Empirical evidence on the effects of economic globalization

Question 1

Globalization and economic growth

Answer 1

-there is a positive correlation between economic growth and rising international trade (slide 46)
- trade is indeed one of the factors driving national average incomes (GDP per capita) and macroeconomic productivity (GDP per worker) over the long run.
-Individual country studies of free trade agreements for both advanced and emerging markets point to significant sector-level productivity gains

Question 2

Globalization and productivity growth

Answer 2

-Trade affects productivity through reallocation across firms
-Financial openness increases opportunities for higher returns and for risk diversification
-They found that innovation increased more in those firms most affected by Chinese imports.
–> innovation and adoption of technologies plus reallocation of employment towards more technologically advanced firms.

Question 3

How big are globalization gains?

Answer 3

-The income gains from trade and globalization are country-specific and relatively moderate
-The US trade gains are much smaller than in other countries.
–> Big country profit less from international trade
-90% of all trade gains stems from import of only 10% of goods critical to the functioning of the economy (example gaz)

Question 4

Who benefits most from international trade?

Answer 4

Poorest people (contry) profit the more of the globalization not the richer

Question 5

Globalization and Global Inequality

Answer 5

globalization increase –> less person in poverty
–> The second wave of globalization is associated with a substantial increase of the average world income and a substantial drop of the share of the global population living in extreme poverty (page 51)

Question 6

Why do poor people profit the most from globalization?

Answer 6

Poor households are not able to save and spend most of their income on goods (sector that are more trade)
Rich people spend their income on service who are less trading

Question 7

Inequality between countries

Answer 7

To calculate it everyone in a given country is assumed to have the same income. The inequality between countries is falling thanks to the economic take- off of India and China.

Question 8

Global inequality (calculate)

Answer 8

calculated among all individuals in the world

Question 9

A growing within-country inequality

Answer 9

explains a rather stable global inequality over time

Question 10

Trends in Global Inequality between and within countries (graphic page 52)

Answer 10

Globally the world is become less equal (related to some countries)
Increase in income inequality –> but some people have an increase of higher increase than other

Question 11

Globalization and labor markets

Answer 11

Changes in unemployment at the aggregate level are unrelated to changes in trade openness

Is not true than country who open more have a fall or growth of employment –> no correlation (global level)

Question 12

Labor markets in rich countries are under pressure to adjust

Answer 12

China’s rapid integration into the world economy put labor markets in developed economies under a massive pressure to adjust

–> job losses in U.S. manufacturing
–> reduce career earnings of UK and US workers
=These adverse labor market outcomes were most pronounced among low-wage workers

Question 13

The transformation of labor markets in rich countries

Answer 13

-all jobs in the business sector are nowadays sustained by foreign demand
-In some countries (including Switzerland, Germany, and France), foreign final demand is more important than domestic demand in supporting high-skilled employment
-both exporting and importing firms are larger, more productive, more capital-intensive and pay higher wages than firms that do not engage in international trade.

Question 14

The Role of a Labor-saving Technological Progress

Answer 14

All high-income countries face a trend of structural transformation with a long-term decline of manufacturing and rising service employment
–> put a greater emphasis on worker skills

Question 15

Labor-saving Technological Progress

Answer 15

the widespread introduction of computers, robots, and other advanced technologies in the workplace

Question 16

In the USA, sectors with a higher non- production employment-production employment ratio are…

Answer 16

classified as more skill-intensive.

Question 17

Graphik page 60 (The Role of a Labor-saving Technological Progress)

Answer 17

We observe a widespread increase in these ratios for different kinds of sectors (both skilled-labor-intensive and unskilled-labor-intensive).
This points to the skill-biased technological progress in the US.

Question 18

Globalization and technological progress

Answer 18

International trade and especially financial openness have accelerated the process of technological change:
-Firms that begin to export may invest more and upgrade to more real-capital-intensive and skill-intensive production technologies
-Firms that import modern machinery equipment implement new labor-saving technologies
-Breaking up the production process across countries (outsourcing and offshoring, value added trade) can increase the relative demand for skilled workers in developed countries similar to labor-saving and skill-biased technological change.

