Global Interactions
1. Measuring Global Interactions
- Define globalization the growing interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and through the more rapid and widespread diffusion of technology.
- Describe a globalization index
AT Kearney / KOF Index
What is it? / Global management consulting firm founded in 1926, Chicago. Analyses 62 countries, 96% of world’s GDP, 85% of world population. / Swiss Institute for Business Cycle Research, 2008. Definition of globalisation: the process of creating networks of connections among actors at multi-continental distances, mediated through a variety of flows including people, information and ideas, capital and goods. A process that erodes national boundaries, integrates national economies, cultures, technologies and governance and produces complex relation of mutual independence. Examines 122 countries.
Aspects of globalisation / Economic Integration / International trade
Foreign direct investment. / Economic globalisation / Actual flows (Trade, FDI, portfolio, income payments)
Restrictions (import barriers, tariff rate, taxes on trade, capital account restrictions)
Political engagement / Participation in:
Treaties
Organisations
Peacekeeping / Political globalisation / Embassies in the country
Membership in international organisations
Participation in UN Security Council missions
International treaties
Personal Contact / Telephone
Travel
Remittances. / Social globalisation / Personal contact (telephone traffic, transfers, international tourism, foreign population, international letters)
Information flows (internet users, televisions, trade in newspapers)
Cultural proximity (McDonald restaurants, IKEA stores, trade in books)
Technological connectivity / Number of:
Internet users
Hosts
Secure servers.
-AT Kearney is a global management consulting firm.
-The AT Kearney Foreign Policy index measures twelve variables, which are subdivided into four “baskets”: economic integration, personal contact, technological connectivity and political engagement. Nations are ranked according to a calculated globalization index.
-Value of 1 given to highest data values for a variable, and others ranked as fractions of 1 so score is directly dependent on other countries
-E.g. Singapore ranked number 1 (describe it), Iran number 62 (describe it).
Evaluate the AT Kearney index
-Over 70 countries are ranked, covering nearly 100% of world’s GDP and 90% of world’s population, including developed and developing countries to provide a comprehensive and comparative representation.
-Takes into account the different aspects of globalization for holistic measure.
-Scaled according to rise/decline in GDP since a base year, so factors in changing economic context.
-Can compare according to various factors e.g. Malaysia had low level of technological connectivity but ranked highly for economic integration, second only to Singapore (world’s most globalized nation).
-But does not include all countries.
-Looks at country as a whole using average, not accounting for internal disparities.
-Not all variables in different aspects included.
-Remittances from illegal or legal migrants
-Local or global media on TV.
Describe how the index may be represented spatially: a choropleth world map with one colour for every range of ranks.
IB definition of core and periphery: the concept of a developed core surrounded by an undeveloped periphery. The concept can be applied at various scales.
Describe the core-periphery model
-The Core and Periphery model shows the unequal distribution of activity/power in politics, societies and economies by mapping core areas at the focus of global interactions, and peripheral areas as unaffected by these interactions.
-The global triad describes the structure of world economy – tripolar core of North America, Europe, and East Asia. These macro-regions contain about 85% of world GDP and world merchandise exports, as well as focus of FDI.
Pattern within core-periphery model shifting production and industrial relocation to semi-periphery where labour costs lower but profits tend to remain in core.
Examples of countries in core-periphery model USA is a core country, Malaysia is a semi-periphery and Cambodia is a peripheral country.
2. Changing Space: the shrinking world
Explain how a reduction in the frictional effect of distance results in time–space convergence.
-Frictional effect of distance suggests that areas closer together are more likely to interact, and this frictional effect is decreasing.
-These improvements have increased speed, efficiency and capacity, and lowered costs of overcoming the frictional effect of distance.
-Time-Space convergence rate: Reduction in the time taken to travel between two places due to improvements in transportation or communication technology.Expressed in mins/year.
-Time-space distance: maps show this based on relative time accessibility by schedules airline. Major cities are closer together, whereas isolated areas e.g. Papua New Guinea, are further away.
Examine the relative changes in the speed and capacity of shipping responsible for the flow of goods, materials and people.
Introduction of containerization
-Standardized, stacked containers have increased load of goods and materials, which have lowered costs of economic trade through economies of scale where costs of shipping are spread over all the goods.
-Container ships now equipped with specialized handling devices for carrying machine parts and high-valued manufacturing components or perishables: increased capacity for range of goods and materials.
Introduction of steam engine
-Journey by sailing ship across Atlantic Ocean from Europe to North America took 55 days
-Reduced to one week with further technical development of steam-ships
-Increased migration and facilitated trade, including of perishable items
Increasing capacity further
-Size of container boxes and vessels are both increasing, average of 10% annually this century
Examine the relative changes in the speed and capacity of airplanes responsible for the flow of goods, materials and people.
