Globalization Dynamics

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# Globalization Dynamics
### Thierry Warin, PhD
### quantum simulations<a style="color:#6f97d0">*</a>

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# Outline

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### outline

1. Globalization

2. Measuring globalization

3. Theories

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# Globalization

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# Globalization Definition

The globalization is:

- Economic phenomenon
  + Greater economic interdependence between countries
  
- Demographic phenomenon
  + Movements of people across countries
  
- Cultural phenomenon
  + Diffusion of values and tastes

> Globalization: “ongoing process of greater interdependence among countries and their citizens” (Fischer, 2003)

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# What is Different Today?

> Bordo, M.D., B. Eichengreen et D.A. Irwin (1999). "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?", Working Paper 7195, Cambridge, MA, National Bureau of Economic Research Cambridge, Mass., USA, [[Click here]](https://www.nber.org/system/files/working_papers/w7195/w7195.pdf)

* Commercial integration before WWI more limited:

* Trade in good (agriculture, manufacturing, and mining) significantly higher
  
  * Trade in services now part of trade between nations
  
  * Intra-firm trade (multinationals) now the norm
  
* Drivers:

* Developments in transportation
  
  * Reduction of barriers of information exchange (Telecommunications)
  
  * Reduction of trade barriers
  
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# What is Different Today?

* Financial integration before WWI more limited:

* Net flow of capital higher at the time when look at in relation to GDP
  
  * Narrower in terms of sectors than today
  
  * Foreign borrowing limited to railways and governments
  
* Why is it greater today:

* Information flows: faster and more abundant
  
  * Contracting problems: geographic ignorance and problems of control
  
  * Macroeconomic risks: new system in place
  
  * Accounting standards: standardization of practices
  
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# New Developments (but Also New Issues) in Governance

* Bilateral and Multilateral Trade Agreements

* Institutional innovations:

* World Trade Organization

* International Monetary Fund

* World Bank

* United Nations
  
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# Measuring Globalization

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# Measuring Globalization

A.T. Kearney/Foreign Policy Globalization Index:

* Quantifies the level of personal contact across borders

* International travel
  
  * International phone calls
  
  * Cross-border remittances and other transfers 
  
  * Charts the World Wide Web
  
    * Number of users, Internet hosts and secured servers 
    
* Economic Integration

* Movement of goods and services
  
  * Permeability of borders through convergence of domestic and international prices 
  
* Financial Integration and movement of money

http://foreignpolicy.com/2009/11/20/measuring-globalization/

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# Measuring Globalization  
  
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KOF Index of Globalization. The KOF Index of Globalization measures the three main dimensions of globalization: Economic, social and political. In addition to three indices measuring these dimensions, we calculate an overall index of globalization and sub-indices referring to actual economic flows economic restrictions data on information flows data on personal contact and data on cultural proximity. Data are available on a yearly basis for 207 countries over the period 1970 - 2011.

