Week 7 Economic Globalization
Week 7 Economic Globalization INR3003
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This 4 page Class Notes was uploaded by Beatriz Arteaga on Friday October 9, 2015. The Class Notes belongs to INR3003 at Florida State University taught by Whitney Bendeck in Summer 2015. Since its upload, it has received 76 views. For similar materials see Intro to International Affairs in International Studies at Florida State University.
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Date Created: 10/09/15
Economic Globalization From post WWII era to today global economy has been steadily growing Can credit the expansion of global economy to trade and our interconnectedness I What is Globalization A Howard Wiarda and Manfred Steger Wiarda broad definition of economic globalization quotThe increasing scale extent variety speed and magnitude of international cross border social economic military political and cultural interrelations Innovation tourism etc things that link us together Steger39s definition of economic globalization quotRefers to the intensification and stretching of economic interrelations across the globe B Thomas Friedman The World is Flat 1 Globalization 10 1492 to 1800 Mercantilism and colonialism Europeans explore during this age to increase their own power and wealth Focus of mercantilism is to pursue wealth promote exports and limit imports Through process of colonization they find areas where they can extract resourceslabor Conquest and exploitation ZeroSum scenario Shrinks the world from large to medium 2 Globalization 20 1800 to the WWs quotPax Britannicaquot Great Britain is leading the way in globalization 20 GB was the world s greatest power during this time Established global markets multinational trading multinational corporations World shrinks from medium to small 3 Globalization 30 Present quotPax Americanaquot America leads the way Also referred to as the age of the internet Friedman says that because of transportation world shrunk from small to tiny Globalization chatroom anyone can join II Trade A Comparative Advantage David Riccardo Core idea behind it is EFFICIENCY A country can produce and export more if it focuses on what is able to produce most cheaply Find what can be produced most cheaply at home and export that Should increase the global output of goods Goods should be available and available at the cheapest prices Focuses on free market without free trade goods won39t flow freely BDependency Argue that poorer states end up in dependency of the wealthier states Weaker states end up being taken advantage of Poorer states tend to be resourcebased no industrialization Because of the dependency weaker states will never industrialize because they are stuck in those relationships with stronger states Wiarda points out positives weaker states can depend on stronger states39 aid trade markets security and protection C Complex Interdependence Greater powers need the poor states for their resources Dependency works both ways Mexico needs the US for trade investments and border for excess laborers On the flip side the US needs Mexico oil natural gas cheap labor Economies are intertwined D Risks of Trade Trade can increase wealth but also give a state trade vulnerability some countries NEED trade to survive Countries can become highly dependent on imports to sustain their economy and growth Economic growth DEPENDS on exports goods that the country is selling Become vulnerable to any shifts in demand or prices If a country finds oil comparative advantage shift in economic trade Trade deficit buy more than we sell If country falls into trade deficit more money is going out rather than coming in III Currency A Gold Standards and Money Markets Common currency was needed for trade Could trade in gold itself Gold standard Money markets short term trade in currency allows country to have access to others currency B Fluctuations Demand and Supply Supply high price low and vice versa Demand high price high demand low price low C Economic Impact of Currency Fluctuations US dollar is the international currency for trade Currency can float goes up and down with the economy A higher value of currency causes the value of exports to go up Keep a currency low to have cheap exports and therefore more buyers China is an export economy that s why their currency is EXTREMELY low D Reserve Currencies How countries deal with floating currencies Foreign currency held in reserve to help any offset in the global economy Gold Standards and Bretton Woods I Classical Gold Standard Formed by the British Used as an international standard 1870 firmly established At the time the world was in Globalization 20 Pax Britannica London was the financial capital of the world Bank of England Facilitated international trade II Disruption WWI and the Great Depression Most countries go off the Gold Standard since they were at war Great Depression ultimately put an end to the Classical Gold Standard 1931 Bank of England stopped converting money into gold Began in the US due to the interconnectedness all economies began to fail A Rigidity of the Gold Standard Classical Standard did not allow for fluctuation Economies were ALWAYS fluctuating The releasing of gold began to devalue the currency of countries People began to seek their money to be converted into gold B Gold Reserve Act 1934 FDR was requiring people to turn their gold in to the Federal Reserve Exchange rate went from 20 per oz of gold to 35 As a result the US had a lot of gold C BeggarThyNeighbor Protectionism As the economy begins to down slide they want to sell more of their goods export Goal at this time was sell a lot and buy little or nothing Trading was coming to halt since no one was buying Countries began to devalue their currency to make exports cheaper but then the people living there suffer since their money is worthless Labor became more expensive Ultimately this policy made the Great Depression worse I The US Steps Up Italy and Germany aggressor powers were rising up Mussolini and Hitler US stepped up to be the world leader US wanted to promote capitalism over communism US was looking at a way to maintain peace US was the only country that could be the world leader at the time strongest economy IV A New Economic Order Due to the Gold Reserve Act the US had the most gold in the world 0 DollarGold Standard New currency for trade became the US dollar US pegged the US dollar to gold 35 was worth 1 oz of gold Everybody else pegged TO the dollar US dollar became the new international currency for everything became the reserve money as well 1944 Creators saw it as more stable since it allowed for more fluctuation Less rigid and allowed for readjustment if needed Was considered stable because US agreed to the going rate of 35 per oz V UN Monetary and Financial Conference Bretton Woods 1944 44 allied nations met Took place in New Hampshire Everyone knew the Allies were going to win just a matter of when A Harry Dexter White and John Maynard Keynes White represented the US treasury Keynes represented British treasury White advocated a free market system Keynes wanted a socialist economy with strong state control Compromise was made goal was to reinvigorate international multinational trade B 4 AgreementsInstitutions 1 DollarGold Standard Agreed to at Bretton Woods without controversy Keynes advocated a neutral currency not from any state rejected US dollar became the international currency and remains it 2 International Monetary Fund IMF Created at Bretton Woods An emergency reserve bank for the world Aids countries facing economic crisis to prevent another quotGreat Depressionquot and to stabilize the country Along with the loans comes conditionality changes will be made to the country39s economy if they accept the loans All countries in the IMF contribute to it based on their GDP percentage of it 3 International Bank for Reconstruction and Development IBRD IBRD is the World Bank Main focus was on providing reconstruction loans to Europe to help rebuild World Bank39s focus is development 4 General Agreement on Tariffs and Trade GA39I39I39 Wanted to multilateralize trade Would only work if countries traded freely Most Favored Nation Whatever you agree to with most favored nation applies to ALL nations in the GATT Tariffs had to be brought down for goods to flow World Trade Organization GATT became the WTO in 1944 Now there is regional trading blocs EU AFDA States WANT to be part of the WTO comes with benefits protections etc Can be problematic for nonstate entities