Geoffrey Garrett:
“The Causes of Globalization”
presented by Conrad Haessler
Summary
•
•
•
•
Globalization is the international integration of markets in goods, services
and capital  narrow, economics-based definition
Three determinants: 1) multinationalization of production, 2) trade taxes, 3)
capital flows
Four perspectives on Globalization: 1) Nothing new, 2) Technological
Determinism, 3) Opportunity Cost of Closure, 4) Ideological Change
Asymmetries in Globalization depend on:
 size
 development level
 domestic politics
 democracy (with qualifications)
• Supporting Theory
Bhagwati, Jagdish (2004): “In Defense of Globalization”
• Opposing Theory
Rodrik, Dani (1997): “Has Globalization gone too far?”
1) Is Globalization something essentially new?
Garrett
Bhagwati
•
YES
•
YES
•
“…despite apparent similarities, international
market integration today is qualitatively
different than it was 100 years ago.” (p. 954)
“Trade in services was unheard of 100 years
ago, but it is of considerable and rising
importance these days. The nature of
international capital movements also clearly
differs.” (p. 955)
“The uniqueness of contemporary
international economy is nowhere more
apparent than with respect to
multinationalization of production.” (ibid.)
•
“Many historians have noticed that the years
spanning the two world wars were an
interruption of the upward trends in
expansion of world trade and investment,
and that it is possible to interpret the
postwar liberalization […] as leading to a
resumption of the trends set into motion
prior to World War I. But all this misses the
fact that there are fundamental differences
that give globalization today a special, and
at times sharp, edge.” (p. 11)
•
•
2) Are the effects of FDI generally positive?
Garrett
Bhagwati
•
YES
•
YES
•
“Unlike the other two facets of market
integration [i.e. trade and capital mobility],
there is little dispute in the economics
community that the effects of FDI are
unambiguously positive from the standpoint
of economic growth […] Interestingly, the
case does not need to rely on the notion that
attracting foreign investors is beneficial to
capital-poor countries. […] The evidence is
that FDI is good for growth even in the
wealthiest nations.” (p. 966)
•
“Economists have noted a number of good
effects that multinationals can bring in their
wake. Perhaps the chief good effect is what
economists call spillovers. These refer to the
fact that domestic firms learn productivityenhancing techniques from multinationals
with better technology and management
practices”. (p. 180)
3) Is there an opportunity cost of closure in issues
concerning free trade?
Garrett
Bhagwati
•
YES
•
YES
•
“[…] Freer trade could increase innovation
by creating scale economies in export
sectors that allow for higher research and
development expenditures […] Thus, there
is a good argument for the proposition that
the trend toward trade liberalization around
the world in recent decades is explicable in
terms of the increased opportunity cost of
closure.” (p. 963)
•
“Economists today also appreciate that there
are scale economies in production that can
be exploited when trade expands markets.
For this reason, Tanzania, Uganda and
Kenya, which had protected themselves with
high tariffs against imports in the 1960s,
found that the cost of their protection was
excessively high. […] They decided in the
1970s therefore to have an East African
Common Market…” (p. 62)
4) Has the control of capital flows become futile?
Garrett:
•
YES
•
“Nowhere is globalization’s ballyhooed shrinkage of time and space more apparent than in
international finance. […] Financiers can literally operate wherever and whenever they like, cutting
deals in whatever financial instrument they can dream up. It is the specter of truly footloose liquid
capital that generates images of hapless governments seeking to regulate yesterday’s financial
instruments within their borders.” (p. 956)
“There were significant costs to offshore operations in the 1960s in terms of moving the relevant
information halfway around the globe (e.g. a 3-minute telephone call New York – London cost
more than $ 30) […] Today of course, even individual consumers pay less than 50 cents for the
same international call. This is why the predicament of governments trying to regulate
international capital flows seems even more parlous than was the case 30 years ago.” (p. 957)
•
4) Has the control of capital flows become futile?
AT&T Network History
BOA - Countries with Local Offices
Source: Bank of America
http://www.bankofamerica.com/facts/index.cfm?Menu_
Sel=globalmap
•
1927: AT&T begins trans-Atlantic telephone
service, initially between the United States
and London. The conversations cross the
Atlantic via radio. The initial capacity is one
call at a time at a cost of $75 for the first
three minutes
•
1988: AT&T lays and opens TAT-8, the first
fiber-optic submarine telephone cable
across the Atlantic. It has a capacity
equivalent to 40,000 calls, 10 times that of
the last copper cable. (Today’s cables have
capacities equivalent to over 1 million calls.)
Source: AT&T
http://www.att.com/history/nethistory/milestones.html
4) Has the control of capital flows become futile?