Question 19

automation anxiety

Answer 19

increases attempt to resist globalization

–> US-workers facing higher risks of automation are more likely to oppose free trade agreements and favor immigration restrictions
=automation threat is associated with protectionist policy preferences

Question 20

Local labor markets in the US

Answer 20

-the rising exposure to China increased unemployment, lowered labor force participation, and reduced wages –> increasing in more trade-exposed labor markets
-to a deterioration in the local provision of public goods, adverse health outcomes and greater mortality, dissolution of traditional family structures, and greater support for extreme political parties and politicians, especially on the far.

Question 21

Local labor markets in the Europe

Answer 21

-globalization did not speed up the manufacturing decline in local markets in Germany, but it even retained those jobs in the economy
-Manufacturing employment expanded in regions whose industries found new export opportunities in China and Eastern Europe, offsetting employment losses in other local labor markets whose industries faced growing import competition

Question 22

Globalization and Economic Stability

Answer 22

Globalization increases the probability that an economic, political, social, environmental, or a medical shock in one country will have a negative impact on the situation in other countries (a risk of contagion)

Question 23

What are the two Transmission channels for global/regional contagion effect ?

Answer 23

1. Foreign trade and activities of MNCs
2. International financial markets

Question 24

Global and Regional Transmission Channels: Trade and MNCs (foreign crisis)

Answer 24

1. Trade :
   -may lead to lower demand for domestic imports with further negative effects on the GDP of trade partners and on their labor markets
   -ay increase trade costs (damage of infrastructure, interruption of transport, security measures)
2. Trade and MNCs:
   Disruption of GVCs on the supply side of the economy
   Problem: this may lead to financial losses of MNCs (including multinational financial institutions) and can negatively affect their production and investment decisions in other countries

Question 25

Foreign crisis on the economy

Answer 25

-The more open an economy, the more vulnerable it will be. Small developing countries tend to experience larger negative effects
-High level of geographical concentration of foreign trade is a high risk factor for income and employment

Question 26

dependency index from foreign trade

Answer 26

1.Value-added exports: The proportion of domestic value added that depends on foreign demand.

2. Value-added imports: The share of intermediate consumption required within the country which is imported from abroad.
3. The share of imports in domestic consumption, or final demand import.

Question 27

EU’s dependence on China

Answer 27

China accounted on average for 2.4 percent of the EU-27 member states’ exports in 2019, compared to 67 percent for the EU single market and 5.7 percent for the United States.

Question 28

Some big EU companies heavily depend on China

Answer 28

example: Puma, NXP, infineon, Airbus

Question 29

Chinese dependence on rich countries

Answer 29

For Chinese production EU is becoming less important
Opposite for EU china is become more and more important
–> most jobs are dependent on demand in the USA, China’s most important export destination.

Question 30

Who trades with whom?
Inter- and intra-regional trade

Answer 30

-in 2021, internal trade in Europe accounted for about 15% of global trade

-Internal trade in Europe, North America, and Asia accounted for about half of global trade.

• Internal trade in other regions is still much more modest in scale.

Question 31

Global Trade Networks

Answer 31

graphic page 70

Question 32

What determines the size of bilateral trade volumes?

Answer 32

“gravity model” on factors having a significant impact on the volume of bilateral imports and exports

Question 33

Example of what determines the size of bilateral trade volume:

Answer 33

1. Size of an economy
2. Distance
3. Cultural affinity
4. Borders
   5.Multinational companies
   (page 71)

Question 34

Global and Regional Transmission Channels: Financial Markets

Answer 34

-International capital flows are partly connected to international trade and FDI

-Other capital flows are moving to where interest rates are most favorable or to currencies where the exchange rate is expected to rise.

-Contagion effects caused by a withdrawal of capital from countries similar to the country in crisis pose significant challenges, particularly when local financial markets are less developed
–> capital flight –> depreciation of the domestic currency (currency crisis)
= higher financing costs for the private and the state sector due to higher risk premia –> lead to insolvency in the business and the public sector
–> Sufficient financing of GVCs is at risk.

Question 35

Financial Openness dominates..

Answer 35

real openness

Question 36

Capital flows to emerging market economies (EMEs) and incidences of crises

Answer 36

Global crises lead to outflows of financial capital from
emerging market economies.
EM (emerging markets) crises tend to occur when capital flows slow.