’s massive job-turnover process. Alan Greenspan, Chair of US Federal Reserve Board

  19. Conclusions • Globalisation is not a new phenomenon • The current wave of globalisation is the most intense since the nineteenth century • The pace of change is accelerating • There are long run gains from globalisation • But, there may also be short run costs for some • And some adjustment and distributional aspects of the process may need to be managed

  20. For resources on globalisation: www.gep.org.uk

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