Cable Name
Date(s)
Initial No. of channels
Final No. of channels
One End
Other End
TAT-1
1956>1978
36
48
Scotland
Newfoundland
TAT-2
1959>1982
48
72
France
Newfoundland
TAT-3
1963>1986
138
276
England
New Jersey
TAT-4
1965>1987
138
345
France
New Jersey
TAT-5
1970>1993
845
2112
Rhode Island
Spain
TAT-6
1976>1994
4,000
10,000
Rhode Island
France
TAT-7
1978>1994
4,000
10,500
New Jersey
England
TAT-8*
1988
40,000
-
USA
France
TAT-9
1992
80,000
-
USA
Spain
TAT-10
1992
2 x 565Mb/s
-
USA
Germany
TAT-11
1993
2 x 565Mb/s
-
USA
France
TAT-12/13
1996
2 x 5Gb/s
-
TAT-14
2000
16 x 10Gb/s
-
USA
England
Source: http://www.brainyencyclopedia.com/encyclopedia/t/tr/transatlantic_telephone_cable.html
TAT = Transatlantic Telephone Cable
5) Are countries with higher union density more
protectionist than others?
Garrett:
•
YES
•
“…there is some evidence that traditional indicators of the balance of political power within
countries have affected their openness to the international economy. Countries with left-wing
governments and powerful trade unions tend to be more closed.” (p. 977)
“A country with 50% of its labor force unionized in 1985 is estimated to have had trade taxes that
were almost 2.5 percentage points higher than a country with a union density of 10%.” (p. 974)
•
5) Are countries with higher union density more
protectionist than others?
•
Denmark rebuffing immigrants
In Copenhagen, headlines spoke of “a historic
agreement” between the parties. Among the
provisions were […] a longer waiting period for
permanent residency (seven years instead of
three), restriction of “family reunions” and
foreign spouses unless both parties are at least
24 years old, and a higher threshold for Danish
citizenship, including a nine-year waiting period
and a Danish language and history exam,
about which Politiken commented on (May 8):
“There is a certain irony to the fact that so great
a knowledge of Danish society will be
demanded of naturalized Danes, more than
what the public schools achieve in nine to ten
years of schooling.”
Source: World Press Review Vol. 49 No. 8 August 2002
(http://www.worldpress.org/Europe/642.cfm)
Source: The Economist – June 5, 2003
6) Was the rise of the East Asian “tigers” based on
education rather than trade?
Garrett:
•
YES
•
“…trade had very little to do with the east Asian miracle. High savings rates and high level of
educational attainment mattered far more” (p. 962)
6) Was the rise of the East Asian “tigers” based on
education rather than trade?
Source: Unesco
Institut for Statistics
www.uis.unesco.org
7) Is Globalization something essentially new?
Garrett
Rodrik
•
YES
•
NO
•
“…despite apparent similarities, international
market integration today is qualitatively
different than it was 100 years ago.” (p. 954)
“Trade in services was unheard of 100 years
ago, but it is of considerable and rising
importance these days. The nature of
international capital movements also clearly
differs.” (p. 955)
“The uniqueness of contemporary
international economy is nowhere more
apparent than with respect to
multinationalization of production.” (ibid.)
•
“This is not the first time we have
•
•
experienced a truly global market. By many
measures, the world economy was possibly
even more integrated at the height of the
gold standard in the late 19th century than it
is now. In the United States and Europe,
trade volumes peaked before World War I
and then collapsed during the interwar
years. Trade surged again after 1950, but
none of the regions is significantly more
open by this measure now than it was under
the late gold standard.” (p. 7)
8) Are the effects of FDI generally positive?
Garrett
Rodrik
•
YES
•
NO
•
“Unlike the other two facets of market
integration [i.e. trade and capital mobility],
there is little dispute in the economics
community that the effects of FDI are
unambiguously positive from the standpoint
of economic growth […] Interestingly, the
case does not need to rely on the notion that
attracting foreign investors is beneficial to
capital-poor countries. […] The evidence is
that FDI is good for growth even in the
wealthiest nations.” (p. 966)
•
“This chapter focuses on two channels
through which Globalization affects the labor
markets in the North. […] The second
channel has to do with the greater ease with
which domestic workers can be substituted
by other workers across national borders,
either through trade (outsourcing) or foreign
direct investment (FDI). Trade increases the
degree to which employers can react to
changes in prevailing wages by outsourcing
or investing abroad. This can explain why
life has become more precarious for vast
segments of the working population.” (p. 13)
9) Is there an opportunity cost of closure in issues
concerning free trade?
