0.3 Globalization  (Page 6/9)

It is important not to overstate the extent of globalization in the world economy. True enough, the world economy is much more interdependent than in, say 1960, but, consider that as late as 2010:

• Only 3 percent of people live outside their birth nation.
• Only 7 percent of rice is traded across borders.
• Only 1 percent of U.S. companies have foreign operations.
• FDI (foreign direct investment) accounts for only 9 percent of worldwide investment.
• Only 20 percent of shares traded on the U.S. stock market are bought by foreigners.
• And, because of the global meltdown beginning in 2008, the flow of FDI fell from $2 trillion in 2007 in 2007 to $1 trillion in 2009. (See Chapter___).

These caveats aside, globalization involves ever more tighter links between rich nations. There are now published indices of globalization. One widely used index is published by Foreign Policy . See Foreign Policy, June 2007. To rank nations, the following indicators were employed:

1. Degree of Economic Integration -the share of trade in GDP and value of direct foreign investment
2. Technological Connectivity -extent of internet users, internet hosts and XXXX services
3. Personal Contact-international travel and tourism, international telephone traffic and remittances abroad
4. Political Engagement-membership in international organizations, financial contribution to U.N., World Bank, etc.

Using these criteria, the most globalized economies in 2010 were

1. Singapore
2. Ireland
3. Switzerland
4. the U.S.

The most “globalized” of developing nations was Malaysia at #19. Note: Japan was only #28. France and Germany were only 18th and 21 ^st . In this ranking, Russia was #52,and China was #54, but China was rising.

Globalization involves large benefits to some, costs to others. Thus, we must ask if globalization is, on balance a good thing or not? The answer depends on your perspective. First, globalization and increasing capital mobility cause economic shocks to be transmitted more quickly and fully across borders. This makes it even more difficult than in 1970 to conduct effective monetary and fiscal policies in all nations. Also, a very substantial number of jobs have been lost in rich countries because of globalization, as some industries in developed nations cannot compete with growing imports from emerging nations.

On the other hand, consider that since 1990, globalization has lifted more than 500 million poor people out of abject poverty, in China and India alone . Never before in history has this happened. Still, there remains over 1 billion living in poverty in China and India together.

Also consider the comments of Larry Summers, former Treasury Secretary and Chief Economic Advisor to President Obama (2008-2012). In his view there is a big paradox regarding globalization: even its winners see themselves as losers . Lawrence Summers (2006, October 29), “The Global Middle Cries Out for Reassurance”, Financial Times . Indeed, while there is little doubt that globalization has given rise to imbalances and inequities across nations, it is still unclear how much of this is due to globalization and how much to other factors, such as technological change (see Chapter 4).