Lecture material week 1

Question 1

Week 1: what is economic globalization

Answer 1

• Trend towards the transnational integration of national market economies, through:
  – Integration of capital markets (IPEMR)
  – Internationalization of firms and value chains (FDI) – Growing labor mobility

– More trade

• Cross-border exchange of goods and services -> Which carry ideas, knowledge and “culture”

Question 2

History of trade and economic globalization

Answer 2

– Pre-historic period
– Cradles of civilization
– Pax Mongolica (“Silk Road”)
– Hanseatic League
– European maritime empires (East India Company)
– Rise of Europe

“Modern” globalization
– First period - 1820s-WW1: British Empire
– Second period - Post-WW2 (1950s-1990s): ‘triadization’ of world economy (US-EU-JPN)
– Third period - 2000s: “rise of the rest”

Question 3

• Defining features of the third period of globalization

Answer 3

– 2000s
– Acceleration of technological change (internet!)
– Multinationals: from national to global champions (global value chains)
– Rise emerging markets
– Growing importance of trade in services

Question 4

What has driven increases in trade flows?

Answer 4

• Technology
  – Lower transport costs
  – Easier cross-border communication
• Politics
  – Removal tariff barriers
  – Signing of trade agreements
  – Creation international institutions that protect trade (GATT/WTO, EU Common Market, NAFTA/USMCA, etc) and foreign investors (BITs)
  → enables fragmentation of production: “global value chains”

Question 5

Why pursue free trade? A very brief history of an idea

Answer 5

• Mercantilism
  – Dominant ideology from 15th-18th century
• Friedrich List, Alexander Hamilton
  – Oppose free trade on two grounds:
• National power perspective (trade as zero-sum game)
  – ‘Gold hoarding mentality’: Exports are good, but imports are bad
  because they enrichen rivals
  » Mun, 1664: “[W]e must observe this rule; to sell more to strangers yearly than we consume of theirs in value”
• Nascent ‘infant’ industries must be protected from foreign competitors
• Liberalism
  – Adam Smith, Wealth of Nations
  – John Stuart Mill’s and David Ricardo’s theory of comparative advantage
• Geopolitics of free trade
  – 1846-1914: UK-led reduction in tariffs
• Repeal of Corn Laws (1846)
  – Post-World War: US-led establishment of GATT/WTO; spread free trade agreements

Question 6

Analytical toolkit of IPE

• What drives political agents and decision- making outcomes?

Answer 6

• 3Is:
  – INTERESTS: Material gains of (powerful) actors
  – IDEAS: what (powerful) actors believe to be in their interest
  – INSTITUTIONS: procedures through which decisions are being made