INTERNATIONAL ECONOMICS
LESSON 1-. Introduction to international economic analysis
GLOBALIZATION AND THE ECONOMIC ACTIVITY
Warm-up activity
Is the globalization of economic activity a modern phenomenon?
Dutch the first ship traders and Italians the first bankers (loans to traders)
What is the new thing about the current process of globalization compared with the previous one?
1. Increasing trade
2. The size of impact in life has changed is a characteristic of globalization.
Research tradable and non-tradable services.
Goal: Defining the elements of the current globalization phenomenon compared with previous stages of economic
integration & globalization.
● Why do countries trade?
○ Increase in revenue by finding new markets: new opportunities and bigger opportunities due to new
technologies, not also physical but also socially. Varieties in products. Specialization. Major change in trade
patterns: specialization in stages, related to global value chains (aggregation of all the stages in the
production process, also marketing design, post-selling services...). The latter was the main strategy to
increase revenue. They tried to reduce costs and increase quality and profitability by choosing the good place
to carry out that production stage.
○ What do we trade? Technology, more complex and sophisticated products. Variaties. For new suppliers, new
resources, etc. You need to survive in the market. We now specialise in stages not in final goods.
○ Are all services tradable? Security is difficult but it comes from companies also so it can be tradable
○ Why it is easy to trade services? Turism, marketing, streaming services, audiovisuals, etc.
● Why does capital moves internationally? It is so competitive and interconnected. Avoiding taxes and wages.
○ Rate of return: rate of interest for a returned capital. Investment, short term investments driven by rate of
return.. To increase it you invest abroad. For example in the stock market. SICAV: a group of investors
together a firm and they have a lower wage than me. State investment. Private investors, firms that becomes
multinational. In Europe we had negative rate of return, by no spending money we were losing it.
○ Trade: payment tools. New channels
○ Produce & sell: FDI not looking for profit but for development and increasing production. Long term
investments, driven by firm strategies and long term purposes.
○ One thing that has changed in the new process of globalization is the channels (cheaper, faster). Payments
have also changed, they are not only done by firms but also by people. The other thing that changed is the
value added chains, but there is always a link between the different places of the production stages. FDI
patterns are much more complex now.
● Why has the value (volume) of international trade increased along the last decades?
○ Value is what you pay. The world wide trade value has increased because things are more complex thus more
expensive, also due to the new markets that are reached now. Also increase in middle ones
The change in the consumption patterns: Reasons that imply the increase in trade.
- Technological obsolescence both by the rapid development of technology and by purpose.
- Disposable consumption. We don't want anything that lasts many years. Rapid consumption.
Short circles of consumption.
, - Variety needed. Diversity.
● Why has the value (volume) of international flows of capital increased along the last decades?
○ The underlined things above
● What are the links between trade and finance flows?
○ Payment
○ Multinationals
○ FDI
The last two decades have been characterized by unprecedented trade integration. International trade in goods and services
has grown dramatically from about US$5 trillion in 1994 to about US$24 trillion in 2014. The trade integration process has
brought many benefits to the world and has created enormous opportunities for economic development of many countries.
However, the benefits and opportunities of trade integration have not always been inclusive and have not always translated
into sustainable economic, social and environmental well-being.
For the ultimate objective of inclusive and sustainable development, trade integration should not only foster economic growth
but should also address socioeconomic and developmental concerns such as poverty reduction, job creation, food security,
gender equality and environmental sustainability.
The close linkage between trade and sustainable development and poverty alleviation will be a defining feature in the
post-2015 development paradigm if trade is to have an impact on the sustainable development goals.
Sustainable inclusive role: environmental, social and economic. To ensure other generations can enjoy at least the same.
Intertemporal is sustainable. Intersocial inclusive. We have two axis: sustainability and inclusive.
Per region we have achieved different levels of success.
International Economics and Globalization
● Is it the XXI century globalization only about economy?
● Is it deeper than other globalization episodes?
