Trade theory and Globalisation

Trade theory and Globalisation

1. globalisation: 'national and regional economies, societies and cultures have become integrated through the global network of trade, communication and transportation' (FT)

2. trade theories (comparative v competitive. global v national. free v. gov control)

   • early: comparative advantage: international trade and how productivity differences are important
     • adam smith 1771: free trade advocate
     • david ricardo 1817
     • heckscher-ohlin 1930s: factor endowments matter
   • new: competitive advantage. intra-national trade possible by increasing returns to specialisation, outperforming rivals
     • paul krugman 1979
     • michael porter 1985

3. sources of growth in europe

   • proximate: land labour and capital
   • ultimate: GS, Technology market expansion, investment performance, peace (period bookended by franco-prussian war 1870-1, and WW1 1914=18

4. patterns of global trade from 1945

   • Bretton woods 1945-73
     • rapid growth 7%, trade increasingly open, no recovery to 1913 levels until 1968. stable international trading system
     • countries pegged to gold/US$, ER changed if diseq (unemp/inflation too high)
     • causes: fixed ER, tech improvements helped transport and comms, containerisation.
       • air transport 1965 8% US Ex. 1994 increased to 29%
   • post BW 1974-89
     • world trade growth: 4%
     • 1971: nixon cancelled $ to gold direct convertability. '74 abolished capital flow controls. late 70s: EMS established lifted all restrictions to capital movements between member countries. push for developing countries to open borders to foreign capital for loans.
   • post communist bloc 1990-2007
   • rise of global finance
     • finance, 6% global gdp 1970s, 40% '90s.
     • due to: dereg, disintermediation, defragmentation. growth of knowledge. new tech and communication.

5. shifts in trade

   • since industrialisation, northern econ exported manufactures and imported raw goods.
   • offshoring and production sharing (1980), MNC's.
   • corporate sharing of work became the norm 21st c
     • boeing 737: 45 days production '92, to 8 days '05.

6. rise of china

   • opened up foreign investment (1970), 2011: 'world's factory'.
   • supplied 10% OECD imports 2005
   • trade partnerships with brazil, india, SA

7. end of SU

   • due to changes in international trade (idea of free trade)

8. globalisation effects

   • inequality for those in developing countries: unskilled workers jobs lessened in high income countries. job insecurity. shift to service sector jobs.
   • ineq. for all countries: climate, conflict, policy affects FDI.
   • globalisation affects environment: transport emissions, deforestation, culture of consumption

9. failure of regulation

   • employment contracts: not all countries have infrastructure to enforce employment law
   • production of goods: not all are able to impose standards. places of work may be damaging conditions. unsafe products.

10. global trade. reg or liberate

    • post BW was steady growth. collapse brought deregulation and then trade growth. ended in 2008.
    • state intervention v. a free market?