Source: http://globalization.kof.ethz.ch

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# KOF index

<div style="border: 1px solid #ddd; padding: 0px; overflow-y: scroll; height:500px; overflow-x: scroll; width:1000px; "><table class=" lightable-material lightable-striped lightable-hover" style='font-family: "Source Sans Pro", helvetica, sans-serif; margin-left: auto; margin-right: auto;'>
 <thead>
  <tr>
   <th style="text-align:left;position: sticky; top:0; background-color: #FFFFFF;"> Country </th>
   <th style="text-align:right;position: sticky; top:0; background-color: #FFFFFF;"> KOF Index of Globalization </th>
   <th style="text-align:left;position: sticky; top:0; background-color: #FFFFFF;"> Country </th>
   <th style="text-align:right;position: sticky; top:0; background-color: #FFFFFF;"> Economic </th>
   <th style="text-align:left;position: sticky; top:0; background-color: #FFFFFF;"> Country </th>
   <th style="text-align:right;position: sticky; top:0; background-color: #FFFFFF;"> Social </th>
   <th style="text-align:left;position: sticky; top:0; background-color: #FFFFFF;"> Country </th>
   <th style="text-align:right;position: sticky; top:0; background-color: #FFFFFF;"> Political </th>
  </tr>
 </thead>
<tbody>
  <tr>
   <td style="text-align:left;"> Switzerland </td>
   <td style="text-align:right;"> 91.27718 </td>
   <td style="text-align:left;"> Singapore </td>
   <td style="text-align:right;"> 93.99853 </td>
   <td style="text-align:left;"> Luxembourg </td>
   <td style="text-align:right;"> 92.05490 </td>
   <td style="text-align:left;"> Italy </td>
   <td style="text-align:right;"> 98.26115 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Netherlands </td>
   <td style="text-align:right;"> 91.18798 </td>
   <td style="text-align:left;"> Netherlands </td>
   <td style="text-align:right;"> 89.42610 </td>
   <td style="text-align:left;"> Monaco </td>
   <td style="text-align:right;"> 91.53875 </td>
   <td style="text-align:left;"> France </td>
   <td style="text-align:right;"> 98.17380 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Belgium </td>
   <td style="text-align:right;"> 90.69464 </td>
   <td style="text-align:left;"> Belgium </td>
   <td style="text-align:right;"> 88.54311 </td>
   <td style="text-align:left;"> Norway </td>
   <td style="text-align:right;"> 91.27892 </td>
   <td style="text-align:left;"> Germany </td>
   <td style="text-align:right;"> 97.95813 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Sweden </td>
   <td style="text-align:right;"> 90.14579 </td>
   <td style="text-align:left;"> Luxembourg </td>
   <td style="text-align:right;"> 88.29737 </td>
   <td style="text-align:left;"> Switzerland </td>
   <td style="text-align:right;"> 90.67540 </td>
   <td style="text-align:left;"> United Kingdom </td>
   <td style="text-align:right;"> 97.90473 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> United Kingdom </td>
   <td style="text-align:right;"> 89.97492 </td>
   <td style="text-align:left;"> Hong Kong, China </td>
   <td style="text-align:right;"> 88.20782 </td>
   <td style="text-align:left;"> United Kingdom </td>
   <td style="text-align:right;"> 90.54873 </td>
   <td style="text-align:left;"> Spain </td>
   <td style="text-align:right;"> 97.45837 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Denmark </td>
   <td style="text-align:right;"> 89.27715 </td>
   <td style="text-align:left;"> Ireland </td>
   <td style="text-align:right;"> 87.96822 </td>
   <td style="text-align:left;"> Canada </td>
   <td style="text-align:right;"> 90.10331 </td>
   <td style="text-align:left;"> Netherlands </td>
   <td style="text-align:right;"> 97.33395 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Austria </td>
   <td style="text-align:right;"> 89.08643 </td>
   <td style="text-align:left;"> Switzerland </td>
   <td style="text-align:right;"> 86.79111 </td>
   <td style="text-align:left;"> Sweden </td>
   <td style="text-align:right;"> 89.82513 </td>
   <td style="text-align:left;"> Sweden </td>
   <td style="text-align:right;"> 97.26138 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Germany </td>
   <td style="text-align:right;"> 88.69254 </td>
   <td style="text-align:left;"> Malta </td>
   <td style="text-align:right;"> 86.49664 </td>
   <td style="text-align:left;"> Denmark </td>
   <td style="text-align:right;"> 89.60153 </td>
   <td style="text-align:left;"> Switzerland </td>
   <td style="text-align:right;"> 96.36507 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Finland </td>
   <td style="text-align:right;"> 87.65824 </td>
   <td style="text-align:left;"> Estonia </td>
   <td style="text-align:right;"> 86.26726 </td>
   <td style="text-align:left;"> Singapore </td>
   <td style="text-align:right;"> 89.08174 </td>
   <td style="text-align:left;"> Belgium </td>
   <td style="text-align:right;"> 96.27157 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> France </td>
   <td style="text-align:right;"> 87.39885 </td>
   <td style="text-align:left;"> United Arab Emirates </td>
   <td style="text-align:right;"> 85.94924 </td>
   <td style="text-align:left;"> Ireland </td>
   <td style="text-align:right;"> 88.76666 </td>
   <td style="text-align:left;"> Austria </td>
   <td style="text-align:right;"> 95.95714 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Norway </td>
   <td style="text-align:right;"> 86.34785 </td>
   <td style="text-align:left;"> Denmark </td>
   <td style="text-align:right;"> 84.45758 </td>
   <td style="text-align:left;"> Austria </td>
   <td style="text-align:right;"> 88.44004 </td>
   <td style="text-align:left;"> Portugal </td>
   <td style="text-align:right;"> 93.84288 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Spain </td>
   <td style="text-align:right;"> 85.83868 </td>
   <td style="text-align:left;"> Cyprus </td>
   <td style="text-align:right;"> 84.08371 </td>
   <td style="text-align:left;"> Andorra </td>
   <td style="text-align:right;"> 88.40021 </td>
   <td style="text-align:left;"> Finland </td>
   <td style="text-align:right;"> 93.82275 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Czech Republic </td>
   <td style="text-align:right;"> 85.68015 </td>
   <td style="text-align:left;"> Czech Republic </td>
   <td style="text-align:right;"> 84.03697 </td>
   <td style="text-align:left;"> Liechtenstein </td>
   <td style="text-align:right;"> 88.03128 </td>
   <td style="text-align:left;"> Denmark </td>
   <td style="text-align:right;"> 93.77239 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Hungary </td>
   <td style="text-align:right;"> 85.05479 </td>
   <td style="text-align:left;"> Sweden </td>
   <td style="text-align:right;"> 83.35088 </td>
   <td style="text-align:left;"> Australia </td>
   <td style="text-align:right;"> 87.76176 </td>
   <td style="text-align:left;"> United States </td>
   <td style="text-align:right;"> 93.62186 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Portugal </td>
   <td style="text-align:right;"> 84.93053 </td>
   <td style="text-align:left;"> Slovak Republic </td>
   <td style="text-align:right;"> 83.06966 </td>
   <td style="text-align:left;"> Germany </td>
   <td style="text-align:right;"> 87.63477 </td>
   <td style="text-align:left;"> Russian Federation </td>
   <td style="text-align:right;"> 93.05143 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Canada </td>
   <td style="text-align:right;"> 84.74136 </td>
   <td style="text-align:left;"> Finland </td>
   <td style="text-align:right;"> 82.96989 </td>
   <td style="text-align:left;"> Belgium </td>
   <td style="text-align:right;"> 87.13805 </td>
   <td style="text-align:left;"> India </td>
   <td style="text-align:right;"> 92.96317 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Ireland </td>
   <td style="text-align:right;"> 84.55849 </td>
   <td style="text-align:left;"> Austria </td>
   <td style="text-align:right;"> 82.86221 </td>
   <td style="text-align:left;"> San Marino </td>
   <td style="text-align:right;"> 86.85250 </td>
   <td style="text-align:left;"> Turkey </td>
   <td style="text-align:right;"> 92.46772 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Estonia </td>
   <td style="text-align:right;"> 83.88507 </td>
   <td style="text-align:left;"> Hungary </td>
   <td style="text-align:right;"> 82.68645 </td>
   <td style="text-align:left;"> New Zealand </td>
   <td style="text-align:right;"> 86.85016 </td>
   <td style="text-align:left;"> Canada </td>
   <td style="text-align:right;"> 92.41256 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Singapore </td>
   <td style="text-align:right;"> 83.83812 </td>
   <td style="text-align:left;"> Bahrain </td>
   <td style="text-align:right;"> 82.54320 </td>
   <td style="text-align:left;"> Netherlands </td>
   <td style="text-align:right;"> 86.80392 </td>
   <td style="text-align:left;"> Greece </td>
   <td style="text-align:right;"> 91.95407 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Slovak Republic </td>
   <td style="text-align:right;"> 83.69976 </td>
   <td style="text-align:left;"> Mauritius </td>
   <td style="text-align:right;"> 82.15687 </td>
   <td style="text-align:left;"> Israel </td>
   <td style="text-align:right;"> 86.62687 </td>
   <td style="text-align:left;"> Hungary </td>
   <td style="text-align:right;"> 91.85477 </td>
  </tr>
</tbody>
</table></div>