How can we define the globalization started at the end of XX century?
Globalization is a complex phenomenon, and thus, most of the definitions stress out one of the dimensions of globalization
or remain to abstract and vague to provide the required specific information that a definition should incorporate.
“globalization [is] a process which generates flows and connections, not simply across nation-states and national territorial
boundaries, but between global regions, continents and civilizations. This invites a definition of globalization as: ‘an historical
process which engenders a significant shift in the spatial reach of networks and systems of social relations to
transcontinental or interregional patterns of human organization, activity and the exercise of power” A.G. McGrew
“The world-wide interconnectedness between nation-states becomes supplemented by globalisation as a process in which
basic social arrangements (like power, culture, markets, politics, rights, values, norms, ideology, identity, citizenship,
solidarity) become disembedded from their spatial context (mainly the nation-state) due to the acceleration, massification,
flexibilisation, diffusion and expansion of transnational flows of people, products, finance, images and information.” H.J.J.G.
Beerkens
Basic elements of the globalization process
● Intensification of international links and interconnections
● Multidimensional: It is not only an economic phenomenon
● Non-linear: It shows cycles, with intensification and deceleration of the globalization
● Unequal: The implementation and impact on people and countries is unequal
Key features from an economic perspective.
● Intensification of goods and services trade
, ● Internationalization of the production process
● Development of international capital (financial) markets and increase of capital (financial) flows
● Increase in labor and human capital mobility
THE INTERNATIONAL DIMENSION OF ECONOMIC ACTIVITY
INTERNATIONAL TRADE
- Why do we trade? (macroeconomic perspective)
- How much do we trade?
- Constraints and enablers along the last decades (discuss which one is which)
● Implementation of capitalisms as the dominant economic model, with the diminishing of communism, and its
international trade openness policy.
● ICT Development.
● Transport development.
● Appearance of protectionism, regionalism (groups of countries) and movements in favor of consumption of local
products.
● Existence of geopolitical tension areas.
- Distribution of international trade: Change in the economic focus to Asia
- Evolution of the share of trade (%GDP): Increase in the relevance of trade in economic activity.
- Effects of the Great Recession on Trade: Trade decreased, but it has already recovered to pre-crisis path.
, - Internationalization of value chains: Global Value Chains
Trade has evolved from reflecting the exchange among nations of goods & services produced domestically, to reflect the
internationalization process of the value chain (production process). Along the last decades, trade has developed around
the geographical fragmentation of the production processes through the value chains and production networks in which
countries participated.
What is a value chain? The value chain (Porter, 1985) refers to the different stages in the production process of a
good&service along which it increases its value added.
Internationalization of the value chain: Strategy by which the production stages of a product&service take place in different
countries. This increase the trade of intermediate goods&services, referred as intraindustrial-trade.
Some features regarding the internationalization of value chains
Internationalization of value chains: Global Value Chains
Trade has evolved from reflecting the exchange among nations of goods & services produced domestically, to reflect the
internationalization process of the value chain (production process). Along the last decades, trade has developed around
the geographical fragmentation of the production processes through the value chains and production networks in which
countries participated.
What is a value chain? According to Porter 1985, it refers to the different stages in the production process of a good and
service along which it increases its value added.
Internationalization of the value chain: strategy by which the production stages of a product or service take place in different
countries. This increase the trade of intermediate goods and services, referred as intra-industrial trade
In 2011, almost half (49%) of the international trade of goods&services took place through worldwide value chains,
compared with 36% in 1995.
Vertical specialization of countries: There is a tendency of countries to specialize in particular stages of the production
process (vertical specialization). This has foster the trade of intermediate goods.
The distribution of gains from the contribution to the production process differs according to the type of activity. A firm’s value
chain activities can be broadly grouped into three categories: the upstream (design, R&D), the downstream (marketing,
distribution, after-sales services, brand management) and the middle (manufacturing, assembly). The literature describes
the shape of the distribution of gains along those activities as the “smiling curve”
