The Globalization of Economic Relations.pdf

The Globalization of Economic Relations (Istvan Benczes)

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Held et. Al. “may be thought as widening, deepening, and speeding up of worldwide interconnectedness in all aspects of contemporary contemporary social life.

Is Economic Globalization a New Phenomenon?

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What is economic globalization?

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Economic globalization is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies aroung the world, particularly through the movement of goods, services, and capital across borders. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. (IMF,2000)

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Interconnectedness dimension: 1. globalization of trade of goods and services 2. globalization of financial and capital markets 3. globalization of technology and communication communication

Convergence Versus Divergence

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4. globalization of production - Economic globalization is rather a qualitative transformation transformation than just a quantitative change. - Szentes (2003) “In economic terms globalisation is nothing but a process making the world economy an ‘organic system’   by extending transnational economic processes and economic relations to more and more countries and by deepening the economic

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interdependencies interdependencies among them”

- Reich (1991) “Globalization transforms the national economy into a global one where there will be no national products or technologies, no national corporations, no national industries”

- Boyer and Drache “globalization is redefining the role of the nation state as an effective manager of the national economy” - TNC (Transnational Corporations) the main driving forces of economic globalization of the last 100 years. As economic integration is becoming more intensive, production disintegrates as a result of the outsourcing activity of multinationals (Feenstra, 1998)

Gills and Thompson, globalization has been ongoing ever since Homo Sapiens began migrating from the African continent ultimately to populate the rest of the world. Frank and Gills Archaic globalization globalization (Silk (Silk Road) Adam Smith “An Inquiry into the nature and causes of the wealth of nations), America=Christopher Columbus (1492), Route to India= Vasco de Gama (1498) The breathtaking technological advances and British Industrial revolution became the greatest achievement of human. 18th  century- If globalization exists only in the sense of trade and exchange, rather than production. 19th  century- The annual average compound growth rate of world trade saw a dramatic increase over the past following years. By 1913, trade equaled to 16-17 percent of world income.

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Dollar and Kraay (2002) argue that only nonglobalizer countries failed to reduce absolute and relative poverty in the last few decades. On the other hand, countries that have embraced globalization have benefited from openness considerably. World Bank, globalization can indeed reduce poverty but it definitely does not benefit all nations. Bairoch (1993) argues that while in the developed part of the world, industrial revolution and intensified international relations reinforced growth and development on an unprecedented scale, the rest of the world did not manage to capitalize on these processes. Bairoch claimed that ‘the industrialization of the former led to the de-industrialisation of the latter. Reasons why developing countries unable to catch up to developed one; Structuralism (analysis of cultural anthropology) and capitalism (products are owned by individual people or company instead of the government). Imperialism—product of world capitalist system which has perpetuated unequal change.

International Monetary Systems

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Refers to the rules, customes, instruments, facilities, and organizations for effecting international payments (Salvatore, 2007) Facilitates cross-border transactions, especially trade and investments.

The Gold Standard

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Gold was believed to guarantee a noninflationary, stable economic environment, a means for accelerating international trade (Einaudi,2001). Sa pagsali ng US noong 1879, naging international monetary regime ang gold standard noong 1880. The gold standard functioned as a fixed exchange rate regime, with gold as the only international reserve. David Hume (1752) was the first to elaborate on this mechanism by developing his quantitative theory of money. Accordingly, as a deficit

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European Monetary Integration

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nation’s gold reserves diminished, its general

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price level started to decline as well, which restored its competitiveness on international markets. The role of IMS ‘is to lend order, to encourage the eliminations of balance-of payments problems, and to provide access to international credits in the event of disruptive

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shocks.’

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The outbreak of World War I brought an end to the classical gold standard. Participating nations gave up convertibility and abandoned gold export in order to stop the depletion of their national gold reserves.

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Delegates of 44 countries managed to agree on adopting an adjustable peg system, the goldexchange standard. The US dollar was the only convertible currency of the time, so the United States committed itself to sell and purchase gold without restrictions at US$35 an ounce. John Maynard Keynes proposed ambitious reforms for the post-war era and recommended the creation of an international clearing union, a kind of global bank, along with the introduction of a new unit of account, the ‘bancor’.

