Chapter 23: Globalization Flashcards
Globalization
A phenomenon by which economic agents in any given part of the world are more affected by events elsewhere in the world than before;
The growing integration of the national economies of the world to the degree that we may be witnessing the emergence and operation of a single worldwide economy.
Tariff
A tax on imports
Offshoring
Work done for a company by persons other than the original company’s employees in a country other than the company’s home country.
6 Pieces of Evidence to Globalization
- International trade
- Foreign Exchange trading
- Foreign Direct investment
- Personal investments
- The World Trade Organization
- Business practices
International trade as evidence of globalization
- The average tariff rate in the US has decreased from 40% to about 1.6%. This mirrors similar declines in many other countries.
- Exports became a larger percentage of a country’s total output.
Foreign exchange trading as evidence of globalization
When people of one country want to trade with another, or invest in foreign companies, they have to buy the currency used in the other country.
In 1995, foreign exchange trading was 60 times higher than 1977.
World Trade Organization
An international organization whose mission is to promote international free trade.
Member countries have risen from 23 in 1948 to 153 in 2010.
Business practices as evidence of globalization
More Americans are working for foreign companies with offices in the US.
4 Benefitial aspects of globalization
- Trade
- Income per person
- Prices
- Productivity and innovation
Trade as a benefit of globalization
Expanding trade extends the benefits of trading to people you might not have traded with earlier.
Income per person as a benefit of globalization
As both India and China opened up their economies to globalization in recent decades, they experienced increases in income per person.
According to the IMF, these increases accompanied the expansion of free international trade.
Prices as a benefit of globalization
Numerous studies have established a link between lower prices and the degree of international trade and globalization.
Productivity and innovation as a benefit of globalization
Firms that face global competition are often pushed to increase their productivity and innovate more.
3 Costs of globalization
- Increased income inequality
- Losing domestic jobs
- More power to big corporations
Increase income inequality as a cost of globalization
Globalization and income inequality are strongly correlated.
Economic systems that do not get on the globalization train, get further and farther behind.
Loss of domestic jobs as a cost of globalization
Offshoring causes our citizens to lose certain jobs. Suppose a domestic company hires foreign engineers to do jobs once done by our citizens.
More power to big corporations as a cost of globalization
Many critics of globalization argue the process will hand over the world to large Western corporations.
Many consider it to be the process of corporatizing the world.
3 Inhibitors to globalization
- Increased political tension
- Terrorism
- Government policies
Terrorism inhibiting globalization
Global terrorism tends to motivate certain countries into closing borders and into being much more carful about the people and goods crossing their borders.
Two factors affecting net exports
- Foreign Real GDP
- The exchange rate
Foreign Real GDP affecting net exports
As Japan’s Real GDP rises, the Japanese buy more foreign goods. Thus foreign economic expansions/contractions are felt locally.
J-Curve
The curve that shows a short-run worsening in net exports after a currency depreciation, followed by an improvement.
Closed Economy
An economy that does not trade goods and services with other countries.
Open Economy
An economy that trades goods and services.
