Comparative Regional Economy <Lecture Note 6> 13.11.28
CRE: Globalization and Regional
Integration
* Some parts of this note are borrowed from the references for teaching purpose
only.
Semester: Fall 2013
Time: Thursday 9:00-12:00 am
Class Room: 114
Professor: Yoo Soo Hong
Mobile: 010-4001-8060
E-mail: yshong123@gmail.com
1
Dimensions of Globalization
Political
Technological
Technological:
- Internet
- Satellite TV
- Media
- Jet travel
Social
Cultural
Cultural:
- Universalism
- De-territorialization
- Fusion
Environmental
Economic
Economic:
- Interdependence
- Liberalization
- Capital flows
- Foreign Investment
- Trade
2
KOF Index of Globalization 2013
3
Comparison of Globalization Trends
Source: KOF Index of Globalization 2013
4
Economic Globalization: Definition
 Economic globalization is a trend toward increasing interdependencies
among world markets and the diffusion of
- New ideas
- Technologies
- Products
- Services
- Lifestyles
through international markets.
5
Globalization
 The relationship between globalization and poverty is not well understood.
For many, globalization is held out as the only means by which global poverty
can be reduced. For others, globalization is seen as an important cause of
global poverty.
Globalization is an often-discussed but seldom-defined
phenomenon. At a broad level, globalization is an increase
in the impact on human activities of forces that span
national boundaries.
These activities can be economic, social, cultural, political,
technological, or even biological, as in the case of disease.
Additionally, all of these realms can interact.
The changing natures and qualities of the five economic
dimensions of globalization characterize its process.
These dimensions are TRADE, FINANCE, AID, MIGRATION,
AND IDEAS.
6
Dimensions of Poverty
 Global Poverty
 Poverty is not a one-dimensional but multi-dimensional phenomenon.
 Each of these dimensions has the common characteristic of representing
deprivation of an important kind.
 The variety of poverty concepts in use In development policy communities
reflects the variety of relevant deprivations.
Health deprivation characterizing
poverty can be assessed in terms
of life expectances, infant and child
mortality, and a number of other
health-related measures.
HEALTH
The most common measure of
poverty is known as income poverty,
and it derives from a conception of
human well-being defined in terms
of the consumption of goods and
services.
Working
Conditions
It is incumbent to investigate the
conditions necessary for the
maintenance of working conditions
that are safe and pleasant and for
the creation jobs that contribute to
individual and social well-being.
INCOME
EDUCATION
EMPOWERMENT
This includes limits on individuals’ abilities to
enter into and participate in social realms
such as work and political processes
because of discrimination of various kinds.
Gender disparities are an important kind of
empowerment deprivation.
Lack of education is often an important
cause of deprivations in income and
health. This dimension of poverty can be
assessed in terms of literacy rates,
average years of schooling, or
enrollment rates.
7
Stages of the Modern Era of Globalization
Three stages of modern globalization
1st Stage
Between 1870 and 1914, ending with World War I
During this time, many aspects of globalization were reversed as the world experienced increased
conflict, nationalism, and patterns of economic autarky. To some extent, then, the second and third
stages involved regaining lost levels of international integration.
2nd Stage
Following the end of World War II through the mid-1970s
This stage involved an increase in capital flows from the U.S. as well as a U.S.-founded production
system that relied on exploiting economies of scale in manufacturing and the advance of U.S.–based
multinational enterprises. This second stage also involved some reduction of trade barriers under the
auspices of GATT. Developing countries were not highly involved in this liberalization, however.
3rd Stage
From the mid-1970s to the present
This stage followed the demise of monetary relationships developed at the Bretton Woods Conference
and involved the emergence of the newly industrialized countries of East Asia, especially Japan,
Taiwan(China),and the Republic of Korea. Rapid technological progress, particularly in transportation,
communication, and information technology, began to dramatically lower the costs of moving goods,
capital, people, and ideas across the globe.
8
Modern Globalization and Global Poverty
Trade and Extreme Poverty in Historical Perspective
Sources: Exports as a percentage of GDP from Ocampo and Martin (2003) based on Maddison (2001) and from
data from Bourguignon and Morrisson (2002), and Chen and Ravallion (2004).
World Bank (2004d). Dollar poor
- What is clear from this schematic is that, historically, globalization and global poverty can be either
positively related or negatively related to each other.
- From 1870 through 1929 and the beginning of the Great Depression, globalization (trade) and global
poverty increased together. However, the retreat from globalization during the Great Depression and
WWII was accompanied by a continued increase in global poverty.
9
Global Poverty and The Developing World
 The Developing World
- Global poverty is concentrated in what is commonly referred to as the developing world. The countries
became distinct by the 19th century as their per capita incomes began to lag significantly behind those of
other parts of the world.
Per Capita Income by
World Region
(1990 international dollars)
Source: Maddison 2001, table 1-2.
Note: EE/USSR refers to Eastern Europe and the former USSR
.
 Low- and Middle-Income Countries
- Today the developing world is divided into two sets of countries for analytical and statistical convenience.
• low-income countries are those with a per capita income of less than US$735
• middle-income countries are those with a per capita income more than US$735 but less than US$9,076.
