Lectures 1&2 Flashcards
1
Q
The world economy: an overview of globalization (definition)
In a general sense, the increasing worldwide integration of ______, _______, _______, _______, and ________.
A
Economic Cultural Political Religious Social systems
2
Q
Economic globalization is the process by which the whole world becomes a _______.
A
Single market
3
Q
Who laid out the conventional view of trade?
A
David Ricardo laid out the basic framework in 1817
4
Q
What did Adam Smith state?
A
That countries should specialize in the production of the good for which they have an absolute advantage in terms of productivity
5
Q
Who came up with the idea of absolute advantage?
A
Adam Smith
6
Q
What if a country has no absolute advantage?
A
David Ricardo introduces the notion of comparative advantage
7
Q
What is comparative advantage
A
The idea that a country should specialize in the production of a good for which the opportunity cost (what is given up to produce one unit of that good) is the lowest
8
Q
A country ________ has a comparative advantage
A
Always
9
Q
Ricardo uses the principle of comparative advantage to explain: ________, ________, _________.
A
Why nations trade
Why they do the way they do (the “patterns of trade”)
Why nations can gain from trade
10
Q
What does gains from trade mean?
A
When trade leads to a higher surplus for society as a whole (surplus = utility)
11
Q
Gain 1 from trade
A
Higher consumption:
Consumers in each nation get something from abroad for less than they would pay at home = lower prices, wider variety of goods
12
Q
Gain 2 from trade
A
Increased productivity:
Scarce productive resources are shifted into the comparative advantage good industry
13
Q
Name the amplifiers of trade
A
- Greater scale economics (higher production volume tends to lower per-unit production costs) and agglomeration of activities (can boost productivity - eg. Automobiles in Detroit)
- Upgrading (improving production processes, skills, quality, etc.)
- Trade creates new investment opportunities which drives investment-led growth
- Trade may induce innovation which drives productivity and growth
14
Q
Diplomatic gains from trade
A
Diplomatic gains: trade fosters cooperation
15
Q
“_________ is a _________________ of trade” - Montesquieu
A
Peace is a natural effect of trade
16
Q
Pain 1 of trade
A
Relative prices (price of one good over the price of another) change:
- Within a sector: if prices increase from exporting, domestic consumers lose but domestic producers win
- Within an economy: inputs used intensively for export sectors increase in values (wages, profits) but inputs used intensively for import sectors decrease in value (as demand for them decreases)
17
Q
Pain 2 of trade
A
Restructuring:
Workers/firms in import-competing sectors tend to suffer, those in sectors that export tend to benefit
18
Q
Pain amplifiers
A
The static effects are amplified by dynamic effects:
- Trade can lock nations into slow innovation industries, little to no economies of scale (mining, agricultural products)
- Exporting natural resources may foster corruption and poor governance: the “natural resource curse” (although many countries like Canada and Norway export resources that have low corruption and good governance)
19
Q
Globalization’s aftermath
A
- No pain, no gain: the size of pie increases (= gains from trade), but the share each gets does not necessarily (and the winners don’t typically compensate the losers unless forced to)
- Dynamic gains can be large enough for all to gain, but not in the same way: inequalities can increase, some sectors develop more than others
- Theory can’t answer the net-gain question
20
Q
Pareto efficient allocation (the classical liberal perspective) (definition)
A
An allocation (description of who gets what) is Pareto optimal or Pareto efficient if it is impossible to find an allocation that makes somebody better off without making somebody else worse off
21
Q
First welfare theorem (the classical liberal perspective) (definition)
A
Under certain conditions, every competitive equilibrium allocation is Pareto optimal, or efficient
22
Q
Name the “old” critical views’ people
A
Karl Marx
Karl Polanyi
23
Q
Name the “modern” critical views’ people
A
Naomi Klein
Joseph Stiglitz and Dani Rodrik
24
Q
“Old” critical views: Polanyi
A
Polanyi ties the development of a market economy to machinery-based production
- Operating a machine is costly, so large amounts of the good must be produced
- In order to work without interruption, inputs needed to operate them (workers, necessary materials) must be available at any point = markets for any inputs)
- That feature is not natural as it has to be created
- That transformation of the production process implies a change in production motives, from subsistence to gain-seeking
- “Double movement”: as the economy is more and more “marketized” (everything becomes a commodity), social protectionism (labor laws, consumers protection) is society’s natural response
25
“Old” critical views: Marx
Marx’s theory of over-accumulation (roughly)
- Workers didn’t earn any of the value added to the goods they produce (the owners of the means of production, the capitalists, do)
- The profits are reinvested to increase the capital to labor input ratio
- Accumulating capital can no longer sustain itself as demand doesn’t follow = socialism (“production for use”) succeeds capitalism (“production for profit”)
- Opening economies to other countries open investment opportunities, but the same process is expected to happen
26
Socialism
“Production for use”
27
Capitalism
“Production for profit”
28
Socialism ________ Capitalism
Succeeds (came after and took the place of)
29
“Modern” critical views: Klein
- This view differs from Polanyi’s on the driving forces
- Describes globalization as a conspiracy in her book, “The Shock Doctrine”
- Lori Wallach loots at WTO (World Trade Organization) as a conspiracy: corporate interests have captured the globalization agenda = “When elephants mate, many ants get crushed” (African proverb)
30
“When elephants mate, __________________.” (African proverb)
When elephants mate, many ants get crushed
31
Who describes globalization as a conspiracy?
