Perfect Drivers of Global Business

Divers of Global Business and Advantages Definitions of Globalization

Globalization I: Increased trade in goods and services

Trade has grown faster than GDP
40

mostly for East Asia; it has fallen for Africa

45 30 15 0

Trade (% GDP)

35 30 25 20 15 10 1980 World 1985 1990 High income 1995 Low & middle income

Exports (% GDP)

E-Asia & Pac.

Lat. Am. & Mid East, N South Asia Carib. Af

1960 1970 1980 1990 1998

Sub-S. Africa

International Trade involves mostly exchanges among high income countries.

Developing countries have increased their relevance, particularly East Asia,

but are still a small part.

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Trade in services and merchandise

Most of world trade is in goods (merchandise) 82%. Services trail behind, but are the fastest growing component.
Outsourcing is the latest trend

Share of goods and commercial services in total trade

(Percentages, based on balance of payments data)

Export Shares Commercial Services

Import Shares Commercial Services

Goods

Goods

World North America

81.4 77.2

18.6 22.8

81.4 85.9

18.6 14.1

Latin America
Western Europe Africa Egypt Nigeria Asia India Indonesia Japan

86.0
78.8 81.5 42.5 93.8 85.7 71.4 92.8 87.1

14.0
21.2 18.5 57.8 6.2 14.3 28.6 7.2 12.9

84.1
79.4 76.8 68.2 71.1 81.3 73.4 72.3 74.8

15.9
20.6 23.2 31.8 28.9 18.7 26.6 27.7 25.2

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Globalization II: Foreign Investment - complex strategies of multinationals

Global FDI Flows FDI in millions of dollars FDI per capita (dollars) FDI as percentage of GDP FDI as percentage of exports 2000 1995 1990 1985 1980 1975 1970 1,270,764 331,068 202,297 56,583 54,725 25,850 12,542 210.3 58.8 41.4 12.8 13.6 9.8 5.3 3.12 1.13 0.96 0.48 0.52 0.49 0.48 19.99 6.45 6.05 3.10 2.95 3.33 4.56

Gross foreign direct investment (% of GDP) 8 6 4

50% 100%

Share of FDI flows, by group

75%

2
25%

Low income Middle income High income

0 1976 World 1981 1986 High income 1991 1996

0%

Low & middle income

1980

1985

1990

1995

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Drivers of Modern Globalization

Lower transport and communication costs Development of international institutions

The WTO
Regional Trade Agreements

Political decisions toward de-

regulation and liberalization of

trade and FDI regulations

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Theory and practice of international trade and foreign investment WHAT WE WILL LEARN
Why do countries export certain goods and imports others? What do countries and populations gain and loose from trade? Why do multinationals exist and what are their effects? Why do governments protect their industries and what are the costs and benefits? What are the effects of different protectionist instruments? How do the institutions that regulate global trade work? What have been the economic and social consequences of the rise in trade

and foreign investment with developing nations?

What has globalization brought to developing countries?

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Organization of the course

Theories of international trade

Comparative advantage Gains from trade: static and dynamic Losers and winners

The effects of modern globalization

Trade and the developing countries Multinationals and FDI The effects in industrialized countries

Trade policy
Policy Instruments The case for free-trade and exceptions Policies for Strategic sectors Political economy and the realist view

Institutions of global trade

The W.T.O Regional agreements

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Materials and exams

course website: www.danieltraca.com Download class slides before class from website
Also available at GES

Practice exams and answer keys available at website.

List of required sections available from website

Recommended textbook
International Economics, 7th edby Krugman P. and Obstfeld M., Addison-Wesley
Available in French

Additional readings available at website

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How does the market work?

Does the decentralized international market achieve this pattern of specialization? How? Who benefits and who looses from international trade in the free-market?
Among individuals within a country? Among countries?

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In Autarky...
North Northern worker
They work in both sectors, and trade among them at the autarky relative price

The relative price

P=p

Manuf/pFood

Manuf

In equilibrium, workers must be indifferent between the two sectors. They must get the same wage

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South

Food

Relative prices, relative supply, relative demand

P

PS=

Relative Supply (RSs) South

PN= 1

Relative Supply(RSN) North Relative demand (RDW) It is the same in both countries if preferences are the same
[Manuf/Agro]S [Manuf/Agro]N

Manuf/Agro
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Wages and productivity

Are the wages the same in both sectors? Why?

If not, where are they higher? Why?

Are they the same in both countries? Why?

If not, where are they higher? Why?

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The beginnings of Trade

Manuf is relatively cheaper in the North.

