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

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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

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Some Questions

• What is Globalisation?
• What Drives Globalisation?
• What are the Benefits of Globalisation?
• Why is Globalisation Controversial?

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What is Globalisation?

• Economic Globalisation - a process whereby
  national markets become more integrated and more
  interdependent

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Growth of World Trade and Output
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Whats 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)

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What Drives Globalisation?

• Key Indicators of Globalisation
• International trade
• Cross border investment and international
  outsourcing
• Cross border migration
• Financial market integration

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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

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Recent Trends in Foreign Direct Investment
(billion)
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20th / 21st CENTURY DRIVERS OF GLOBALISATION

• Falling man-made barriers
• Falling natural barriers
• Increased capital mobility
• Increasing labour mobility
• Technological development

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Falling Man-Made Barriers
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Falling Natural Barriers
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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

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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

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Extreme Poverty in the World
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Why is Globalisation Controversial?

• DISTRIBUTIONAL ISSUES
• Uneven shares of gains from trade
• gt intra-national (capital vs. labour skilled
  and unskilled labour)
• gt international (developed and developing
  countries)
• Uneven shares of gains from FDI
• gt intra-national (capital vs.labour skilled and
  unskilled labour)
• gt international (host and source countries)

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Why is Globalisation Controversial?

• INTERNATIONAL RULES
• One set of rules for them and one set for us
• gt Coverage (e.g. movement of capital vs.
  movement of people)
• gt Application (e.g. intellectual property vs.
  anti-dumping)
• Ideologically Driven International Organisations
• gt Washington Concensus
• gt Marginalisation of Developing Countries

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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

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• 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 1990s 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 Americas massive job-turnover
  process.
• Alan Greenspan, Chair of US Federal Reserve Board

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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

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For resources on globalisation

• www.gep.org.uk