Economics Schools Conference, June 27th 2006
What Are the Economic Benefits
of Globalisation?
Professor David Greenaway,
Leverhulme Centre for Research on
Globalisation and Economic Policy,
University of Nottingham
Some Questions
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•
•
•
What is Globalisation?
What Drives Globalisation?
What are the Benefits of Globalisation?
Why is Globalisation Controversial?
What is Globalisation?
Economic Globalisation - a
process
whereby national markets become
more integrated and more
interdependent
19
70
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99
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00
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01
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02
Growth of World Trade and Output
1000.0
100.0
Merchandise Exports
Manufactured exports
Merchandise production
Manufactured output
What’s in a Shirt?
This morning I went out and bought a shirt…..the
shirt I bought represents a triumph of international
cooperation. The cotton was grown in India from
seeds developed in the United States; the artificial
fibre in the thread comes from Portugal and the
material in the dyes from at least six other
countries; the collar linings come from Brazil,
and the machinery for the weaving, cutting and
sewing from Germany; the shirt itself was made
up in Malaysia……..(and was bought in the UK).
From Paul Seabright The Company of Strangers: A Natural
History of Economic Life. Princeton University Press
(2004)
What Drives Globalisation?
•
Key Indicators of Globalisation
– International trade
– Cross border investment and international
outsourcing
– Cross border migration
– Financial market integration
Recent Trends in Trade
• Value of Trade (2004)
Merchandise
$8,907 billion
Services
$2,125 billion
• Growth of Merchandise Trade
1950-73
7.0% per annum
1974-90
4.0% per annum
1990-04
7.6% per annum
• Growth of Services Trade
1990-00
6.5% per annum
2001-04
10.8% per annum
Recent Trends in Foreign Direct
Investment ($billion)
1982
1990
2004
FDI Inflows
59
209
648
FDI Inward Stock
802
1,954
8,902
Foreign Affiliate
Sales
2,737
5,675
18,677
Foreign Affiliate
Assets
2,091
5,899
36,008
Global GDP
11,758
22,610
40,671
20th / 21st CENTURY DRIVERS
OF GLOBALISATION
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Falling man-made barriers
Falling natural barriers
Increased capital mobility
Increasing labour mobility
Technological development
Falling Man-Made Barriers
AVERAGE TARIFF RATES
30
25
20
15
10
5
0
France
Germany
Italy
1950
Pre-Uruguay Round
UK
Post-Uruguay Round
EU
US
Falling Natural Barriers
120
100
80
60
40
20
0
1920
1930
1940
Ocean freight
1950
1969
Air
Transatlantic phone
1970
Satellite
1980
1990
What are the Economic Benefits of
Globalisation?
• Specialisation and exchange
– more efficient use of scarce resources
– lower prices for consumers
• Consumer choice
– wider range of goods and services
What are the Economic Benefits of
Globalisation?
• Stimulus to economic growth
– access to capital and labour
– access to new technology
• Poverty alleviation
– employment creation
– economic growth
Growth of Real Income Per Person (Per cent per year)
1960s
1970s
1980s
1990s
Rise in Trade/GDP (per
cent)
Globalisers
1.4
2.9
3.5
5.0
Non-globalisers
2.4
3.3
0.8
1.1
104
-18
Source: Dollar and Kraay (2000)
Real Income per Person (1990 dollars)
Africa
China
India
Latin
America
UK
USA
1870
444
530
533
698
1913
585
552
673
1,511
1950
852
439
619
2,554
1998
1,368
3,117
1,746
5,795
3,191
2,445
4,921
5,301
6,907
9,561
18,714
27,331
Source: Maddison (2001)
90%
1,400
80%
1,300
70%
1,200
60%
1,100
50%
1,000
40%
900
30%
800
20%
700
10%
600
0%
Number
Rate
SHARE OF WORLD POPULATION
1,500
18
20
18
50
18
70
18
90
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10
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29
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50
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60
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70
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80
19
92
NUMBER
Extreme Poverty in the World
Why is Globalisation Controversial?
DISTRIBUTIONAL ISSUES
• Uneven shares of gains from trade
> intra-national (capital vs. labour; skilled and unskilled
labour)
> international (developed and developing countries)
• Uneven shares of gains from FDI
> intra-national (capital vs.labour; skilled and unskilled
labour)
> international (host and source countries)
Why is Globalisation Controversial?
INTERNATIONAL RULES
• ‘One set of rules for them and one set for us’:
> Coverage (e.g. movement of capital vs. movement of
people)
> Application (e.g. intellectual property vs. antidumping)
• Ideologically Driven International Organisations
> ‘Washington Concensus’
> Marginalisation of Developing Countries
Why is Globalisation Controversial?
ADJUSTMENT FRICTIONS
• We do not live in a world of perfect
competition
• Some individuals and groups suffer short-run
and maybe long-run losses
• Winners are widespread, losers are
concentrated
• Adjustment policies do not always
compensate
Jobs in the United States have been perceived as moving
abroad ……. to low wage Japan in the 1950s and
1960s, to low wage Mexico in the 1990’s and most
recently to low wage China. We can usually identify in
advance which jobs will be displaced by foreign or
domestic competition. But in economies at the forefront
of technology, most new jobs are the consequence of
innovation, which by its nature is not easily predictable.
We can thus be confident that new jobs will replace old
ones as they always have, but not without a high degree
of pain for those caught in the job-losing segment of
America’s massive job-turnover process.
Alan Greenspan, Chair of US Federal Reserve Board
Conclusions
• Globalisation is not a new phenomenon
• The current wave of globalisation is the most
intense since the nineteenth century
• The pace of change is accelerating
• There are long run gains from globalisation
• But, there may also be short run costs for some
• And some adjustment and distributional aspects of
the process may need to be managed
For resources on globalisation:
www.gep.org.uk