Background notes on globalization September 2007Basic disagreement about role of marketsBrief overview of policy, last 60 yearsChanging perception of international institutionsThe ITO—GATT—WTOThe World Trade Organization (WTO)Trade and development strategiesEffect of policies, debate over their meritsBasic arguments for free tradeGraphical illustration of trade restrictionsLessons from partial equilibrium modelWhy do countries pursue “harmful” policies?Why does a country want its partners to liberalize?Early US experience with protectionismEvidence linking trade to growthTrade is not sufficient for growth“Washington Consensus”Erosion of “Consensus”Criticisms of international institutionsBattle-lines between “pro and anti-globalizers” are sometimes unclearWhat is the source of difference between pro- and anti-globalizers?Differing emphases on inequalityKanbur’s paper: different views about economic developmentQuestion in Kanbur’s paperAreas of agreementSimplified description of debateKanbur’s explanation for division between “A” and “B”Example of poverty assessment in Ghana based on income-expenditure data.Difference in time horizon.Disagreements about market power: example 1Disagreements about market power: example 2SummaryAissbett’s paperWhy do many people think that globalization has worsened poverty and inequality?Measuring (economic) globalizatonDifference in measuresWays of measuring relation between globalization and poverty & inequalityConsensus findingsDifficulty of determining relation between globalization and poverty & inequalityDoes growth reduce poverty?Measuring poverty (headcount)Overestimating income of the poorExample to show how PPP might overstate income of poorConsistency over timeMeasuring inequaltiySome areas of agreementWorld inequalityGini coefficient measures inequality (see Wikipedia)Picture of calculation of GiniA numerical example of Gini CoefficientAreas of agreement regarding globalization and vulnerability and the provision of govt servicesAissbett’s comments on Kanbur in explaining disagreement about globalizationImportance of inequality1Background notes on globalization September 2007Narrow definition of globalization: Economic integration, through increased flows of goods, services, investment and labor, information, and ideas.Broader definition includes cultural, political, military integration.2Basic disagreement about role of markets•Debate over merits of globalization have “taken the place” of previous debates over merits of capitalism and imperialism.•Pro- and anti- have different views of roles of markets and governments.•Globalization associated with increased role of markets, changing role (“internationalization”) of governments.•Real policy choice is not either/or, but about the rules under which the market operates3Brief overview of policy, last 60 years•The “orthodox view” changes over time•Post WW II orthodox view favored reform of capitalism, heightened government intervention•Creation of IMF, World Bank, attempt to create International Trade Organization•Post Soviet (early 1990s) orthodoxy saw markets as pre-eminent.4Changing perception of international institutions•Role of IMF to avoid financial crises by making short term loans to countries with severe short term balance of payments deficits.•Today IMF critics see its role as enforcer of “neo-liberal” policies.•IMF does not want to subsidize policies that contribute to a country’s financial crisis.5The ITO—GATT—WTO•ITO Charter agreed at UN in 1948•Objective to promote free trade•US critics call it “Economic Munich” (explain “Munich”), claim excessive reliance on government interventions. US refuses to ratify 1950.•GATT adopted 1948 by 28 of 50 countries negotiating ITO. Seen as forum to enable trade negotiations.•Several rounds of GATT.6The World Trade Organization (WTO)•Uruguay round leads to WTO.•Critics object that WTO is a wealthy nations’ club that promotes special interests, e.g. agriculture, pharmaceuticals (via special agreements on ag and intellectual property/patents).•Current “Doha round”, billed as the “development round” appears to have collapsed, largely over disagreements about rich countries’ ag policies, and developing countries’ liberalization requirements.7Trade and development strategies•A simple model divides economic activity in “export” and “import” sectors.•Basic economic fact: When factors of production enter one sector, they leave some other sector. A subsidy on one sector is an implicit tax on other sectors. (Illustrate using production possibility frontier)•Import substitution policies: promote growth by subsidizing/protecting industries that compete with imports. (Latin America)•Export promotion polices: promote growth by subsidizing/protecting export sectors. (Southeast Asia)8Effect of policies, debate over their merits•Import substitution policies decrease trade, export promotion policies increase trade. •Both involve government intervention in market.•Rationale for govt. intervention: (a) correct market failures. Example: (i) infant industry argument (ii) promote foreign direct investment (FDI); (b) change distribution.•Skepticism of govt. intervention: informational and institutional problems.9Basic arguments for free trade•Trade intervention “distorts market signals” leads to inefficient allocation of resources.•Trade intervention protects domestic monopolies, increases their market power.•Trade restrictions limit range of products available to consumers (in addition to price effect).•Trade and investment restrictions impede adoption of new technology.•For all these reasons trade restrictions reduce economic growth, and welfare.10Graphical illustration of trade restrictions•Use supply and demand and “surplus” to show efficiency and distributional effects of trade restriction (import tariff or export tax) for “small country.•Assumptions of model: No “market failures”: there is perfect competition and there are no externalities.•(Market failures makes the study of economics interesting. Market failures are central to this class.)•In order to understand the effect of market failures, it helps to understand how markets work in the absence of those failures.11Lessons from partial equilibrium model•(i) There are gains to trade for both importers and exporters.
View Full Document
Unlocking...