10
The Developing World: GDP Figures
Relative Economic Strength of Developing Countries, Historical and Projected
(percent of world GDP in constant US dollars)
Source: World Bank analysis.
Note: Developing refers to the top 12 largest developing economies: Argentina, Brazil, China, India, Indonesia, Mexico, Republic of
Korea, Russian Federation, South Africa, Taiwan, Thailand, and Turkey; EU “Big 4” refers to France, Germany, Italy, and the United
Kingdom.
- Large part of the developing world are emerging in terms of gross domestic product (GDP) as well.
The developing region, consisting of the 12 largest developing countries, accounted for only one-tenth of
world GDP in 1975. It is projected to account for one-fifth of world GDP in 2015, surpassing both Japan
and the largest four countries of the European Union. Thus it is evident that at least some part of the
developing world are emerging as relatively economically significant
11
Economic Dimensions of Globalization
 The changing natures and qualities of the five economic dimensions of
globalization characterize its process. These dimensions are TRADE, FINANCE,
ASSISTANCE, MIGRATION, AND IDEAS (KNOWLEDGE).
TRADE
FINANCE
ASSISTANCE
MIGRATION
IDEAS
12
Globalization: Trade



The link between trade and poverty alleviation is not automatic. However, trade has been a powerful
force for poverty alleviation in a number of ways. Exports can expand markets, helping to generate
incomes for the poor.
Both imports and exports can promote competition, lowering consumption and production costs in the
face of monopoly (single seller) power, and raising prices for suppliers in the case of monopsony
(single buyer) power. Both imports and exports can support productivity improvements through access
to new machinery and contact with discerning international customers.
Imports are also important for health aspects of human development, because many medical supplies
need to be imported to combat deprivations of health.
 Trade Protectionism: A Barrier to Alleviating Poverty
The possibility of exports helping to alleviate poverty is significantly curtailed by trade protectionism in rich
countries. This occurs in the form of tariffs, subsidies, quotas, standards, and regulations. Even
conservative estimates of the potential gains from reducing protectionism in rich countries are many
times the size of annual foreign aid flows. Rich-country protectionism poses a significant barrier to
poverty alleviation, not to mention the overall participation of the developing world in the global economy.
 Commodity Price Declines
Developing countries relying on the export of primary commodities have suffered from a century-long
decline in primary commodity prices that continues to this day. Although export diversification is one way
to lessen the effects of such commodity price declines, the impact of these secular trends is exacerbated
by rich-country protectionism. Agricultural subsidies and tariff escalation are particularly pernicious in this
regard.
13
Globalization: Trade
 Capacity Building
• For trade to benefit poor people, increases in market access for developing countries must be
combined with trade-related capacity building. These capacity-building efforts are often
prerequisites for developing countries to overcome supply constraints, and this is an area where
trade and aid act as positive complements.
• Capacity building should be beneficiary-driven and partnership-based, strive to develop local
capacities and skills, and place trade issues in a broader development perspective.
 Trade: Impact on Health and Safety of the Poor
• In some cases, trade can have a very direct and negative impact on the health and safety of the
poor. This occurs with imports of arms and toxic waste and also with production processes of
exports that compromise the health of workers.
• In each of these cases, concrete, multilateral steps need to be taken to ensure that trade does
not compromise poverty reduction and human development but supports it.
 Trade Liberalization
• The movement of economies toward more trade-oriented profiles typically involves processes of
trade liberalization, often under the auspices of the WTO, the World Bank, the IMF, or regional trade
agreements. The transition costs associated with these reforms can be significant and may actually
worsen poverty for some classes of households.
• For this reason, as developing countries consider the role that increased trade can play in poverty
alleviation, they need to guard against the real possibility of increasing the poverty of some groups.
Safety nets (social protection), complementary antipoverty programs, and direct compensation might
be necessary to achieve poverty-alleviating transitions.
• Trade reform is vital but should be placed within a comprehensive approach to overcoming poverty.
14
Growth and Trade Balance
-
Trade and GDP growth are closely related. Exports expansion supports economic
growth, and exports are very often the main source for foreign exchange, needed for
funding imports of goods and services, which constitute an important component of
overall supply. However, the relationship between trade and GDP may differ
significantly according to circumstances. In developing countries, imported capital
goods and intermediary inputs can be vital for investment and industrialization, and
running a trade deficit may promote long-term growth.
-
On the other hand, the persistence of trade deficits generates foreign liabilities that
may eventually lead to a “debt trap”, inhibiting investment and growth.
-
Furthermore, excessive or premature exposure to some imports can preclude the
development of domestic production capacities but an export expansion driven by
higher export prices or enhanced competitiveness may support growth and generate
trade surpluses.
-
Trades surpluses or deficits may co-exist with economic expansion or recession
depending on the circumstances.
15
International Trade and World GDP, 1980-2014
(Annual Growth Rate, %)
Source: ECLAC. 2013. p.11.
16
Globalization: Finance
 The different forms of capital flows are best seen as complements, not substitutes. The capital flows with
the greatest potential contribution to poverty alleviation are both FDI and equity investment.
