Group 7
Sherel Barcenas
Garret Brooks
Jamie Duke
Katy King
Amanda Knapp
Sarah Olson
Ryan Patterson
Luke Ryan
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Background of Global Economic
Development
5 Paradoxes:
 Trade, Democracy, and Open and Free Markets
 Culture and Change
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Economic development is critical to
globalization
Controversy
Split paradoxes into 2 categories:
 Trade, democracy, and open and free markets
 Culture and change
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David Ricardo
 19th century
 the ability of a person or a country to produce a particular
good or service at a lower marginal and opportunity cost
 Economic development from:
▪ Land
▪ Labor
▪ Capital
 Theory in question:
▪ Multinational corporations moving home countries
▪ Doing more business and hiring more people outside their home
country
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Before Ricardo, was mercantilism
 Supported by colonialism
 Strict government regulation of economy
 Accumulation of wealth from resources
 Development of manufacturing and agriculture
 Establish foreign trading monopolies
 Wealth went to home country, not colony
▪ Lead to independence movements, wars, and creation
of self-sufficient countries in the New World
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Economic model for development:
 Early stages
 Explosive growth
 Maturity
 Decline (not always)
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Rate of development increasing rapidly
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Natural resources
Climate
Good geographical position
Religious-based culture
Strong institutions- banks, police, courts
Clusters of industries
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Mix of characteristics for success varies
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Trading partners at disadvantage
Population size vs. rate of economic
development
Level playing field?
To grow requires more resources, thus
increasing the world price
National budget deficits
Decrease in skilled labor
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Phenomenon stating that “a national
economy can suffer dramatically even while
growing through accumulating capital or
improving productivity”
Producing more could saturate market
 Decrease demand
 Decrease price
 Weaken exporting nation’s profits
http://www.csua.berkeley.edu/~dxu/econ/shoe.html
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Diversification of products produced
However, not always the case
Competition can lower price as well
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European Union
 Provides funds to newly admitted nations
 Taxes lend money for next admitted nation
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World Bank and International Monetary Fund
(IMF)
Some funds not successful
 Corruption
 Mismanagement
 Rivalries between people
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Ranking of economic development potential:
 Degree of corruption as perceived by international
executives
 Degree of trust between citizens and public
institutions
▪ Police, courts, etc
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Many organizations state poverty reduction
as their mission
 However, much of world funds go to nations
without will or ability to reduce poverty
 George Lodge and Craig Wilson suggest
MultiNational Corporations (MNCs) create an
organization where they would invest in
developing nations and use the profits to invest in
other developing nations
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According to World Bank:
 Nearly half world population- $2 a day or less
 1/6 world population- less than $1 a day
 Poverty fallen from 2/3 of developing nations to ½
of population between 1981 and 2001
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149 of 220 nations in the world are members
Tariffs lowered
Many global issues to be addressed
Provides framework to dissolve disputes
Are democracy and free markets antithetical to
each other?
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Amy Chua
Communism to Capitalism
Ethnically similar majority
Lack of business and economic experience
Dependence on minority group
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Indonesia
Russia
Malaysia
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Open markets with low tariffs
Inequalities increase
No policy suggestions
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Does trust increase trade among nations?
Does increased trade lead to conflict and war
among nations?
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Nations prefer trading with similar cultures
Canada’s largest trading partner is US.
Being Geographically close lowers
transaction cost and risk
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Researched surveys in the EU focusing on
trusting nationalities
 Germans most trusted
 Italians rank lower
 Germans trust British more than French
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Cultural Trust
Religion
History of war
Genetic differences
Increase in trust for any variable between two
nations associated with a 30% rise in trade
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U.S. trade with China, India and other
developing nations
Historical record is mixed
 United States and Great Britain
 Great Britain and Germany
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Dr. Katherine Barbieri found increased trade
is associated with higher incidence of war
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“Change” usually consist of moving from a
traditional way of life to modernized way
Individuals accept change if they can see the
benefits from it
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Are institutions more important than culture
for explaining economic development?
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Institution: an established corporation or
corporation
(www.merriem-webster.com)
 Court of law, police system, government, etc.
