Download Forms of Economic Globalization or Global Economic Integration

SOC 279: Globalization
Economic Globalization
Nicole Hala
Spring 2011
I. Main Forms of Economic Globalization or Global Economic Integration
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International Trade: is the exchange of goods and services between countries
Capital Market Liberalization/Foreign Portfolio Investment (FPI): the purchase of securities such as stocks,
bonds, or other financial assets by foreign investors
o Represents the globalization of financial markets, whereby governments progressively remove
restrictions on foreign holdings of securities
o In contrast to FDI, FPI refers to passive (indirect) holdings of securities, none of which entails active
management or control by the foreign investor
o Unlike FDI, it is very easy to sell off the securities and pull out the foreign portfolio investment, making
this form of economic globalization the most volatile
Foreign Direct Investment (FDI): the purchase of land, equipment or buildings or the construction of new
equipment or buildings by foreign companies
Also:
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International Technology Transfer: the sharing of skills, knowledge, technologies, methods of manufacturing,
samples of manufacturing and facilities among governments and other institutions across borders. Stiglitz calls
this the "globalization of knowledge" (Reader, p. 209)
International Labor Mobility: the ability of workers to move across international borders to obtain higher wages or
more favorable working conditions
o This is arguably the least developed form of economic globalization, disadvantaging workers in relation
to "footloose" transnational corporations
II. Terms
BOOM-BUST CYCLE: A pattern of performance over time in an economy or an industry that alternates between extremes of
rapid growth (booms) and extremes of slow growth or decline (busts), as opposed to sustained steady growth. For an
economy, this indicates an extreme form of the business cycle. Examples include the Roaring Twenties that led to the Wall
Street Crash of 1929, the Dot-com bubble of the late 1990s, the recent US housing bubble and mortgage crisis.
COMMODITY: a good or a service that is exchanged for money.
COMPARATIVE ADVANTAGE: the principle of comparative advantage states that a country will specialize in the production of
goods in which it has a lower opportunity cost than other countries. All countries started with a focus on technologically
simple labor-intensive goods – clothing, sports goods, toys, processed foods, etc. Although the speed of industrial
upgrading has varied, "moves into a range of more capital-intensive, technologically sophisticated items have always
followed. This common pattern of initial specialization on labor-intensive or resource-intensive activities followed by a
move up the ladder of comparative advantage, as relative resource endowments change, is precisely the sequence envisaged
in the "stages of comparative advantage.’" (Weiss, "Export Growth and Industrial Policy: Lessons from the East Asian
Miracle Experience," ABD Institute, 2005)
Opportunity cost: the next best alternative that must be given up when a choice is made.
CRONY CAPITALISM: a pejorative term describing an allegedly capitalist economy in which market success is determined by
connections between business and government. It is demonstrated in favoritism in the granting of government contracts,
special tax breaks, exemption from regulation, distribution of permits and so forth. (Stiglitz, Globalization and its
Discontents, 2002)
DEVELOPING VS. DEVELOPED COUNTRIES: terms used, particularly by international and governmental agencies, to
distinguish poor or non-industrialized countries (developing) from rich, industrialized countries (developed). This is one of
a series of paired categories used to make sense of aspects of global inequality (also: core/periphery). During the Cold War,
the terms First World (meaning industrialized capitalist countries) and Third World (meaning non-industrialized, poor
countries) were common.
ECONOMIC BUBBLE: buying
and selling in high volumes in assets with inflated values (i.e., at prices far in excess of intrinsic
values). Sometimes called speculative bubbles, they are typically the result of a "bandwagon effect," where investors,
seeing an upward trend in prices, quickly enter the market; typically, bubbles are followed by even faster sell-offs once
prices decline.
GINI COEFFICIENT: a measure of income inequality within a population, ranging from zero for complete equality, to one if
one person has all the income.
GROSS DOMESTIC PRODUCT (GDP): the total money value of all goods and services produced in a country in one year.
GDP PER CAPITA: the total GDP divided by the number of people in a country. In other words, GDP/capita is a measure of
the value of products made and services provided by each person. It is a measure of the average productive capacity of
people in one country. Since productive capacity has a strong influence on living conditions, including wages, food,
housing and healthcare, GDP/capita provides a rough estimate of living standards and is frequently termed "income."
INDUSTRIALIZATION: the process through which industrial capacity is created, which is critical for at least two reasons.
First, industrialization is considered one of the core processes of modernization. Second, the increased productivity, and
increased range, of goods and services arising from industrialization bring the potential for higher living standards,
although who will benefit from the expansion of industry is a key question to be asked in any particular case.
LIBERALIZATION: removal by a government of restrictions placed upon the import of goods, the movement of capital, etc.
MARKET FUNDAMENTALISM: an exaggerated faith in the ability of free market economic views or policies to solve
economic and social problems; belief in the idea of a self-regulating market.
NEOLIBERALISM: an economic paradigm that seeks to transfer part of the control of the economy from public to the private
sector, under the belief that it will produce a more efficient government and improve the economic health of the nation.
PRIVATIZATION: the process of making state-owned enterprises private.
PRODUCTIVITY: the rate of output per unit of input. The most common international comparison of productivity is that of
labor—how much of a product a person can make in a unit of time. For example, the labor productivity of farmer might be
measured in tons of grain produced per year.
PROTECTIONISM: government policies fostering home industries by protecting them from the competition of foreign goods,
the importation of these being checked or discouraged by the imposition of duties (tariffs) or otherwise.
PURCHASING POWER PARITY (PPP): to compare economic statistics across countries, the data must first be converted into a
common currency. Unlike conventional exchange rates, PPP rates of exchange allow this conversion to take account of
price differences between countries. Recently, purchasing power parity exchange rates have been calculated comparing the
cost of a common basket of commodities in every country. By eliminating differences in national price levels, the method
facilitates comparisons of real values for income, poverty, inequality and expenditure patterns.
SUBSIDY: a form of financial assistance paid to a business or economic sector.
TARIFF: a tax on an imported good.
WASHINGTON CONSENSUS: Refers to economic policies being put forth by the US Administration and Congress as well as
the Washington DC-based International Monetary Fund and World Bank. Some of the elements of this Consensus are trade
liberalization, privatization, deregulation, etc. that are often applied to all countries and all situations. The consensus
included ten broad sets of recommendations:
 Fiscal policy discipline;
 Redirection of public spending from subsidies toward broad-based provision of key pro-growth, pro-poor services
like primary education, primary health care and infrastructure investment;
 Tax reform–broadening the tax base and adopting moderate marginal tax rates;
 Interest rates that are market determined and positive (but moderate) in real terms;
 Competitive exchange rates;
 Trade liberalization–liberalization of imports with any trade protection to be provided by low and relatively
uniform tariffs;
 Liberalization of inward foreign direct investment;
 Privatization of state enterprises;
 Deregulation–abolition of regulations that impede market entry or restrict competition, except for those justified
on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions; and,
 Legal security for property rights.