Naomi Klein
32
Who describes WTO as a conspiracy?
Lori Wallach
33
(Without effective WTO) “When the elephants __________________.”
When the elephants fight, the ants perish.
34
(With effective WTO) “When the elephants __________________.”
When the elephants are peaceful, the ants work.
35
“Modern” critical views: Stiglitz and Rodrik
- They embrace traditional views on globalization and agree that their are gains to globalization, but focus more on the pains (globalization is not criticized, per se, the way it is handled is)
- Stiglitz proposes policies to make globalization beneficial to all
- Rodrik is worried by the pressure put on nations and how to maintain sovereignty as much as possible
- He opposes the globalization dynamic: economic globalization => global community => global governance => ... to the nation-state dynamic: heterogeneity of communities and geography => divided governance => limited globalization => heterogeneity
36
Three costs that matter for globalization
- Trade costs (cost of moving goods)
- Communication costs (cost of moving ideas)
- Face-to-face costs (cost of moving people)
37
Globalization can be viewed as a long process involving _________.
“Unbundlings”
38
1st unbundling (around 1820s)
1st unbundling: “old-paradigm globalization”
- The fall in trade costs allowed to separate production from consumption
- Goods cross borders
39
2nd unbundling (around 1990s)
2nd unbundling: “new-paradigm globalization”
- The fall in communication costs allowed ideas to move
- Nations’ comparative advantages change
40
What are G7 countries?
France, UK, USA (Western countries)
41
Up until the beginning of the 1800s (around 1820s, where the first unbundling happened), did Asian or Western countries have the biggest growth in the world?
Asian countries (China/India), and they had the biggest share of world income/the biggest share of GDP
42
After the beginning of the 1800s (around 1820s, when the first unbundling happened), did Asian or Western countries have the biggest growth in the world?
Western countries
43
In around 1990s (when the second unbundling happened), did Asian or Western countries have the biggest growth in the world?
- G7 countries went down
- Asian countries went up
(Converged, essentially)
44
Why was the post-1990 period very different from the pre-1990 period?
A “Great convergence” (1980-2017) took place (the second unbundling happened around 1990)
45
Phase 1 of the “Great convergence”
Phase 1: Humanizing the globe (people had no idea what they were doing, and just went around)
- Consumption moves to production
- International trade is an exotic phenomenon
46
How many phases of the “Great convergence” are there?
4
47
Phase 2 of the “Great convergence”
Phase 2: Localizing the world economy (12000 BC-1820 AD)
- Agricultural revolution makes production move to consumption
- International trade is regular but not large
48
Phase 3 of the “Great convergence”
Phase 3: the Rise of trade (1820-1990)
- The industrial revolution (steam revolution) unbundles production and consumption: it is the 1st unbundling
- Modern globalization starts
49
Phase 4 of the “Great convergence”
Phase 4: Rise of the North-South offshoring (1990-now)
- The iCT revolution provokes the 2nd unbundling
- Production stages are unbundled
50
The world economy before 1820
- Trade only happened locally (consumption and production are bundled)
- International trade can happen if consumption and production are bundled (“Made here, sold there”)
51
Define the 1st historical phase (Phase 1: Humanizing the globe)
- Humans hunted and gathered their way around the world (hunter-gatherer societies)
- Consumption to “production” as human groups move to one spot where they can feed themselves, and go to another spot once depleted
- Climate change provoked two migrations out of Africa
- Long-distance trade (eg. Obsidian), but without pack animals (eg. Mules, donkeys, cows), it is very limited
52
Which 2 migrations out of Africa did climate change provoke in the Phase 1 of globalization?