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Culture: the act of developing the intellectual
and moral faculties
(www.merriam-webster.com)
 Beliefs, behavior, knowledge, etc.
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Provide the structure for life at work and
outside of work
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Need to be trustworthy or people will try to
go around the systems
 Join groups that also avoid systems (legal, police,
tax)
▪ Mafia created in Italy
▪ Douglas North wins Nobel Prize, shows trustworthy
institutions critical for economic development
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Mancer Olson (1982)
 Work showed that when amounts of interest
groups increase in a country, national prosperity
decreases
 This occurrence is not only in the United States
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Interest groups
 Helpful because their existence helps accomplish
essential functions (creating diverse views and
distribution of their activities, points of view)
 Harmful because they can hurt economic growth
by drawing the attention of a nation away from
good solutions
▪ Citizens of the country will see all institutions as
dishonest
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Written by Hernando de Soto (2000)
Capital: in Medieval Latin means “cattle”;
symbolizes sources of wealth beyond the
meat that can/will become food
It’s difficult, even impossible to create capital
without initial capital
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Powerful interest groups declare property
rights on settlers living on public land
Create capital by using little cities or
“shantytowns” created by residents
 San Francisco Solano test
 Chinese government enforcing ownership of
countryside to create factories, modern cities
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Studied three groups of entrepreneurs
 Native Chinese working in China
 Chinese Americans
 White, Anglo-Saxon Americans
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Hypothesis: If culture were more important
than institutions, the Chinese in mainland
China and Chinese Americans would tend to
be significantly different in attitudes from
their Anglo-Saxon counterparts.
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Findings: similarities were actually between
the Anglo-Saxon and Chinese Americans.
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The native Chinese and Chinese Americans were not that
similar
Conclusion: Institutions are more important
than culture, supporting Douglas North’s
original idea
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President Ataturk wanted to separate culture
and institutions
 Changed Turkey from a theocratic, Muslim nation
to secular nation
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Separated by:
 Closed religious schools and lodges
 Used the Roman alphabet and Western calendar
 Used European codes of law instead of Islamic
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Both are important and relevant, each case
depends on which is more important
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China’s development leans towards giving
culture more importance
Turkey appears to make institutions more
relevant
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Do economic development and globalization
lead to individualism?
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Individualism
 Considers one self separate from group
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Collectivism
 Decisions are made in GROUPS best interest
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Power Distance
 Level of societal acceptance of equality/inequality
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Individualism
 Degree of interdependence within society
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Uncertainty Avoidance
 Extent to which members of society feel
threatened by unknown/ambiguous situations
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Masculinity/ Femininity
 Masculinity- Importance on “being the best”
 Femininity-importance on “liking what you do”
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Long Term Orientation
 Countries are considered short term oriented or
future oriented
 Emphasizes
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▪
▪
▪
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Persistence
Ordering relationship status
Behaving in accordance to order
Stressing thrift
Having sense of shame
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Values of economic growth differ by nation
Different religions have “Confucian” values
Nations are Individualistic and Collectivistic at
different time periods
Hofstede’s model proved in the short run
 Individualism occurs as economies grow
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What matters is a society that encourages
individualism and emphasizes contributions
to society
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Why do citizens vote for and accept
stationary bandits as political leaders?
 Stationary bandit-Political leader that resides in
the community he eventually weakens or
sometimes destroys.
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Argued that a "roving bandit" (under anarchy)
has an incentive only to steal and destroy,
whilst a "stationary bandit" (a tyrant) has an
incentive to encourage a degree of economic
success, since he will expect to be in power
long enough to take a share of it
Roving bandit during
the 13th century
 Founder and emperor
of Mongol Empire
 Conquered most of
Central Asia and China
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Political leader of
communist China
Influence lasted 40
years
Guerrilla warfare
Long March
50 million Chinese died
due to collectivization
and thoughtless
government policies
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German politician and
leader of the Nazi Party
Treaty of Versailles
WWII
Franklin D. Roosevelt
April 30, 1945 Hitler
committed suicide
Leader of Russia
Introduced taxation
system
 The 5 year plan
 Actions during and
after WWII
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