International Economics: Globalization and Trade

Posted on Feb 1, 2025 in Economy

International Economics I

Scope of Content for the Final Test

1. Aspects of Globalization

  • Internationalization: The process of increasing involvement of enterprises in international markets.
  • Universalization: The spread of culture, trends, customs, and practices around the world.
  • Liberalization: Enhancing the flows of goods, services, labor, and capital on the international scale.
  • Homogenization: Reduction in cultural diversity through the popularization and diffusion of a wide array of cultural symbols—not only physical objects but customs, ideas, and values.
  • Deterritorialization: The severance of social, political, or cultural practices from their native places and populations (“physical borders are less important”).

2. Waves of Globalization

4. International Competition

  • Demand side: Californication, ZMOT
  • Supply side: Oligopolies, foreign affiliates, entry barriers
  • Liberalization

3. Factors Fostering Globalization

  • Technological progress:
    • Production
    • Communication
    • Transportation
  • Integration
  • Trade liberalization
  • Financial deregulation
  • Capital flows liberalization

Issues in Trade and Development

Terms of Trade Effects

  • The terms of trade is the ratio of the price of a country’s exports to the price of its imports.
  • Types of terms of trade:
    • Income terms of trade: If PX is the price index of exports, PY is the price index of imports, and QX is the nation’s volume of exports, the income terms of trade (I) = (PX ÷ PY) x QX.
    • If I = 105, then between the base year and the current year the country’s ability to import based on export earnings increased by 5 percent from the base year.
  • Implications of changing N and I:
    • As N falls, a nation must export more in order to purchase the same number of imports.
    • As I falls, a nation’s ability to purchase imports falls.
    • Both of these changes are welfare reducing.

Immiserizing Growth

  • Growth is expected to improve the quality of life.
  • It is possible for this connection not to hold for a large exporting country.
  • In this circumstance, either the incentive to participate in international trade or to grow would be undermined.
  • Immiserizing growth is the situation where a nation’s terms of trade deteriorate so much as a result of growth that the nation is worse off after growth than before.