Summary
Summary Theories of International Management articles week 2
- Course
- Institution
All the articles are summarized for the week very extensively
[Show more]
Seller
Follow
Joepspit
Reviews received
Content preview
WEEK 2THE CAUSES OF GLOBALIZATION (2000)
Geoffrey Garrett
This article explores what we know about the causes of globalization.
Garrett defines globalization as the international integration of markets
in goods, services, and capital.
Four perspectives on globalization:
What explains the rapid pace of international market integration in recent
decades?
1) “Nothing new, just a return to previous normal” Market
integration is not a new thing, at the turn of the 20th century there
was already internationalization going on. I argue, however, that
even the similarities between the two periods, core features of the
contemporary world economy are different than before; large-scale
portfolio lending to banks in developing countries for purposes other
than raw material extraction, two-way manufacturing trade between
the north and south, and complex multinational production regimes
were simply unheard of a century ago.
2) Technological determinism (strong); Technological changes have
propelled (nothing you can do to stop it) international economic
activity, and governments have been largely irrelevant. The case for
a technologically determined view of globalization is far stronger
with respect to international finance than to multinational production
or trade. The Internet creates novel problems, it remains easier for
governments to regulate cross-border movements of physical goods
and the buying and selling of fixed assets. Technological determinists
believe that government policy is essentially irrelevant to
globalization; the increased opportunity costs of closure approach
suggests that governments have liberalized their economies simply
because it is the efficient thing to do.
3) Technological determinism (weak form). This takes a more
moderate view of the effects of technological change. The potential
efficiency gains from international integration increased due to
technological progress. Governments can still insulate/shield their
countries from the external market but there is an increased
opportunity costs of closure which makes it more attractive for them
to liberalize foreign economic policy. With restriction there will be a
high cost of closure (opportunity cost). FDI is also important for
growth; transmission/diffusion of technological innovation and less
tangible benefits like managerial skills. On one hand, there are
clearly important one-time gains from trade liberalization (e.g., in
terms of lowering prices). But modern economic theory is ambiguous
as to whether freer trade is beneficial for economic growth, and the
empirical evidence is also inconclusive.
4) Political ‘ideological change’: accepts the critical role of
government policy, but argues that the phenomenon is essentially a
political construct that does not improve the economic condition of
society as a whole “ideological change” view. Economic
, integration process were spread throughout the developed world by
the European Union (EU) and the Bank of International Settlements,
and extended to developing counties by the IMF and the World Bank.
International finance (FDI) and multinatinational production were
liberalized because of technology; In terms of FDI, the fact that
multinational firms have become critical drivers of technological
innovation, learning, and economic growth affords them a very
“privileged position”, there might be domestic political incentives for
governments to maintain restrictions on cross-border capital
movements that are futile in an economic sense. Such policies send
negative signals to the financial markets, however, and many
governments may be unwilling to take this risk. Trade liberalization,
in contrast, has not been technologically determined. Changing
preferences and coalitional politics may therefore have played a
greater role here than with respect to international finance or
multinational production. One possible explanation is that exporters
have become much more interested in opening their home markets,
mitigating the traditional political bias in favor of protection, because
of fears of retaliation against them abroad and because many
exporters import large portions of the goods they use as inputs in
making finished products.
The WTO, North American Free Trade Agreement (NAFTA), and the EU all
contain mechanisms for generating common standards and policing free
riding. It seems more reasonable to contend that preference convergence
among participating governments was a precondition for the effectiveness
of these institutional solutions. Thus, we should focus on explaining why
this convergence in preferences occurred. Cross-national variation in
international integration is explained by unalterable features of countries,
such as their size and geographic location.
I offer a brief analysis of these perspectives with respect to three
prominent classes of variables: levels of development, the extent of
democracy, and the balance of power between the left and right. The
strongest result is that countries at higher levels of development are more
likely to open their borders to the international economy. Of course, if
growth economists are right that differences in levels of development
must diminish over time (“conditional convergence”), this implies that
cross-national variations in market integration will diminish over time.
The parameters of contemporary globalization
Trade, FDI and International Portfolio Investments (equities and
bonds) show a growing trend, with the trend lines of trade and FDI
(capital) having a similar pattern (1970-1995).
There is a strong correlation between the growth of international
economic flows and the liberalization of foreign economic policies
around the world. Trade volume increased while trade taxed
decreased (1973-1993) (trade taxed more than halved).
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Joepspit. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.74. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53068 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now