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# Social Progress Index

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# Theories

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# Heckscher-Ohlin

**The Heckscher-Ohlin** model is based on the assumptions of the neoclassical tradition.

It is a `\(2 \times 2 \times 2\)` model, i.e. "two countries, two products, and two factors of production".

Similar assumptions to the neoclassical model are :

- no cost of factor mobility within countries or cost of adjusting economies;
- no international mobility of factors of production;
- full use of factors of production.

Heckscher-Ohlin's theorem is as follows:

> A country will export the good that requires a relatively more intensive use of the relatively abundant production factor, and will import the good that requires a relatively more intensive use of the relatively scarce production factor.

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# Samuelson

**Equalization of factor prices: Samuelson's Theorem**

Let the country `\(I\)` be the country `\(I\)` where the price of capital `\((r)\)` is relatively lower than the price of labor `\((w)\)`, and vice versa in the country `\(II\)`. This can be explained by the capital-rich initial endowment of country `\(I\)`.

> Both countries produce textiles and financial services. Textiles require more labor, and conversely for financial services, which require more capital. The `\(I\)` country will specialize a little more in the production of financial services and conversely for the `\(II\)` country, which will produce textiles. The finished products will be sold in each country at prices `\(P_{textile}\)`, `\(P_{finance}\)`.