The United States activated its post-war reconstruction programme, the Marshall Plan, in 1948, which was administered by the Organization for European Economic Cooperation, the predecessor of the Organization for Economic Cooperation and Development. The miraculous growth performance of Western Europe prompted a closer cooperation on a regional level, resulting finally in the European Coal and Steel Community in 1951. This was followed by the signing of of the Rome Treaty in 1957, which established the European Economic Community (EEC), and was the first major step towards an ‘ever closer union’.

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The Bretton Woods System and its Dissolution

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The International Banks for Reconstruction and Development (IBRD) became responsible for post-war reconstruction The International Monetary Fund (IMF) is responsible for the promotion of international financial cooperation and buttress international trade. By mid-1960s, the dollar became excessively overvalued vis-à-vis major currencies. As a response, foreign countries started to deplete the US gold reserves. The unregulated and free flow of capital, the huge current account deficits and the soft pegging regimes made these economies highly vulnerable, resulting in a financial crisis that first hit Mexico in 1994n and reached East Asia in 1997-8.

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The original six founding members (Germany, France, Italy, Netherlands, Belgium, and Luxembourg) (GFINBL) aimed at the creation of a common market, where goods, services, capital and labour moved freely. The EMS (1979) was a unique system, since neither US dollar, nor gold could pay a role in the stabilization process of exchange rates. Instead, a symmetric adjustable peg arrangement, the European Exchange Rate Mechanism, was created. Jacques Dolores, the President of the European Commission.

International Trade and Trade Policies

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David Ricardo’s comparative advantage—Every

single nation must have a comparative advantage in something irrespective of its initial conditions. Alexander Hamilton and Friedrich List recognized quite early on that voluntary trade can have very different distributional effects and it can also hinder the long-term development prospects of the country producing the lower value added products. Realist and (Neo)Mercantilist school, protection is, in fact, still a natural way of securing national objectives. Reformist and radical theorists, such as Emmanuel or Amin, argued, however, that unequal exchange is a fundamental and systematic distinguishing characteristic of modern world economy. According to Amin (1993), if the world economy is such that it benefits core countries at the expense of the periphery, the latter should adopt protectionism in its extreme form of delinking.

Unilateral Trade Order

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The surge of international trade arrived only

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Multilateralism: From the GATT to the WTO

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In a place of a unique trade organization, nations committed to a world of lowered tariffs decided to coordinate their actions under the auspices of the General Agreement on Tariffs and Trade (GATT). The GATT exerted influence via a series of multilateral trade negotiations After almost 50 years of rules-based trade negotiations, the Uruguay Round gave birth to a ‘real’ international trade institution, the World

Trade Organization. The WTO was launched on 1 January 1995 and has become an official forum for trade negotiations. As opposed to the GATT, it is a formally constituted organization with legal personality. Developing Countries and International Trade

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with Europe’s industrial revolution and the

consequent repeal of the British Corn Laws in 1846 in particular. The so-called Cobden-Chevalier treaty of 1860 allowed the UK and France to specialize in commodities based on their respective comparative advantages and to achieve further advances in industrialization. Voluntary trade also helped to avoid the eruption of an abrupt war between the two countries. Several other bilateral trade agreements followed suit across Europe, each built upon the so-called most-favoured nation (MFN) principle, which stated that any negotiated reciprocal tariff reductions between two parties should be extended to all other trading partners without conditions. Europe witnessed the emergence of a sort of multilateral system of bilateral agreements, giving birth to the ‘first common market’ in  the second half of the nineteenth century. The Smooth-Hawley Act of 1930 increased tariffs to record-high levels in the United States.

Retaliation was the rational response from trading partners and international trade dropped by one-to two-thirds as a consequence. The enactment of the US Reciprocal Trade Agreements Act in 1934 eventually put a stop to any further decline in international trade.

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United Nations Conference on Trade and Development (UNCTAD) aims to promote trade and cooperation between the developing and the developed nations. Uruguay Round meant to be a grand bargain between developed and developing economies. The former were expected open the markets, especially to agricultural and textile products, whereas the latter accepted the new regulation on intellectual property rights and services. While developing countries have opened up their service markets, their export of agricultural products is still blocked by advanced nations. The current trade regime and especially its main propagator, the WTO, is heavily criticized for ‘a striking asymmetry’.