Globalization and Development

1
Globalization and Development

• Notes for ECON 337
• Mostly taken from
• World Bank, 1999 Globalization, Growth, and
  Poverty Chap1
• Jr and WH McNeil, 2003. The Human Web A Birds
  Eye View of World History (Norton)

2
Globalization is Not New
3
Globalization is Old

• 1700 Leading exporter of textiles was?
• India
• By 1860, Britain
• Dhaka (Bangladesh) shrank from 135,000 (1750)
  to 50,000 (1850)
• Isfahan (Iran) saw 90 decrease in number of
  looms, 1830-1890

4
The Deindustrialization of Persian Textiles

• Iran switched from exporting silk and cotton
  cloth to raw cotton and raw silk
• Everyone who earned his bread by weavingWould
  be better off dead than living
• Floor, W. The Persian Textile Industry in
  Historical Perspective, 1500-1925 (Paris, 1999)
  p. 119

5
North-North convergence
6
3d wave globalization

• Shift to Manufactured goods from LDCs
• Resumption of people migration
• Higher information flows leading to integrated
  production
• Increased capital flows particularly financial
  capital
• Different from direct investment

7
3d wave shift to manufactured from LDCs
8

• Several poor countries have more than 80 of
  exports in mfrs
• China
• Bangladesh
• Sri Lanka

9
Globalization and Growth
Source World Bank, Globalization Growth and
Poverty
10
What about the Poor?

• Growth helps the poor (Easterly)
• But short-run adjustments burden the poor
• Lundberg and Squire 1999
• the costs of adjusting to greater openness are
  borne exclusively by the poor, regardless of how
  long the adjustment takes. In addition, the
  consequences of terms-of-trade changes are far
  greater for the poor than for the middle or
  wealthy classes. The poor are far more vulnerable
  to shifts in relative international prices, and
  this vulnerability is magnified by the countrys
  openness to trade

11
Kristof Let them Sweat

• sweatshops better than next best alternatives
• Bad publicity pushes jobs out
• Nike has 35 contract factories in Taiwan, 49 in
  South Korea, only 3 in Pakistan and none at all
  in Afghanistan

12
Effects on Poor Countries

• Poor countries become rich
• Europe both productivity and wages have doubled
  between 1950 and 1990
• Japan wages up from 10 to 110 of US level
• The Haircut puzzle
• Why does a haircut cost 20 in US but only about
  2 in, say, Peru

13

• Wages determined by productivity (demand) AND
  oppty cost (supply).
• Oppty cost determined by productivity in other
  parts of economy

14
Effects on Rich Countries cont.

• Increased trade is like better technology (Rogoff
  interview).
• Technology hurts those with lower productivity

15
Econ Activity concentrated at Oceans
16
What about the marginalized?(Africa Middle
East)

• Per capita income declined
• Three views
• Get with the openness program
• Bad, bad geography
• Its too late you missed the boat. Mfrg sector
  is now specialized.

17
Growth of Capital Flows
18
FDI is mostly between rich countries

• U.S.
• 3,200 per capita
• Africa
• 124 per capita

19
Did Capital Flows Hurt?

• Poorest countries saw capital flight, but can we
  blame this on globalization
• Hot money flowed into, then out of Asia
• Tobin Tax on cross-border capital flows would
  address hot money

20
Summing Up World is more equal
21
Summing Up Two types of countries

• New Globalizers played catch-up
• Other LDCs (weak globalizers) fell further
  behind