 Equity-related finance brings with it the natural benefits of risk-sharing, and is far less subject to the
sudden stops and reversals of debt flows. In the case of FDI, this is because investors have a tendency
to reinvest a portion of retained earnings.
 FDI capital stock depreciates, and new inflows are needed to sustain the existing capital stock. Finally,
the benefits of FDI go beyond those relating to narrow financial issues: new ideas, technologies, and
improvements in skills and training are all potential and important spillovers.
 Absorptive Capacity Requirements
If there is any convergence in the emerging literature on capital flows in the developing world, it concerns
absorptive capacity, which acts as a set of necessary conditions for potential poverty-alleviating effects.
That is, for capital flows to positively help poor people, a number of things must be true:
• First, human capital must be developed. Without it, the hoped-for positive spillovers from FDI will
not emerge.
• Second, the domestic financial markets must be “deep” enough to support liquidity. Without liquidity,
volatility will be a problem.
• Third, systems of oversight and regulation of domestic financial markets must be developed enough
to prevent excessive volatility and crises.
• Fourth, levels of corruption should be low and strenuously combated.
17
Globalization: Finance
 Long-Term Trend of Financial Development
• The long-term trend of financial development is probably toward a mix of all four capital flows. In the
short term, most developing countries have no choice about their position in the diamond because
they are constrained by the availability and cost of different capital flows. In the medium term, however,
their actions can yield some influence over the availability and cost of capital flows: their choices can
expand.
Figure 6. Composition of Financial Development
• There is a group of low-income countries who find
themselves at approximately point “1” in the diagram,
relying primarily on the commercial bank lending form
of capital flows.
• 50 Another set of low-income countries find
themselves at approximately point “2,” with a mix of
commercial bank lending and FDI, the latter probably
concentrated in petroleum or minerals.
• Many middle-income countries find themselves at
approximately point “3,” with the addition of some bond
finance and equity portfolio investment.
Source: Goldin, Ian and Kenneth A. Reinert,
Globalization for Development. 2006
• As financial development proceeds, there will be a
move to somewhere in the vicinity of point “4” in which
there is a broad mix of all four capital flows.
18
Foreign Direct Investment Trends
-
Global foreign direct investment (FDI) flows have risen steadily over the past 30 years, with
some declines in the early 1980s, 1990s and 2000s. In 2006, global FDI inflows rose for
the third consecutive year to reach $1.306 trillion, close to the record level of $1.411 trillion
reached in 2000. The growth of FDI occurred in all regions and was partly driven by
increasing corporate profits worldwide and resulting higher stock prices that raised the
value of cross-border mergers and acquisitions (M&As).
-
While FDI inflows in developed countries rose by 45 percent, well over the rate of the
previous two years, to reach $857 billion, flows to developing countries and transition
economies of South-East Europe and the Commonwealth of Independent States (CIS)
attained record levels of $379 billion and $69 billion, respectively. The United States
regained its position as the largest single host country, followed by the United Kingdom and
France. Among developing economies, apart from traditional largest recipient as Hong
Kong (China) and Singapore, Turkey ranked fourth after large FDI increase in 2006, while
in the transition economies, inflows doubled to$29 billion in the Russian Federation.
19
FDI Inflows by Group of Economies, 1995-2012
(Billions of Dollars)
Reprinted from: Fujita, M. 2013. p.3.
20
Top 20 Host Economies, 2012
(Billions of Dollars)
Reprinted from: Fujita, M. 2013. p.3.
21
Top 20 Investor Economies, 2012
(Billions of Dollars)
Reprinted from: Fujita, M. 2013. p.4.
22
Globalization: Development Assistance
 External resources alone will not be sufficient to ensure that poverty goals are met. The recipient
country’s level of commitment and the quality of its policies and institutions are the primary
determinants of progress.
 Experience and analysis have taught us that outside aid cannot substitute effectively for these factors.
It can, however, be an effective complement, supporting national efforts to reduce poverty.
 When a country is committed to reform and poverty reduction, external support has substantial
payoffs. External support can take several forms including, but not limited to, aid.
 Many global development challenges—such as stopping the spread of infectious diseases; building an
international trade and financial architecture that is fair to all countries; and halting deforestation,
climate change, and loss of biodiversity—cannot be handled solely by individual countries.
 These challenges require multilateral action: unilateral aid flows and arrangements cannot deal with
some of the most pressing global issues. Aid for multilateral institutions and objectives, be it aid
targeted toward the environment, diseases, agricultural development or trade reform, is an essential
complement to national bilateral aid efforts.
23
Globalization: Development Assistance
 Despite the progress made in the past 50 years, an immense poverty challenge remains. Some 1.1
billion people still live on less than US$1 per day, and the challenge will grow as the population of the
developing world increases by another 2 billion in the next 30 years. To address a challenge of these
dimensions, aid will need to have effects far beyond the value of the money alone.
 This means that aid must support the frameworks for private economic activity and social
improvements, ensuring that its effects go far beyond any individual project, and it must contribute to
greater capacity and greater knowledge.
 Continued learning on the part of both developed countries and other parties in the development
community is essential to these aims. Aid is a complement to the other flows we have identified trade, capital, ideas, and migration-not a substitute.
