CHAPTER 1

Ekonomi antarabangsa dan globalisasi

The International Economy

and Globalization

1
 The International Economy Globalization of Economic Activity

• High degree of economic • Globalization

interdependence • Greater interdependence
• No nation exists in economic • Countries and their citizens
isolation
• All aspects of a nation’s
economy are linked to the
economies of its trading
partners
• Reflects the historical
evolution of the world’s
economic and political order
• Complex and its effects uneven

2
 Globalization of Economic Activity Waves of Globalization

• What forces are driving • First Wave of Globalization: 1870–1914

globalization? • Decreases in tariff barriers & new
• Technological change technologies
• Multilateral trade negotiations • Declining transportation costs
• Continuing liberalization of • Shift from sail to
trade and investment steamships; Railways
• Widespread liberalization of • Driven by European and American
investment transactions businesses and individuals
• Development of international
financial markets

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 Waves of Globalization

• Great Depression of the 1930s • Second Wave of Globalization: 1945–

• Governments – protectionism 1980
• Tariffs on imports • Horrors of the retreat into
• Try to shift demand into nationalism
domestic markets • Falling transportation costs
• Promote sales for • Decrease previously established
domestic companies trade barriers
• Promote jobs for • Trade liberalization –
domestic workers discrimination
• Exports as a share of national • Which countries participated
income • Which products were included
• Falls to 5%

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 Waves of Globalization

• Trade liberalization – discrimination

• Second Wave of Globalization: 1945–1980
• Developed countries, manufactured • New kind of trade
goods • Rich country specialization in
• Largely freed of barriers manufacturing niches
• Gained productivity through
• Greatly increased the agglomeration economies
exchange of manufactured • Firms clustered together
goods • Some clusters produced
• Raise the incomes of the same product
• Others were connected
developed countries by vertical linkages
• Developing countries • Agglomeration economies
• Eliminate barriers only for those • Benefit those in the clusters
• Bad news for those who are left
agricultural products that did out
not compete with agriculture in
developed countries
• Manufactured goods - sizable
barriers
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 Waves of Globalization

• Second Wave of Globalization: 1945– • Second Wave of Globalization: 1945–

1980 1980
• Most developing countries • Increased per capita incomes
• Did not participate in the growth within the developed countries
of global trade in manufacturing • Developing countries as a group
and services were being left behind
• Continuing trade barriers in • World inequality
developed countries
• Unfavorable investment
climates
• Antitrade policies in
developing countries
• Dependence on agricultural and
natural-resource products

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 Waves of Globalization

• Latest Wave of Globalization, began • Latest Wave of Globalization, began in

in 1980 1980
• Some developing countries
• A large number of developing
countries • Competitive advantage in
labor-intensive manufacturing
• China, India, and Brazil
• Bangladesh, Malaysia,
• Broke into the world markets Turkey, Mexico, Hungary,
for manufacturers Indonesia, Sri Lanka,
• Other developing countries Thailand, and the
Philippines
• Increasingly marginalized in
• Tariff cuts
the world economy
• Lower barriers to foreign
• Decreasing incomes
investment
• Increasing poverty • Technological progress in
• Significant international capital transportation and
movements communications
• Protectionist policies in developed
countries
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 Waves of Globalization

• Latest Wave of Globalization, began in 1980

• World
• More globalized - international trade, capital flows
• Less globalization - labor flows
• Foreign outsourcing
• Certain aspects of a product’s manufacture are performed in more than
one country
• Manufacturing - moved to wherever costs were the lowest
• Job losses for blue-collar workers
• Cries for the passage of laws to restrict outsourcing

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 TABLE 1.1 Manufacturing an HP Pavilion, ZD8000 laptop computer

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 Waves of Globalization

• Latest Wave of Globalization, began in 1980

• By the 2000s, foreign outsourcing of white-collar work
• Information Age
• Digitization, Internet, and high-speed data networks around the
world
• Sending upscale jobs offshore
• Accounting, chip design, engineering, basic research, and
financial analysis
• Foreign outsourcing
• Reduce costs of a given service: 30 to 50%

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 TABLE 1.2 Globalization goes white collar

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 Open Economy

• Trade patterns
• Openness
• Rough measure of the importance of international trade in a
nation’s economy
• Nation’s exports and imports as a percentage of its gross domestic
product (GDP)

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 TABLE 1.4 Exports & imports of goods & services, percentage of GDP, 2007

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 Why Is Globalization Important?

• Open economies • Globalization

• Produce a larger joint output
• Competition - essential to both
innovation and efficient production
• International competition
• Domestic producers - strong
incentive to improve the quality
of their products
• Weakens monopolies
• Rapid growth in some countries
• Increased demand for
commodities
• Crude oil, cooper, steel -
higher prices
• Increased supply of substitutes
• Biodiesel, ethanol
• Domestic economy
• Vulnerable to disturbances
initiated overseas
• Increased competition from
abroad
• Schwinn Bicycle Company,
Dell Computer Corporation

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 Common Fallacies of International Trade

• “Trade is a zero-sum activity” • “Tariffs, quotas, and other import

• Both partners gain from trade restrictions will save jobs and promote
• “Imports reduce employment and act as a higher level of employment”
a drag on the economy, while exports • Failure to recognize that a
reduction in imports does not
promote growth and employment”
occur in isolation
• Failure to consider the link between
• Free trade
imports and exports
• Increases competition, lowers
prices
• Makes better products available to
consumers
• Higher consumption

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