An enterprising Northerner takes 1 Manuf to the South and exchange it for 3 Foods. Back in the North, she could sell 1 Foods for 1 Manuf with a net gain of 1 Food.

There are gains from exchange because prices are different: Trade occurs!
What happens to the relative price of Manuf in North? And in the South?

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Some unrealistic features of the model, so far

What if there are transport costs? What if there are more than two goods? What if factors cannot adjust to other sectors? What if there are more than one factor? Why is there always complete specialization?

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Transport Costs and Non-traded goods

If there are transport costs, the competitiveness edge of a country must more than make up for this transport cost. Otherwise, the good will not be traded, even if it is cheaper to produce in one country. This good is called non-tradable.
In reality, economies spend large proportions of their income in these type of goods.

It can become tradable, if transport costs fall or the productivity advantages widen (globalization).

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Global markets vs. local markets TRADABLES and NON-TRADABLES

Tradable goods can travel across borders and have international markets that set prices. Non-tradable goods have their prices set by supply and demand in local markets.
Often, the same good exists in different countries because it is produced locally.

Nontradables
Cement Housing McDonalds Hamburger

Tradables

Goods

Textiles Machinery Almost all goods

With globalization, many goods and services have become tradable.

Services

Hairdressers Government services Auto-repair Almost all services

Consulting Banking Telecoms Tourism

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Summary

Comparative advantage:
Consumers react to price differences and buy from lower price foreign producers the goods in which their country does not have comparative advantage (gains from exchange). Producers react to price differences and allocate resources to industries where relative productivity is higher, exporting those goods (gains from specialization).

Every country always has an industry in which it has Comparative Advantage and it is competitive in world markets for that industry.

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Some Questions Related to the Drivers of Globalizations

MAJOR DRIVERS OF GLOBALIZATION - List the major drivers of globalization and give 3 examples of each. Globalization Questionnaire - A. What is globalization, and what are some of the traditional international trade theories that support the concept of globalization? b. List the major drivers of globalization and give three exam ... Globalization - How have changes in technology contributed to globalization? Would globalization have been possible without these changes in technology? What is globalization? - What is globalization? Why has globalization become so important during the last 10 years? How will globalization change financial management in the future?

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Globalization - What is globalization? Why has globalization become so important over the last ten years? How will globalization change financial management in the future? What risks does globalization pose for the ... Globalization and total quality management - Can you help me identify what impact globalization may have on an organziations's total quality management position? What are the major drivers of globalization and how do they affect an organization financially? - What are the major drivers of globalization and how do they affect an organization financially? What are some drivers of globalization? - What are some drivers of globalization and how do these drivers impact an organization financially. Are there drivers that are more important and why would they be considered so. Value Chain Analysis - - As per the attached "Components-DriversGlobalization" presentation; how does 'value chain analysis' impact globalization of markets and production? - Also, considering resources like Culturegram ...

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Globalization and Localization - Describe the following: 1. Factors impede globalization 2. Factors support globalization 3. Factors that impeded localization 4. Factors that support localization Thank you. Management & Globalization - Explain in detail how management has changed in the last 80 years with respect to globalization. Globalization of business requires a fundamental change in business practices. Why or Why not? - Globalization of business requires a fundamental change in business practices. Why or Why not? Globalization - What are the two concepts of globalization that meant the most to you?Why? Strategic Development - How does globalization increase the complexity of TQM? Global Business Strategies/Globalization - Two factors seem to underlie the trend toward globalization: declining trade barriers and changes in communication, information, and transportation technologies. Tell me, do you think this global tren ... What is globalization and what are some of the traditional international trade theories that support the concept of globalization? - What is globalization and what are some of the traditional international trade theories that support the concept of globalization? List the major drivers of globalization and three examples of each ... |20

How does globalization affect customer expectattions? - How does globalization affect customer expectattions? Two major drivers of globalization - What are two major drivers of globalization in the modern era? What is globalization - What is globalization? Why has globalization become such an important issue over the last ten years? How will globalization change financial management in the years ahead? What are some companies tha ... What is globalization, and what are some of the traditional international trade theories that support the concept of globalization? - What is globalization, and what are some of the traditional international trade theories that support the concept of globalization? Total Quality Management - How does globalization increase the complexity of total quality management in an organization? Consider the globalization of business and culture, and discuss the ways in which it can affect international business strategy and management. - Consider the globalization of business and culture, and discuss the ways in which it can affect international business strategy and management. Consider the evidence you see for the globalization or l ...
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