 Aid has never been more effective in supporting growth and poverty reduction. Much more aid and
higher quality aid is needed. At a minimum, doubling the actual amount of aid-along with untying it to
ensure it reflects real needs rather than disguised efforts to support domestic enterprises in rich
countrie-and coordinating its flows to ensure that predictable flows of highly concessional finance and
other resources are mobilized in support of the many governments that can use it effectively are
priorities for a more inclusive globalization.
24
Globalization: Migration
 Migration is a central and underappreciated feature of economic globalization. It has the potential to
help poor people, but it also can hurt them in a variety of ways. Migrants send tens of billions of
dollars worth of remittances to their home countries, and the remittances can directly contribute to
alleviating poverty.
 Many migrants, including refugees and undocumented workers, remain vulnerable to discrimination
and abuse. Additionally, skill poaching, especially in the area of medical professionals, can
undermine health systems in source countries, even while these systems are trying to combat public
health crises such as AIDS, tuberculosis, and malaria.
 Although migration holds great potential as an aspect of globalization that could significantly assist
poor people, in part, the present system is open to abuse, is inefficient, and may at times even
exacerbate inequalities. History shows that migration can be a powerful force for world development.
 To spread the benefits of globalization, migration reforms, as the Global Commission on International
Migration (2005) identifies, should seek to enhance the benefits and mitigate the negative
dimensions of current flows. Migration in the past has been a powerful driver of poverty reduction.
Migration has enormous potential to interact positively with networks of trade, investment, and
technology transfer between rich countries and the world’s poorest societies to spur growth and
development.
25
Globalization: Ideas (Knowledge)
 To ignore the development and flow of ideas as a component of economic globalization is to miss a
central feature of the globalization process, a feature that has important implications for poverty
alleviation.
 Poverty responds to effective development, and effective development is, in large measure, the
deployment of appropriate ideas in appropriate ways.
 Effective development from the point of view of ideas is largely about tailoring existing, global knowledge
to evolving local circumstances in ways that directly and indirectly benefit poor people.
 Connection of Flows of Ideas and Other Elements of Globalization
• Important connections exist among the global flows of ideas and the other globalization elements:
trade, capital flows especially in the form of foreign investment, aid, and migration.
• The benefits of foreign investment involve both basic and deep learning. These, in turn, require
threshold levels of skills and education. In the case of migration, international movements of labor
and experts facilitate the less formal processes of knowledge transfer.
• The effective deployment of ideas is therefore facilitated by the global movements of goods,
services, capital, and people.
26
Globalization: Ideas (Knowledge)
 Importance of Knowledge Management
• There is a fundamental tension here that remains largely unresolved from a policy perspective. As
we emphasized, knowledge is a global public good that has great potential to help the poor.
However, there has been a growing tendency, supported by WTO agreements, to advance the
privatization of knowledge.
• In some respects, this can help the poor. In other respects, this is cause for alarm. In the realms of
environmental and labor standards, international economists have resisted a “one-size-fits-all”
approach to forming policy. Ensuring that this is also the case with intellectual property, so that it
supports development, requires attention.
 Ideas about Growth and Development
• With regard to ideas concerning growth and development, the pendulum has swung back and forth
between the poles of government-led and market-led policy regimes. This has clarified the features
of government and markets in the processes of growth, development, and poverty alleviation.
• An emerging consensus in the realm of development ideas, reflected in a co-evolution between
market and state, offers effective institutional frameworks and accounts for local conditions.
 Central Role of Learning
• Policy makers and practitioners require opportunities to understand what works and what does not,
based on evidence and on analysis that draws on the widest possible data, experience and skills.
• By reducing the constraints posed by information, education, language, and access, policy makers
at the global, national, and local levels can make a significant contribution to improving the
chances that globalization will offer more opportunities for growth and poverty reduction.
27
International Development Agencies
 The Big Two
- United Nations
- World Bank
- International Monetary Fund
- World Trade Organization
 Bilateral agencies
- Overseas Development Agency; US Agency for International Development
 Regional Banks
- Asian Development Bank (ADB)
- African Development Bank (AfDB)
- Caribbean Development Bank
- Inter-American Development Bank
28
 Charitable/Philanthropic organizations
- Gates Foundation
 Regional agencies/ agreements

MERCOSUR (Mercado Commun del Sur)
SAARC (South Asian Association for Regional Cooperation)
ASEAN (Association of Southeast Asian Nations)
Organization for African Unity (OAU)
NEPAD (New Partnership for Africa’s Development)
NAFTA (North American Free Trade Agreement)
CAFTA (Central American Free Trade Agreement)
International NPOs/NGOs/philanthropic
- Amnesty International; Transparency International
- Red Cross; World Vision; Aga Khan Foundation
29
Impact of Globalization
Economic
Social
Good Effects
- Improvement in
Standard of Living
- Competition Among
Nations (Investment &
Market)
Good Effects
Good Effects
- Increased Awareness of - Environmental
Foreign Culture
Management
Bad Effects
Bad Effects
-Competition Among
- Loss of Local Culture
Nations (Talent)
- Widening Income Gap
between the Rich and the
Poor
Environmental
Bad Effects
- Global Warming
- Deforestation and
Related Problems
30
Globalization and Inequality
Globalization
Interdependence
Inequality
Uneven playing field?