`\begin{equation}
\frac{W_{II}}{r_{II}} 
  {<} 
\frac{W_{I}}{r_{I}}
\end{equation}`

With the opening of trade, relative prices in `\(I\)` and `\(II\)` countries are confronted with relative international prices:

`\begin{equation}
\frac{P_{finance}^I}{P_{textile}^I} 
  {<} 
\frac{P_{finance}^{int}}{P_{textile}^{int}}
  {<} 
\frac{P_{finance}^{II}}{P_{textile}^{II}}
\end{equation}`

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# Samuelson

The consequence of opening up to international trade will be a stronger specialization of country I in the production of the good for which it has a relatively more abundant resource.

In this case, country I will produce more financial services and draw a little more from its capital factor. The consequence is an increase in the price of the capital factor and the opposite in country II, hence:

`\begin{equation}
\frac {\partial W_I}{\partial r_I}
  {<} 0 \text{ et }
\frac {\partial W_{II}}{\partial r_{II}}
  {>} 0
\end{equation}`

leading to:

`\begin{equation}
\frac{W_{II}}{r_{II}} 
  = 
\frac{W_{int}}{r_{int}}
  =
\frac{W_{I}}{r_{I}}
\end{equation}`

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# Samuelson

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Samuelson's theorem:

> At equilibrium, with both countries facing the same relative prices of products (price ratio), using the same technology, then the relative costs of production will equalize. The only justification is that factor prices are equalized.

]

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<div class="figure">
<img src="./images/fig10.6.png" alt="Égalisation du prix des facteurs." width="100%" />
<p class="caption">Égalisation du prix des facteurs.</p>
</div>

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# Hechscher-Ohlin

.pull-left[

Identical applications and technologies, which is related to the representation of factor price equalization.

]

.pull-right[

<div class="figure">
<img src="./images/fig10.7.png" alt="Graphique d’Heckscher-Ohlin avec demandes." width="100%" />
<p class="caption">Graphique d’Heckscher-Ohlin avec demandes.</p>
</div>

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# Stolper-Samuleson

The theorem focuses on the income aspect, and adds this dimension to the analysis of international trade.

What is the effect of a more intensive use of labour input on the real wages of both factors?

Stolper-Samuelson's theorem is as follows:

> In a situation of full employment before and after the opening of international trade, the increase in the price of the abundant factor and the decrease in the price of the scarce factor leads to the owners of the abundant factor seeing their incomes increase and the owners of the scarce factor seeing their incomes decrease.

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# Lucas' paradox

.pull-left[
![](concept1_files/figure-html/unnamed-chunk-5-1.png)

Source: world Bank [here](https://donnees.banquemondiale.org/indicateur/BN.TRF.KOGT.CD)
*Note:* [here](https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups)

]

.pull-right[

The Lucas paradox or the Lucas puzzle is the observation that capital does not flow from developed countries to developing countries despite the fact that developing countries have lower levels of capital per worker.

source: Lucas, Robert (1990). "Why doesn't Capital Flow from Rich to Poor Countries?". American Economic Review. 80 (2): 92–96.
]

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# Theories

In short:

> Globalization = goods + services + people + knowledge

- Samuelson

- Heschscher-Ohlin

- Stolper-Samuelson

- Linder's theory

- trade will appear for goods with similar demand functions;

- international trade in manufactured goods will take place between countries with similar demand functions (per capita income).

- Lucas' paradox

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# Conclusion

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# Conclusion

According to Leamer (2012), Heckscher-Ohlin's theorem raises a fundamental question: "What should governments do to capture the greatest gains from trade, also to ensure that the gains from trade are widely shared, and that the greatest benefits accrue to the most deserving"?

Again according to Leamer (2012), the Heckscher-Ohlin model presented above has four main ideas on which to build public policy:

- trade barriers can increase the real returns from rare factors in particular circumstances.

- investment in education and infrastructure can provide the basis for product improvements that can transform low-wage developing countries into partners rather than competitors, allowing gains from trade in all factors of production.

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# Conclusion

- trade smoothes the effects of capital accumulation and labor growth on the marginal products of capital and labor.
    
   1. A country that produces a diversified mix of tradable goods can absorb immigrants with minimal impact on native wages.
   
   2. a country that produces a diversified mix of tradable goods can absorb capital with minimal impact on the return on capital. Thus, the slowdown in growth that traditionally comes from a decrease in the marginal productivity of capital is non-existent, or at least less severe for a small open economy.
   
- Technological backwardness reduces GDP per worker overall, but in particular circumstances technological convergence has winners and losers[^6].