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Week 1: Globalisation - Coggle Diagram
Week 1: Globalisation
“New” Forms of Integration:
Capital Flows
Investments/payments made by one government
Cash for infrastructure
Technical assistance
Public debt
loans to foreign governments, made either by private firms/banks
Private debt
loans to private foreign firms
Private equity
foreign portfolio investment in private foreign firms
Private equity with control/ Foreign Direct Investments (FDI)
FDI
Horizontal FDI
These occur when a firm from one industrial country owns a company in another industrial country
Main Reasons: Minimize tax burden, tariff avoidance and improved market access
Vertical FDI
these occur when a firm from an industrial country owns a plant in a developing country
Main Reasons: Low wages in developing countries
Global Production Networks
Countries specialise in stages of production
Match each stage (R&D, component, assembly) to one location
But: Ideas, managers, parts and components must be shipped multiple times across international borders
Global production networks have been facilitated by a large decrease in trade costs
Defining Globalisation
Increase in the degree of integration between national economies
How are national economies integrated?
Goods Market --> Trade
Capital Markets--> Investment
Labour Markets --> Migration
Intellectual Property Markets --> Ideas
Policy Coordination --> Regional and Global Environmental Policies
“Old” Forms of Integration:
International Trade
Basic Concepts
Export: Sale of a good or service from one country to another
Import: Purchase of a good or service by one country from another
Trade Balance (TB): difference between a country’s total exports (X) and total imports (M)
Aggregate: TB_i= X_i - M_i
Bilateral: TB_i,j = X_i,j - M_i,j
X_i,j = Country i’s exports to country j
M_i,j = Country i’s imports of country j’s goods
Trade Surplus
TB=X-M>0
Trade Deficit
TB=X-M<0
Exports/GDP
% of local production sold abroad
Imports/GDP
% of income spent on foreign
goods/services
Total Trade/GDP
measure of trade openness
There is a strong empirical relationship between a country’s economic size and the volume of its trade
Large & remote countries have small import/GDP
Trade_ij= A
(Yi
Yj)/Dij
Gravity Model
Migration
What Now?
Importance
Trade raises income
The complexity of a country’s exports affects its growth
Migration and FDI raise income
Currently
Slowbalisation
decreased access to credit
lower returns to foreign investments
increase in Services as share of global economic activity
heightened protectionism (e.g., Brexit, US/China Trade war).
These changes led to more regionalised trade and investment