- Concentration of capital and technology
- Strong influence of leading countries on trade in
goods and services
31
Does Globalization Reduce Poverty?

-
No
Global inequality has risen
Number of people in absolute poverty has not fallen
Problematic definition of globalization
- Trade first, or globalize first?
- Quantity vs. quality
 Yes
- International trade is beneficial
 Free trade <-> Free capital flow
- Resistance to globalization is in developed, not developing countries
- Anti-globalism is mainly radical politicking
 Anti-corporation, MNCs, capitalism
32
Regionalism
-
Systematic approach to the protection of regional interests
-
Identification of the priorities in economic, political and even security and
generally strategic spheres
-
Part of national economic policy that aims to use the comparable regional
advantages and to strengthen its resistance by using the regional context
-
Defensive reaction to liberalization trends
-
Conception of regional resistance
33
Main Regional FTAs/EPAs
34
Prospects on Shares of Population, GDP, Goods
Exports and FDI by Framework (2012,%)
Source: ECLAC. 2013. p.14.
35
Motivation and Conditions of Economic Integration
•
All countries can gain from free trade, investment and other economic
cooperation. Linking countries together, making them more dependent
on each other
– creates incentives for political cooperation and reduces the
likelihood of violent conflict
– gives countries stronger leverage when dealing with other nations
•
Economic integration can be difficult because
– while a country as a whole may benefit from a regional free trade
agreement, certain groups within the country may lose
– a loss of national sovereignty to a certain extent
•
Regional economic integration is only beneficial if the amount of trade it
creates exceeds the amount it diverts
– trade creation occurs when low cost producers within the free trade
area replace high cost domestic producers
– trade diversion occurs when higher cost suppliers within the free
trade area replace lower cost external suppliers
•
Economic integration can be difficult because
– while a nation as a whole may benefit from a regional free trade
agreement, certain groups may lose
– it implies a loss of national sovereignty
•
Regional economic integration is only beneficial if the amount of trade it
creates exceeds the amount it diverts
– trade creation occurs when low cost producers within the free trade
area replace high cost domestic producers
– trade diversion occurs when higher cost suppliers within the free
trade area replace lower cost external suppliers
Effects of Integration
 Potential benefits
 Trade creation
 Greater consensus
 Potential drawbacks
 Trade diversion
 Shifts in employment
 Political cooperation
 Creates jobs
 Loss of sovereignty
38
Multiple Objectives of Regionalism
 Political economic gains of regional integration:
• Regional politics and stability
• Strengthen domestic policy reform
• Increasing multilateral bargaining power
• Securing market access
• Forming strategic linkages
39
Regionalism as a Solution of Competitive Clash
-
Regionalization as supportive mechanism of regionalism via economic
integration, e.g. FTA, CU
-
Sub-regionalism, trans-regionalism, inter-regionalism
-
Corresponding with the open regionalism concept
-
Regionalism as a domino-effect, which spreads like fire
-
Increasing interconnections and mutual dependence leads logically to
multilateralism, however it strengthens regionalization trends
-
Theoretical and practical concept of global competition - Nash model of
non-cooperative balance in geopolitics
* Nash balance (= a result of monitoring and subsequent adaptation of
companies to the behaviour of other firms in the same field)
40
Recent Regionalization Trends
-
More emphasis on economic and political regional integration
-
Growing labor mobility within regions
-
Popular mass culture moving within regions
-
Increased intra-regional collaboration among “knowledge communities’
-
More intra-regional high educational academic mobility, networks and
collaborative activities
41
Share of Nominal Gross Domestic Product by Region
Sources: UNCTAD secretariat calculations, based on Handbook of Statistics; United Nations
Department of Economic and Social Affairs (UN/DESA), World Economic Situation and
Prospects 2008; national sources
42
Regional Economic Integration
- Process whereby
countries in a
geographic
region cooperate
to either reduce
or eliminate
barriers to the
free flow of
products, people, or capital
43
Description in the Opposite Direction
44
Levels of Regional Integration
 Political Union
- Coordinate aspects of members’ economic and political systems
 Economic Union
- Remove barriers to trade, labor, and capital; set a common trade policy
against nonmembers; and coordinate members’ economic policies
 Common Market
- Remove all barriers to trade, labor, and capital
among members; and set a common trade policy
against nonmembers
 Customs Union
- Remove all barriers to trade among members, and set a common trade
policy against nonmembers
 Free-Trade Area
- Remove all barriers to trade among members, but each country has
own policies for nonmembers
45
Type and Scope of RTA
Tariff removal
between
members
Common tariffs
for nonmembers
Free movement
of production
factors within
the region
Common
economic policy
adoption
Super-national
entity
FTA (NAFTA)
Custom Union
(Benelux CU)
Common Market
(EEC)
Economic Union
(EC)
Full Economic Integration / Political Union
(EU)
46
Common Principles and Some Observations

The purpose of an RTA is to facilitate trade among the members.

The formation of the RTA must not entail placing barriers towards third
parties higher than those existed before its formation.

The RTA must provide for mutual/reciprocal trade concessions.