- 125,000 BC (failed)
| - 83,000 BC, following a millennium-long spike in the planet’s averaged temperature
53
Define the 2nd historical phase (Phase 2: the Rise of Asia (10,000 to 200 BC)
- The stabilization of climate makes populations concentrate around long-growing-seasons regions
- Around 10,000 BC, animals get domesticated, and the Agricultural revolution (or Neolithic Revolution) now locates production/consumption in fixed locations
- Consequence: We can feed more people than needed to produce the food: the rest can focus on “civilization services” => Population grows and cities develop
54
What is the Fertile Crescent?
The region where there were agricultural innovations (eg. Domestication of animals)
55
Consequence 1 of agricultural innovations/the rise of Asia
- Production moves to consumption as permanent villages develop
- River valleys allows continuous settlement (annual flooding solves the problem of soil exhaustion)
56
Consequence 2 of agricultural innovations/the rise of Asia
- Food surpluses from agricultural innovation (amplified by the use of tools: bronze first, then iron) lead to population growth and the rise of civilizations
57
Define the 2nd historical phase (can be decomposed into 3 stages)
1. Rise of Asia (12,000 BCE up to 200 BCE) (*Middle East is included in Asia here)
2. Eurasian integration (200 BCE to 1350 AD)
3. Rise of Europe (1350 AD to 1850 AD)
58
Describe the 1st stage of the 2nd historical phase
1. Rise of Asia (12,000 to 200 BC)
- With the Bronze Age (3500 BC), cities and civilizations expand around river valleys
- Rough dates of main civilizations:
Sumerian (3500 BC), Egyptian (3000 BC), Indus Valley (2600 BC), Chinese (2100 BC), Others later (eg. Mesoamerican) (1200 BC)
- Asia dominated the world economy until 1820
- There is no such thing as “added value” yet, so growth comes from population, not higher incomes: share of world population = share of world GDP
59
Define GDP
Gross Domestic Product (GDP) is a monetary measure of the market value of all the final goods and services produced in a given region or country over a given period of time
60
__________ (GDP) is a ________ measure of the market value of all the ______ goods and services produced in a given region or country over a given ___________.
- Gross Domestic Product
- Monetary
- Final
- Period of time
61
Define the growth rate
gt = (GDPt - (GDPt-1))/(GDPt-1)
62
GDP _________ with population (as more was produced) but GDP per capita _______________.
- Increased
| - Did not grow in any significant way
63
What is GDP per capita
= GDP divided by population
64
World share of population and GDP in year 1 AD
- India and China represent more than 1/2 the world GDP and population
- Europe and today’s western offshoots (US, Canada, Australia): less than 1/5
65
What was the measure between world share of population and GDP in year 1 AD?
GDP shares and population shares were relatively the same
66
Trade in 1st stage of the 2nd historical phase
- Mesopotamia is the hub (between the Nile and Indus River valleys)
- (International) trade concerns locally unavailable raw materials (ingredients to make bronze) and luxury items (but trade is still small)
- China did not participate in that trade (since separated by vast mountains, deserts, seas, and jungles)
67
Why did China not participate in the trade in 1st stage of the 2nd historical phase?
It was separated from the hub of trade by vast mountains, deserts, seas, and jungles
68
Describe the 2nd stage of the 2nd historical phase
2. Eurasian Integration (200 BC to 1350 AD)
- The Silk Road allowed to integrate China
- Hard to say how much trade is happening, but logic says not much due to limited transportation technology (camels by land)
- Rough calculation: “a kilo (1kg = 2.2 lbs) of goods per person per week would require a daily camel train that is 52 km long”
69
How many pounds is 1kg?
