Rethinking Development Economics – Globalization and Development

Globalization – Contours of globalization ( uses of the term)

Meaning & use of the term

Use
1) positive way to describe a process of increasing integration into the
world economy
2) normative way to describe a strategy of development based on
integration with the world economy

How characterized

Expansion of economic activities across boundaries

World economy has experienced increasing integration since 1950

3 economic signs of the process

1) international trade
2) international investment
3) international finance

Refers also to expansion of economic transactions and organisation of

economic activities across nation boundaries

Associated with economic openness, growing economic

interdependence, deepening economic integration

Economic openness includes things like flow of technology,

services, information and ideas. However labour and ppl
movement has been increasingly restricted

Interdependnce asymmetrical – when do we talk about

dependence and when interdependence?

Econ integration – liberalization caused abolishment of nationa

boundaries when thinking about economic transactions

INSERT HERE THE MISSING PAGE OF NOTES

Origins and foundations of globalization

Need to be analyzed in terms of

1) economic factors underlying the process,

erosion of barriers to economic transactions

globalization followed tradeliberalization

then came liberalization of regimes for forein

investment
Rethinking Development Economics – Globalization and Development

Finally liberalization of finanacial stuff.

Was in two dimensions

a)Deregulation fo fomestic financial

sector in industrialized economies

b)Convertibility on capital account in the

balance of payments

These didn’t occur simultaneously in countries –

US started moving these in 73 but France so late
as 90

2) development of techniques - reduce geographical barriers

transportation easier

communication easier as well

3) emerging industrial organisation

New management systems developed by the Japanese

Flexible production systems

4) political circumstances

Politics of hegemony

A dominant country whose currency used as a global currency

5) Intellectual rationale

By neoliberal view globalization is viewed as a way to ensure

efficiency, equity and growth and development in world
economy

State should be minimalist because state interventions

are not efficient. Hence,

Government should be minimalist,

Market is substitute for the government as it

functions better
Rethinking Development Economics – Globalization and Development

Resource allocation should be besed on market

prices which should conform as well as possible
to the global prices

National politics, domestic economic concerns

or national boundaries should not be a constraint
to this

From this follows that developing countries are urged to

privatize (minimalize government intervention), liberalize
(allow trade, capital and financial flows)

If this followed the result would be a global economic system

that had free trade, unrestricted capital flows, open markets and
harmonized institutions.

Ideologies believe there will be prosperity for those countries

that join and economic deprivation for those that don’t

Historical parallel

Globalization is not new

There was an era of laissez faire 1870 – 1914, when movement of

capital, labor and goods was relatively free

The era now and the era then resamble one an other

The integration fo world economy was almost the same rate

(figures in percentages)

Only thing different was international transaction in

foreign exchange (time of fixed exchange rates and gold
standard)

Was time of technological advancement e.g. telegraphs

Mass production was invented – enabled economies of scale

UK provided the currency

Eras also have differences e.g. in

1) trade flows

Differences in composition of trade and channels of

trade – the trade was not intra trade mainly, it was
mainly exchange of primary commodities for
manufactured goods, based very much on absolute
advantage got from resources or climate conditions
Rethinking Development Economics – Globalization and Development

2) investment flows

Differences in geographic destination and sectoral

distribution of trade – more investment to developing
world, primary sector was the most significant
investment sector

3) financial flows

Differences in destination, instruments and

intermediaries – in late 19th century: capital flows were
means to transfer resources to underdeveloped
countries, object was to find long-term investment
projects, banks only intermediaries and governments
issued bonds

4) labour flows

Earlier ear there were no restrictions on people

movement – mass migration from Europe, also
migration from India and China to colonies of the
British, Dutch, French and German

From 1950s onwards the migration has diminished

Uneven development

Some believe that globalization led to rapid industrialization and economic

convergence in the earlier era

In this view the earlier development was wasted first by 30 yrs of

conflict followed by WWs and then another 30 yrs by socialist path
and static world view

The asymmetric gains were seen in the earlier globalization era already

Mostly gains went to the imperial countries that exported capital and
imported commodities
Some others like US and Canada – and in these the preconditions for
industrialisation were already being created. The development
experience was not the same everywhere

Much the industrialization did not happen simultaneously but e.g.

southern and Eastern Europe lagged behind

There was more of divergence than convergence in growth and

development

The developing countries had their things even worse – India China
and Indonesia experienced more deindustrialisation and
Rethinking Development Economics – Globalization and Development

underdevelopment though practised free trade to same extent as UK

and Netherlands and were the largest recipients of foreign investment

Free trade was also relative, UK might have had free trade but other
industrialising countries not – US tariff levels for instance were 33%

The growing inequalities within and between countries might have

been one of the reasons why the era came to an end

Globalization, development and exclusion

Comparing age of globalization (1970’s to 1990’s) with golden age of

capitalism (1940s to 1970s)

Past 25 yrs have been divergence rather than convergence

Inequality in wages, incomes, increase in unemployment in developed

countries, population gaps etc

Growth has slowed

Bargaining power of trade unions has decreased as the immobility of

labour has stayed while mobility of capital exists

Because of the financial markets growing importance managing

inflation has become more important as well in expence of growth and
employment

Now capabilities that are acquired with education, training or experience, not
so much natural resources but even these can be as unequally distributed

State and development in context of globalization

Two choices in the world of globalization – passive integration or strategic

integration

Gives advice on how to have a sensible strategy in globalization – to create

economic space for the pursuit of national interest and development objectives
Note – there no alternative for globalization, it will happen whether wanted or
not

Note - There was also a difference between development of Europe and

developing countries now – there was no globalization then

Note – a Marxist comment : capitalist expansion is the most base reason for
globalization, why didn’t globalization happen earlier?
Rethinking Development Economics – Globalization and Development