Global – WTO and rules for ensuring that RTAs should be “building
blocks”

Regional – consolidation/enlargement of RTAs:
– impact on members vis-à-vis non-members
– sectoral impacts

National – inclusive decision making for growth with more balanced effects
(“Trade needs to be governed to produce benefits to all.” )
47
Formation of an FTA
Country A
Uniform MFN tariff of 6%

-
Country A and B sign an FTA
Tariffs are eliminated on most goods
Each party maintains its tariff structure
A ‘Rules of Origin’ regime is put in place
 Other common features
- Reciprocal concessions (possible
asymmetrical implementation)
- Negative list approach
- Beyond tariff concessions
A
0% duties
B
Country B
Variable MFN tariff 0–30 %
500
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
450
400
350
300
250
200
150
100
50
0
19
4
19 8
5
19 0
5
19 2
5
19 4
5
19 6
5
19 8
6
19 0
6
19 2
6
19 4
6
19 6
6
19 8
7
19 0
7
19 2
7
19 4
7
19 6
7
19 8
8
19 0
8
19 2
8
19 4
8
19 6
8
19 8
9
19 0
9
19 2
9
19 4
9
19 6
9
20 8
0
20 0
0
20 2
0
20 4
0
20 6
0
20 8
10
No. of RTAs
RTA Trends
-
Notified RTAs (goods, services & accessions)
Inactive RTAs
Cumulative RTA notifications
Cumulative active RTAs
As of 1 April 2010, 463 RTAs have been notified to the GATT/WTO of which
272 are currently in force.
- Approximately 100 RTAs in the pipeline (signed, not yet in force/under
negotiation) – Unaccounted number of RTAs in force but not yet notified 49
RTA Trends and Coverage
28
300
26
24
250
22
20
200
No. of RTAs
18
16
14
150
12
10
100
8
6
50
4
2
0
19
5
19 8
6
19 0
6
19 2
6
19 4
6
19 6
6
19 8
7
19 0
7
19 2
7
19 4
7
19 6
7
19 8
8
19 0
8
19 2
8
19 4
8
19 6
8
19 8
9
19 0
9
19 2
9
19 4
9
19 6
9
20 8
0
20 0
0
20 2
0
20 4
0
20 6
0
20 8
10
0
Goods
Services
Accessions
Cumulative
- 187 RTAs cover trade in goods; 73 trade in services; and 12 are accessions
to existing RTAs
- Approximately 70% of RTAs being negotiated contain provisions on trade in
services
50
Typology of RTAs
- FTAs account for the great majority of RTAs notified and in force.
Notified RTAs in Force as of 1 April 2010
10%
8%
82%
Free Trade Agreement
Customs Union
Preferential Trade Agreement
51
Configuration of RTAs
Notified RTAs in Goods by Type of Partner as of 1 April 2010
26%
37%
37%
Developed only
Developed-Developing
Developing only
52
Configuration of RTAs
Notified RTAs in Services by Type of Partner as of 1 April 2010
13%
38%
49%
Developed only
Developed-Developing
Developing only
53
Global and Regional Developments
Participation in Goods RTAs (notified and in force) as of 1 April 2010
1 to 4
5 to 9
10 to 19
20 to 30
No data
54
Global and Regional Developments Participation in
Services RTAs
(Notified and in force) as of 1 April 2010
1 to 2
3 to 4
5 to 9
10 to 15
No data
55
2009
ECOTA
SACU
GCC
MERCOSUR
Macao,
China
BIMSTEC
Iran,
Is. Rep.
APTA
Maldives
Bhutan
India
Lao
SAFTA
PDR
AFTA
Thailand
SPARTECA
Australia
Myanmar
Marshall Is.
MicronesiaNew Zealan
d
Palau
Singapore
Tuvalu
Chile
Papua Ne
Turkey
Philippines
Malaysia
Brunei Daru
ssalam
Cambodia
Viet Na
Indonesia
Bahrain
m
w Guinea
Cook Is. Fiji
Kiribati Nauru
PICTA Niue Samoa Solomon Is.
Vanuatu
Tonga
Qatar
Jordan
MSG
Mexico
EU
© APTIAD, June 2009,
not all PTAs shown
Japan
Rep.of.
Nepal Bangladesh
EurAsEC
Niger
China
Korea,
Sri Lanka
CISFTA
Hong Kong,
China
Canada
USA
Panama
NAFTA
EFTA
Peru
56
Network of Multiple Groupings in Europe
and Central Asia
EAEC
Rus. Fed.
EurAsEc
Kyrgyz Rep.
Belarus
EEA
Kazakhstan Tajikistan
CEZ
Ukraine
CIS
CARICOM
OCTs
Uzbekistan
Georgia
Armenia
European Union
Turkmenistan
Azerbaijan
Iran
Moldova
EFTA
Norway
Iceland
Liechtenstein
SACU
ECO
Pakistan
UNMIK
CEFTA
Switzerland
Serbia
Albania
Croatia
Afghanistan
Turkey
FYROM
Montenegro
Bosnia & Herz.
EuroMed Partners
Morocco
Pal. Auth.
