Lecture 1: Organizing Principles 1

Lecture 1: Organizing Principles
Our first task is to get a handle on what we
mean by globalization.
In the broadest context, we can talk about:
1.) cultural/social globalization
2.) political globalization
3.) economic globalization
What is globalization?
We will only focus on the latter, but is there any
particular reason why?
1.) this is an economics course, after all
2.) less contentious: evidence is arguably better.
3.) more contentious: other two processes are
arguably dependent upon economic
globalization …and lag accordingly.
What is globalization?
Alright then, economic globalization it is.
Pin this down: globalization as a movement
towards greater integration as barriers/costs to
international economic exchange fall.
Necessary consequence: the increased impact
of economic changes in one part of the world
on what happens in others…for better or worse.
What is globalization?
Our focus will be on examining the flows of:
1.) goods and services (trade)
2.) money (capital)
3.) people (immigration)
4.) information/ideas (institutional and
technological change)
What is involved?
As economists, we are lead to believe that
globalization should have big implications for
people’s welfare.
Thought exercise: would the wellbeing of
Canadians be improved if the economy was
fragmented within cities/within provinces/
across provinces?
So, by extension, why not the world?
Why does it matter?
However, a lot of people think otherwise…
Why does it matter?
So, one of our additional tasks will be to assess
the claims—both pro and con—for economic
But before that, we need to know more about
globalization in the (very) long run.
In particular, the common theme of this term will
come in assessing the course, causes, and
consequences of globalization across time.
Why does it matter?
We will spend a couple of weeks on the early
history of globalization.
Meant to provide an understanding of the key
historical forces at work.
But our primary focus will be on the past two
hundred years.
Why? Tremendous variation in the level of
global economic integration over this period.
The course of globalization
The course of trade
The course of trade
The course of capital
The course of immigration
If it is not obvious by now, all of these series
display a common pattern…
An increase in international flows up to 1910,
a reversal up to 1950, & a subsequent recovery:
a U-shaped pattern for the twentieth century.
This historical variation allows us to discern the
causes and consequences of globalization (as
well as consider plausible future trajectories).
The course of globalization
Although there are almost certainly more, the
“Big Three” causes of globalization are:
1.) improvements in communication and
transport technology;
2.) changes in policies surrounding capital,
immigration, and trade;
3.) the development of institutions which
facilitate international exchange.
The causes of globalization
The causes of globalization
The causes of globalization
The causes of globalization
Likewise, the costs of communication have
plummeted in the past 170 years.
E.g., NYC-LON, $300 = 3 minutes in 1930.
At the same time, its speed has become a nonissue: that is, it is instantaneous.
Compare to pre-telegraph world:
35 km per day in the ancient world;
150 km per day by 1820;
375 km per day by 1860.
The causes of globalization
At the same time, man-made barriers have
been almost as decisive as physical barriers in
determining economic integration…
Commercial policy’s very old history:
the imposition of “borders” as a convenient
means of collecting revenue.
In the years prior to 1850, commercial policy
was highly restrictive—a proliferation of
tariff and non-tariff barriers to trade.
The causes of globalization
The causes of globalization
Finally, we have seen the development of
institutions designed to facilitate international
exchange and, therefore, enhance globalization.
But we need to be clear what economists mean
when they refer to institutions.
Most broadly, institutions are the humanly
devised constraints that structure political,
economic, and social interaction.
The causes of globalization
They consist of both:
1.) informal constraints (customs, traditions, and
codes of conduct); and
2.) formal rules (constitutions, legislation, and
property rights).
Together with other standard constraints, they
define agents’ choice set and, thereby, determine
patterns of production and transaction.
The causes of globalization
Perhaps an example will help…
Establishment of the General Agreement on
Tariffs and Trade (GATT) as a set of procedural
rules to govern commercial negotiations.
Replaced by World Trade Organization in 1995.
Since 1949, successive rounds of GATT/WTO
negotiations lead to significant reductions in tariff
levels (from 40% to <2% for industrial goods).
The causes of globalization
Summing up, probably no other as widely
(ab)used term as globalization and probably no
other issue which generates as much controversy.
Globalization is thought to affect among other
things the level of inequality across and within
nations as well as the growth prospects of
countries, both individually and collectively.
Our task is then to amass the evidence and judge
the prospects of globalization accordingly.
Consequences of globalization