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Globalization: The Ups and Downs of Globalization or World economic integration Globalization results Increase in the importance of international trade Increase in the movement of capital Increase in labor migration Increase in regional integration Benefits of Trade Specialization of production Jose the Wheat Farmer Specialize Teresa the Baker Specialize Specialization leads to efficiencies. The Law of Comparative Advantage Where does Comparative Advantage Come From? Differences in: • Climate and natural resources • Relative abundance of labor and capital • Technology • External economies (External economies are a reduction in a firm’s costs that result from an expansion in the size of an industry) How technology affects Global Trade: Information Technology collaborative work communication Transportation Technology of people of goods and services The Gains of Globalization Who gains? Learning Objective 29.1 Linking the United States to the The Current Account International Economy Trade Flows for the FIGURE 29.1 United States and Japan, 2006 Does it raise all Boats? Are you better off? Learning Objective 29.3 The International Sector and FIGURE 29.4 U.S. Imports and Exports, 1970–2006 An Overview of International Trade • U.S. International Trade in a World Context • The Eight Leading Exporting Countries An Overview of International Trade • U.S. International Trade in a World Context • • The Unintended Consequences of Banning Goods Made with Child Labor •Would eliminating child labor in developing countries be a good thing? Government Policies That Restrict Trade • The Argument over Trade Policies and Globalization • • “OLD-FASHIONED” PROTECTIONISM Protectionism The use of trade barriers to shield domestic companies from foreign competition. Saving jobs Protecting high wages Protecting infant industries Protecting national security Trade Agreements • NAFTA – North America Free Trade – soon AFTA? Amero? • European Union – 28 countries - 12 Euro • CAFTA - Central America Free Trade The Current Exchange Rate System The Euro Countries Adopting the Euro Learning Objective 30.3 International Capital Markets FIGURE 30-6 The Distribution of Foreign Purchases of U.S. Stocks and Bonds by Country, 2006 Summary: Benefits of Trade • • • • Specialization Foreign Investment Competition Higher Standard of Living Costs of Globalization Who loses? What about the sinking ships? Household income Working more and getting less. The Lorenz curve and the Gini Coefficient (http://en.wikipedia.org/wiki/Gini_coefficient) In the US 1967: 0.397 (first year reported) 1968: 0.386 (lowest coefficient reported) 1970: 0.394 1980: 0.403 1990: 0.428 2000: 0.462 2005: 0.469 (most recent year reported; highest coefficient reported)[3] Compared with other countries... Country China India USA 1980 Gini .320 .320 .403 2000 Gini .403 .378 .462 Hot off the presses... “Gap between rich, poor seen growing Income disparity reaches highest since 1920s, paper reports, with recent Wall Street boom partly to blame.” (CNNMoney.com) The figures, based on "adjusted gross income" which incorporates certain deductions such as contributions to individual retirement accounts, revealed that the income level for the tax filer in wealthiest 1 percent of Americans grew 3 percent...between 2000 and 2005, according to the Journal. At the same time, the median American income, however, slipped 2 percent during that same period... ...was due a combination of factors including globalization and technical advances... Another measure of well being: Wages A Race to the bottom? Real Median Wage in 1973: $12.45 Real Median Wage in 2000: $12.90 Up nearly 1/3 of a percent! Is that good? Well... Factors That Affect the Equilibrium Exchange Rates A difference in income growth rates Differences in relative inflation rates Changes in real interest rates In the same time period GDP per person went up 72% Global Trade as a percent of GDP doubled To put it in perspective Between 1948 and 1973 real median wage increased 80% The Environment Deforestation Avoiding Pollution Regulations We are all affected Acceleration of Global Warming Adaptation Homogenizing Properties of Globalization Questions? Comments?