Global Markets and State Power

Presentation on theme: "Global Markets and State Power"— Presentation transcript:

1 Global Markets and State Power
A New Economic Order?

2 Recent Trends in World Economy
World trade has grown faster than world output.

3 Recent Trends in World Economy
Merchandise Exports as percentage of GDP ( ) Trade involves a larger number of countries and sectors Growing share of developing economies Expanded array of tradable goods and services

4 Recent Trends in World Economy
A new geography of trade Changing location of manufacturing production to developing countries OECD economies experience a significant rise in trade in services. Expansion in trade between developing country economies Dominance of intra-industry trade Fragmentation and outsourcing of production

5 Globalization or Regionalization?
Degrees to which regions trade within their own region or with others outside it.

6 Globalization or Regionalization?
Why is regionalization a concern? Trade diversion Zero-sum economic competition Multilateral and regional liberalization proceeds simultaneously Fragmentation of production makes it difficult to sustain a trade bloc Regionalism is not producing a segmentation of world economy Interregional agreements

7 Globalization of Finance
No longer an adjunct to trade: growth exceeds growth of trade. Transborder financial flows Foreign direct investment Portfolio investment Bank investment Unevenness of international financial flows Concentrated among OECD economies Fluctuations in capital flows to developing economies

8 A stylized view of capital mobility in modern history

9 Globalization of Finance
Integration of financial markets Narrowing of interest rate differentials Stocks of foreign assets as a percentage of world GDP Financial deepening: Synchronization of business cycles Institutionalization of global financial markets Global setting of standards: Bank of International Settlements Financial Action Task Force International Accounting Standards Board BIS: International organization of central banks FATF: money laundering and terrorist activity. Intergovernmental

10 Foreign Direct Investment and Globalization of Production
FDI flows have become more diffuse but more intense Concentrated among the major OECD economies Doubling of share accounted by developing economies

11 Foreign Direct Investment and Globalization of Production
Transnational corporation (TNC) Fragmentation of production Cross-border acquisitions and mergers Countries and companies ranked according to value added or GDP:

12 Globalization of Production
Deindustrialization of developed economies and industrialization of developing economies Intensification of transnational economic and corporate competition Global integration of productive processes Integration of distant labor markets

13 Persistence of National Economies –Skeptic View
Current world economy less globalized compared to Distance continues to matter Internationalization not globalization: complements but does not displace the national regulation of economic and financial activity Growing gap between North and South Poor economies remain reliant on exports of primary products Distinct national capitalisms continue to flourish Home base is a vital foundation for success of TNCs

14 Persistence of National Economies –Skeptic View
Globalization does not alter global distribution of power Continued dominance of developed economies Critical nature of US leadership International economic regimes reflect distribution of power Economic interdependence enhances national capabilities

15 Key terms Foreign direct investment: When a corporation headquartered in one nation invests in a corporation located in another nation either by purchasing an existing enterprise or by providing capital to start a new one. Gross Domestic Product: monetary value of a nation’s total output of goods and services in one year OECD countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States. Portfolio investment: Foreign investors purchase the stocks or bonds of national corporations but do not control these corporations. Outsourcing: contracting out a business function to an external provider

16 Key terms Monetary policy: policies that attempt to influence balance of payments, exchange rates, inflation, and employment by increasing or decreasing interest rates and controlling the money supply Fiscal policy: use of government tax and spending policies to achieve macro-economic goals Welfare state: government undertakes economic action to ensure the provision of social goods and services.

17 Debating Economic Globalization –
Globalist thesis Skeptic thesis Economic globalization unfolds on a historically unprecedented scale. National systems no longer function as autonomous systems of wealth creation. No single center, not even the US, can dictate the rules of global trade and commerce. Current world economy less globalized compared to Internationalization not globalization: complements but does not displace the national regulation of economic and financial activity Distinct national capitalisms continue to flourish Critical nature of US leadership International economic regimes reflect distribution of power

18 Debating Economic Globalization
Globalist view Skeptic view Dominance of OECD economies is being diluted. Global corporate capital, rather than states, exercises decisive influence over economic power. Globalization is the dominant tendency in the world economy. Regionalization is a complementing but not a competing tendency. Growing gap between North and South Poor economies remain reliant on exports of primary products Home base is a vital foundation for success of TNCs Regional integration is a state-led response to gain competitive advantage in globalization

19 Economic Globalization and National Economic Policy- Globalist view
Globalization is producing a convergence among national models of capitalism Limits on public expenditure Limits on corporate tax rates Limits on protectionist trade measures. Governments have to negotiate economic policy with public and private actors at the national and global levels. Trade-off between exchange rate policy, domestic monetary policy and capital mobility

20 Economic Integration in Europe
Stages of Economic Integration Free trade area: no visible trade restrictions between members Customs Union: Free trade area plus common external trade regime Internal Commodity Market: Customs Union plus free movement of goods (no invisible trade restrictions) Common Market: Internal Commodity Market plus free movement of services, capital and labor Monetary Union: common market plus a common currency Economic Union: monetary union plus a common economic policy

21 Economic Integration in Europe
Single Market (1992) Free movement of goods, services, capital, labor Mutual recognition of product standards – health and safety standards (CE mark) Public procurement Removing physical frontier controls Harmonize rates of VAT and excise duties EU citizenship, non-discrimination in access to social and welfare benefits Work-in progress. Member state transposition of internal market legislation Trade in services: low level intra-EU trade. Services directive (2006) FDI flows: low-level of intra-EU FDI flows

22 Economic Integration in Europe- Eurozone
Single market –single money: reduction in transaction costs Single currency: permanently fixed exchange rates Fixed exchange rate system: central banks set an exchange rate- revaluation /devaluation Floating exchange rate system: market determines exchange rate Monetary union in the absence of fiscal union Stability and Growth Pact Budget deficit no more than 3% of GDP National debt lower than 60% of GDP

23 Economic Integration in Europe Eurozone
European Central Bank Executive Board: President (Trichet)/ vice-president plus 4 members Governing Council: executive board plus governors of national central banks Membership and enlargement: Britain, Sweden, and Denmark opt out New members have to adopt once they fulfill conditions: Cyprus, Malta, Slovenia, Slovakia have adopted euro

24 Europeanization and Globalization
Diversion of trade and investment Positive integration: setting up collective rules Free movement of labor Social and environmental policies Institutionalization and interest representation