2.2 lbs
70
What was the political landscape during the 2nd stage of the 2nd historical phase
Many political reorganizations happened during that period (notable formations:)
- The Roman Empire (150 BC - 500 AD)
- The Han Dynasty (200 BC - 200 AD)
- The Golden Age of Islam (630 - 1250 AD)
- The Mongolian Empire (1200 - 1370 AD)
- Other Chinese dynasties: Jin (260 - 420), Tang (600 - 900), and Song (960 - 1280)
71
Describe the 3rd stage of the 2nd historical phase
3. The Rise of Europe (1350 to 1820 AD) (This period is marked by several historical events:)
- The Black Death (plague) arrived in Europe in 1347
- The shutdown of the Silk Road
- Proto-globalization (1450 - 1776)
72
Why was the Silk Road shut down during the Rise of Europe?
Supposedly the Black Death came from somewhere through the Silk Road, and because of that, the Silk Road was shut down
73
How did the Black Death reboot the ancient world?
- Coming from the East via the Silk Road, the Black Death wiped out between a quarter and a third of Europeans in 3 years
- It transformed European societies in ways that triggered process, but had the opposite effect on the Islamic world
74
The Black Death transformed European societies in ways that triggered process, but had the opposite effect on the Islamic world. What is a hypothesis for this?
A hypothesis is the way both worlds were organized: European societies were structured around rural lands governed by nobles, whereas Islamic civilization was blooming via urban centres, where the plague hit harder
75
What 3 elements triggered the Silk Road shut down in 1450?
- The fragmentation of the Islamic world
- The fall of Constantinople in 1453 allowed Ottomans to cut off trade with Europe
- The isolation of China decided by the Ming dynasty: China flourished in these centuries (art, science, etc.) and decided to stop exploration efforts after several voyages of Admiral Zheng He
76
The shutdown of the Silk Road launched a “______________ stage for the shift that was to come in Phase 3” that historian Anthony Hopkins calls “_________”.
- Preparatory
| - Proto-globalization
77
What 3 pillars does proto-globalization rest on?
1. Renaissance, Reformation and Enlightment
2. The Age of Discovery
3. The Colombian exchange
78
The Renaissance (1300 - 1600) is a period of _____________. It is the birth of ________. Name some big names.
- Flourishing ideas and arts
- Humanism
- Big names: Michelangelo, Galileo, Luther, da Vinci, Copernicus
79
The Reformation marks the start of __________ with Luther ________ the Catholic Church in 1518. And ________ speeds dissemination of _________ of the Bible
- Protestantism
- Departing from
- Printing
- Translations
80
The Enlightenment (1600 - 1700) period ______________. Name some big names.
- Furthered the rise of Europe
| - Big names: Descartes, Locke, Voltaire, Newton, Hobbes, Kant, Rousseau
81
Why did Renaissance, Reformation and Enlightenment happen in Europe?
The marriage of capitalism, science and empire occurred in Europe
82
What kind of change in mindset happened during the Renaissance, Reformation and Enlightenment?
Instead of assuming that they already understood the world, they said “I don’t really understand the world out there, but I would like to find out”
83
What did the Europeans have to figure out when the Silk Road shut down?
They had to figure out another way to reach the east
84
In what year did Columbus discover America trying to reach India through the West?
1492
85
What is the Colombian exchange?
- Europe imports food crops from the Americans: potatoes and maize => rise in population density resulted from it
- In exchange, the New World received... new diseases => massive depopulation resulted from it
86
Europe vs Asia during proto-globalization period
- It allowed income to rise in Europe
- The industrial revolution began but was limited to Britain (French revolution and following Napoleonic wars delayed the spread to the continent, and financial intermediation developed in London)
- But Asia still dominates due to its massive population, although it stagnates
87
Thomas Robert Malthus says that income per capita _________ from technological advances are inevitably _________ due to __________________.
- Increases
- Lost
- Subsequent population growth
88
If an innovation doubles per person, what happens to heath, longevity, quality of life, and survival rate?
They go up due to better nutrition
(But population will increase as a consequence, and food per person falls back to the level of subsistence it was at before - the population is trapped into a subsistence level of life: this is the Malthusian trap)
89
What is the Malthusian trap?
The theory that, as population growth is ahead of agricultural growth, there must be a stage at which the food supply is inadequate for feeing the population
90
Consumption and production are __________ throughout phase 1 and 2, and ______________ happens in low volume (luxury goods like silk and spices are not available locally like wood or tin).
- bundled
| - International trade