Garrett
Rodrik
•
YES
•
NO
•
““[…] Freer trade could increase innovation
by creating scale economies in export
sectors that allow for higher research and
development expenditures […] Thus, there
is a good argument for the proposition that
the trend toward trade liberalization around
the world in recent decades is explicable in
terms of the increased opportunity cost of
closure.” (p. 963)
•
“Economists may complain that
protectionism is mere snake oil and argue
that the ailments require altogether different
medicine. But intellectual arguments will not
win hearts and minds unless there are
concrete solutions on offer. Trade protection,
for all its faults, has the benefit of
concreteness.” (p. 69)
10) Has the control of capital flows become futile?
Garrett:
•
YES
•
“Nowhere is globalization’s ballyhooed shrinkage of time and space more apparent than in
international finance. […] Financiers can literally operate wherever and whenever they like, cutting
deals in whatever financial instrument they can dream up. It is the specter of truly footloose liquid
capital that generates images of hapless governments seeking to regulate yesterday’s financial
instruments within their borders.” (p. 956)
“There were significant costs to offshore operations in the 1960s in terms of moving the relevant
information halfway around the globe (e.g. a 3-minute telephone call New York – London cost
more than $ 30) […] Today of course, even individual consumers pay less than 50 cents for the
same international call. This is why the predicament of governments trying to regulate
international capital flows seems even more parlous than was the case 30 years ago.” (p. 957)
•
10) Has the control of capital flows become futile?
11) Are countries with higher union density more
protectionist than others?
Garrett:
•
YES
•
“Finally, there is some evidence that traditional indicators of the balance of political power within
countries have affected their openness to the international economy. Countries with left-wing
governments and powerful trade unions tend to be more closed.” (p. 977)
“A country with 50% of its labor force unionized in 1985 is estimated to have had trade taxes that
were almost 2.5 percentage points higher than a country with a union density of 10%.” (p. 974)
•
11) Are countries with higher union density more
protectionist than others?
Union Density in U.S.
Union Membership, Coverage, Density, and Employment
Among All Wage and Salary Workers, 1973-2003
Year
Sample Size
Employment
Members
Covered
%Mem
2003
180.830
122.357,9
15.776,0
17.448,4
12,9
© 2004 by Barry T. Hirsch and David A. Macpherson. The use of data requires citation.
11) Are countries with higher union density more
protectionist than others?
Union Density in Germany
Table 2. Trade union density, 1991-1998
Year
Total union membership
(millions)
No. of employees (millions)
Union density
(%)
1991
13.749
33.887
40.6
1992
13.005
33.320
39.0
1993
12.208
32.722
37.3
1994
11.685
32.301
36.2
1995
11.242
32.230
34.9
1996
10.878
32.188
33.8
1997
10.532
31.917
33.0
1998
10.278
31.878
32.2
Source: Trade unions, Federal Statistical Office
http://www.eiro.eurofound.eu.int/print/1999/08/feature/de9908113f.html
11) Are countries with higher union density more
protectionist than others?
Table I.5
Leading exporters and importers in world merchandise trade, 2002
(B illio n do llars and percentage)
Rank
1
2
3
4
5
6
7
8
9
10
Expo rters
United States
Germany
Japan
France
China
United Kingdo m
Canada
Italy
Netherlands
B elgium
To tal o f abo ve d
Wo rld d
Value
Share
A nnual
percentage
change
Rank
1
2
3
4
5
6
7
8
9
10
693,9
613,1
416,7
331,8
325,6
279,6
252,4
251,0
244,3
214,0
10,7
9,5
6,5
5,1
5,0
4,3
3,9
3,9
3,8
3,3
-5
7
3
3
22
3
-3
4
6
12
6109,7
6455,0
94,6
100,0
4
Impo rters
United States
Germany
United Kingdo m
Japan
France
China
Italy
Canada
Netherlands
Ho ng Ko ng, China
To tal o f abo ve d
Wo rld d
a Retained imports are defined as imports less re-exports. See the Technical Notes.
b Secretariat estimates.
c Imports are valued f.o.b.
d Includes significant re-exports or imports for re-export.
Note: For annual data 1992-02, see Appendix Tables A4 and A5.
Source: WTO http://www.wto.org/english/res_e/statis_e/its2003_e/its03_bysubject_e.htm
Value
Share
A nnual
percentage
change
1202,4
493,7
345,3
337,2
329,3
295,2
243,0
227,5
219,8
207,2
18,0
7,4
5,2
5,0
4,9
4,4
3,6
3,4
3,3
3,1
2
2
4
-3
0
21
4
0
5
3
6187,8
6693,0
92,5
100,0
4
12) Was the rise of the East Asian “tigers” based
on education rather than trade?
Garrett
•
YES
•
“…trade had very little to do with the east Asian miracle. High savings rates and high level of
educational attainment mattered far more” (p. 962)
12) Was the rise of the East Asian “tigers” based
on education rather than trade?
12) Was the rise of the East Asian “tigers” based
on education rather than trade?
THE END
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