Algeria
Israel
Jordan
Tunisia
Egypt
Lebanon
EU
EFTA
Syria
57
RTAs explosion in Asia-Pacific
Regional Case: RTA
Trends in Asia
Asia-Pacific
16
14
120
PTAs
PTAs per year
Under Negotiation
10
100
Cumulative
80
8
60
Cumulative
12
140
6
40
4
2
20
0
0
Interest of countries in Asia-Pacific to negotiate had one peak in mid 1990s
and then
started to rise exponentially after 2002
Source: ADB
58
Volume of trade covered
RTA’s Effects on Trade
As shares of exports to PTA partners in total country’s 59
exports
Other concerns
Reflection: Some Issues Related to
Asian RTAs
-
Trade in Asia-Pacific has been more market-driven (growth-driven?) than
PTA-driven: sustainability?
-
Forging agreements with partners outside the region kept Asia as a
relatively open bloc: helping global economy?
-
RTAs in Asia not genuine “economic integration”: weak regional institutions
and lack of incentives for convergence?
-
Given changes in global economy, is there a need / possibility for stronger
regional trade governance / integration in Asia?
60
Fair Trade Movement
• A movement which strives for fair treatment for
farmers and other producers in developing countries.
• In a fair trade agreement, producers will negotiate
with the purchasers in order to receive a fair price for
their products.
• Producers who engage in fair trade aim to pay their
workers a fair wage, treat workers fairly, and engage
in environmentally-friendly practices.
61
Fair Trade Certified Products
62
Supplement Material
Globalization, Inequality, and
Development
Melanie Hatfield
Soc 100
63
Triumphs and Tragedies of Globalization
•
International communication has become easy and inexpensive. In 1930, a
3-minute New York to London phone call cost more than $250 in today’s
dollars and only a minority of Americans had telephones in their homes. In
2009, the same call cost as little as 15 cents and telephones, including cell
phones, seem to be everywhere.
•
Between 1982 and 2006, when the world’s population increased by 41%,
the number of international tourists increased by 205%.
•
International trade and investment have increased rapidly. From 1982 to
2006, worldwide investment across national borders increased by 2,114%.
•
Many more international organizations and agreements now span the globe.
In 1981, about 14,000 international organizations existed. By 2006, there
were three-and-a-half times as many. Individual nation-states give up some
of their independence when they join international organizations or sign
international agreements.
64
•
The Internet did not exist in 1982, but in 2006 it comprised 439 million
servers connecting people from around the world through e-mail, file
transfers, websites, and videoconferencing.
65
Many people oppose globalization because…
•
Inequality between rich and poor countries remains and is also increasing.
•
It may be hurting local cultures and the natural environment.
•
Some suggest that globalization is a form of imperialism, which is the
economic domination of one country by another.
•
It contributes to the “homogenization” of the world, the cultural domination of
less powerful by more powerful countries.
66
Sources of Globalization: Technology
•
Technological progress has made it possible to move objects and
information over long distances quickly and inexpensively.
•
The introduction of commercial jets radically shortened the time necessary
for international travel, and the cost of such travel dropped dramatically
after the 1950s.
•
Similarly, various means of communication, such as telephone, fax, and
e-mail, allow us to reach people around the globe inexpensively and
almost instantly.
67
Sources of Globalization: Politics
•
Politics are important in bringing people from far away together in both
micro and macro ways.
•
Case in point: North Korea and South Korea
– Both countries are the same distance away from the US, yet we have
many ties with South Korea and no ties to North Korea.
– The South Korean government has been a close ally of the US since
the Korean War in the early 1950s and has sought greater political,
economic, and cultural integration with the outside world.
– North Korea, in an effort to preserve its authoritarian political system
and socialist economic system, has remained isolated from the rest of
the world.
68
Sources of Globalization: Economics
•
Transnational corporations are the most important agents of globalization in
the world today.
•
They are different from traditional corporations in 5 ways:
- Traditional corporations rely on domestic labor and domestic production.
Transnational corporations depend increasingly on foreign labor and foreign
production.
- Traditional corporations extract natural resources or manufacture industrial
goods. Transnational corporations increasingly emphasize skills and
advances in design, technology, and management.
- Traditional corporations sell to domestic markets. Transnational
corporations depend increasingly on world markets.
- Traditional corporations rely on established marketing and sales outlets.
Transnational corporations depend increasingly on massive advertising
campaigns.
- Traditional corporations work with or under national governments.
Transnational corporations are increasingly autonomous from national
governments.
69
Globalization Causing Homogenization
•
Globalization is homogenizing the world.
•
Many economic and financial institutions around the world now operate in
roughly the same way – much like the US.
•
McDonaldization: “the process by which the principles of the fast-food
restaurant are coming to dominate more sectors of American society as
well as the rest of the world.”
•
Because of McDonalization, the values of efficiency, calculability, and
predictability have spread from the US to the entire planet and from fastfood restaurants to virtually all spheres of life.
70
Levels of Global Inequality
•
The richest 1% of the world’s population earns as much income as the
bottom 57%.
•
The top 10% of US income earners earn as much as the poorest 2 billion
people in the world.
•
Of the world’s 6.5 billion people, around 1 billion live on less than $1 a day
and 2.6 billion live on less than $2 a day.
•
The citizens of 20 rich, highly industrialized countries spend more on
cosmetics or alcohol or ice cream or pet food than it would take to provide
basic education, or water and sanitation, or basic health and nutrition for
everyone in the world.
•
Just 10% of the world trade in narcotics or 5% of world military spending
could supply these necessities to the world’s desperately poor.
71
Modernist Theory: A Functionalist Approach
Modernist theory claims:
• Global inequality results form various dysfunctional characteristics of poor
societies.
•
They lack a Western mentality: values that stress the need for savings,
investment, innovation, education, high achievement, and self-control in
having children.
•
People living in rich countries can best help poor countries by transferring
Western culture and capital to them and eliminating the dysfunctions.
•
Only then will the poor countries be able to cap population growth, stimulate
democracy, and invigorate agricultural and industrial production.
72
Dependency Theory: A Conflict Approach
Dependency theory claims:
• For the past 500 years, the most powerful countries in the world deliberately
impoverished the less powerful countries.
• An adequate theory of global inequality should not focus on the internal
characteristics of poor countries themselves.
• Instead it ought to follow the core principles of conflict theory and focus on
patterns of domination and submission.
• Beginning around 1500, the armed forces of the world’s most powerful
countries subdued and then annexed or colonized most of the rest of the
world.
• Around 1780, the Industrial Revolution began.
• It enabled the Western European countries, Russia, Japan, and the US to
collect enormous wealth, which they used to extend their global reach.
• They forced their colonies to become a source of raw materials, cheap labor,
investment opportunities, and markets for conquering nations.
• Exploitation by direct political control was soon replaced by new means of
achieving the same end: substantial foreign investment, support for
authoritarian governments, and mounting debt.
73
Core, Periphery, and Semi-periphery
•
Immanuel Wallerstein argues that capitalist development resulted in a
world system composed of three tiers:
– core capitalist countries - major sources of capital and technology
– peripheral countries - major sources of raw materials and cheap labor
– Semi-peripheral countries - former colonies that are becoming
prosperous
•
The semi-peripheral countries differ from the peripheral countries in 4 main
ways:
– Type of colonialism
– Geopolitical position
– State policy
– Social structure
74
Do foreign investment and liberalized trade policies
have positive or negative effects today?
•
Modernization theorists want more foreign investment in poor countries
and freer trade.
– They strongly believe that following these policies will promote
economic growth and general well-being.
– They want trade and investment barriers to be dropped so free markets
can bring prosperity to everyone.
•
Dependency theorists dramatically oppose this strategy.
– They think foreign investment drains the wealth out of poor countries.
– Therefore, they want the poor countries to rebel against the rich
countries, throw up barriers to free trade and investment, and find their
own path to well-being.
75
Neoliberal Globalization
•
Neoliberal globalization is a policy that promotes private control of industry
and minimal government interference in the running of the economy.
•
Advocates of neo liberal globalization also support foreign investment and
the removal of taxes, tariffs, and restrictive regulations that discourage the
international buying and selling of goods and services.
•
Four types of actions of globalization reform:
– Foreign aid
– Debt cancellation
– Tariff reduction
– Democratic globalization.
76
Foreign Aid
•
Foreign aid is often accompanied by high administrative and overhead
costs.
•
It is often given on condition that it be used to buy from donor countries
goods that are not necessarily high-priority items for recipient countries.
•
Foreign aid can be beneficial with oversight to ensure that foreign aid is not
wasted and is directed to truly helpful projects.
•
Increasing the amount of foreign aid and redesigning its delivery can help
mitigate some of the excesses of neoliberal globalization.
77
Debt Cancellation
•
Many analysts argue that the world’s rich countries and banks should
write off the debt owed to them by developing countries in recognition of
historical injustices.
•
They reason that the debt burden of the developing countries is so
burdensome that it prevents them from focusing on building economic
infrastructure, improving health an education of their populations, and
developing economic policies that can help them emerge from poverty.
Tariff Reduction
•
The reduction of tariffs by rich countries because these tariffs prevent de
veloping countries from exporting goods that could earn them money for i
nvestment in agriculture, industry, and infrastructure.
78
Democratic Globalization
•
Research shows that democracy lowers inequality and promotes
economic growth.
•
Democracies make it more difficult for elite groups to misuse their power
and enhance their wealth and income at the expense of the less well to do.
•
They increase political stability, so to provide a better investment climate.
•
They tend to enact policies that are more responsive to people’s needs
and benefit a wide range of people from all social classes.
79
References
Crawford Jo-Ann, RTA Section, TPRD Regional Trade Agreements and the
WTO (Google. PPT)
Goldin, Ian and Kenneth A. Reinert, 2006. Globalization for Development:
Trade, Finance, Aid, Migration, and Policy. the World Bank and Palgrave
Macmillan.
IDS In Focus Policy Briefing. 2009. “The Global Financial Crisis, Developing
Countries and Policy Responses”. (Google. PDF)
KOF. 2003. KOF Index of Globalization 2013.
United Nations Conference On Trade and Development. 2008. “Development
and Globalization: facts and figures”. (Google. PDF)
80