Introduction of jet engine
-More fuel efficient and better suited for long distances: faster
-Costs decreasing in relative terms, and frequency and scale of flights increasing, so have allowed LDCs like Kenya to sell perishable agricultural/horticultural goods to Europe, Middle East and North America: Kenya has 1/3 of global market for cut flowers
Introduction of commercial jet aircraft
-Expanded capacity to civilians: tourism expanded
-Expanded capacity to professionals: growth of TNCs and take off of commercial jets both occurred 1950s
-Expanded capacity to cargo: growth of trade of goods and materials
Case Study: Changing nature of air transport in China
- Context and history of China’s air transport network
Though aviation was introduced in China during the early 1900s, low economic development and civil unrest leading up to WWII inhibited progress aviation. Focus was on military transportation. Only during Liberation (1950s) were matters suitably stabilized.
- Examine the changes in China’s air transport network
China’s timeline
-1949: first civil aviation administration established by Communist Party of China in partnership with USSR gov’t: first post-Liberation airline, SKOGA was founded. China has 12 international and domestic routes, but Shanghai, largest city, only 10 flights a week.
-Late 1970s: under economic reforms of Deng Xiaoping, aviation identified as key to development and orders placed for airliners in Western Countries like UK and US.
-1988: Civil aviation had expanded so much broken into three large government-owned companies: Air China, China Eastern and China Southern.
-Now: well over 1000 routes, most of which domestic. Shenzhen is a city with in-migrants from all over China: own airline helping city’s development. As emerging economy, has opened markets to foreign investors as well.
ICT include technological tools and resources used to communicate and to create, disseminate, store, and manage information
Describe the role of ICT in transmission and flow of images, ideas, information and finance.
The media
Introduces ideas and images quickly, cheaply and widely across national borders
-Social media: chat sites, Facebook, micro-blogging, online shopping
-Mass media: message may be sent from one to millions of users – interconnectivity increases breadth of information e.g. cultural impact of Titanic, including televised in Indian slums
-Role in civil society like NGOs: raising public awareness by helping people worldwide gain information about campaign issues, mobilizing widespread support for their activities.
-Political implications: public opinion and political pressure e.g. Vietnam War
Facilitates migration
-Skype: large skilled labour force in Dubai, telecommunications connects people (business)
-Cheaper and clearer international calls and migrant workers in Singapore
-Tourism
See international outsourcing notes
Civil society:any organization or movement that works in the area between the household, the private sector and the state to negotiate matters of public concern. Civil societies include non-governmental organizations (NGOs), community groups, trade unions, academic institutions and faith-based organizations.
Describe the role of ICT in civil society
The media
Introduces ideas and images quickly, cheaply and widely across international borders
-Social media: Facebook, micro-blogging
-Keeps audience engaged because social media is interactive
-Mass media: message may be sent from one to millions of users – interconnectivity increases breadth of information.
-Can raise profile through profound campaigns/advertising/persuasion.
-Sense of solidarity in unity of issues and beliefs with global platform.
Case study: non-profit Wildlife Direct based in peripheral Nairobi, Kenya.
-Aimed to fundraise by building worldwide online conservancy community: anyone who has interest in future of wildlife and natural habitats
-In two years have formed 70 blogs and donations have increased 4 fold
Facilitates movement of people and therefore ideas
-Skype, cheaper and clearer international calls: spokespeople more readily travel to spread the word. Also connects people worldwide through telecommunications.
-Development of transport and time-space convergence: similarly increases accessibility.
Overall effect
-Raising public awareness about matters of public concern by helping people worldwide gain information.
-Foster dialogue between individuals and civil society.
-Mobilizing widespread support for their activities.
Examine the contrasting rates, levels and patterns of adoption of an element of ICT in two countries. Skip this question on the exams – didn’t study in class and way too many statistics.
3. Economic Interactions & Flows
Fact about capital:flow of finance globally far exceeds total value of international trade in goods and services combined.
TNC:a firm that owns or controls productive operations in more than one country through foreign direct investment.
Examine the importance of loans, debt repayment, development aid, remittances, foreign direct investment and repatriation of profits in the transfer of capital between the developed core areas and the peripheries.
Loans
-Purpose of economic development and poverty reduction, so usually to peripheries and from core countries who can afford to lend – especially following independence of countries and now with World Bank focusing on MDGs.
-Mostly through World Bank because of low-interest and no-interest loans, so not directly from core countries, but significant: over US$24 billion a year.
-Leads onto flow of capital via debt repayment so yet another flow of capital
Debt repayment
-It’s true a lot of debt has accumulated: political corruption, legacy of colonialism (transfer of debt from France to Haiti), excessive interest rates.
-There’s been debt cancellation under HIPCs (see below), and after Indian Ocean tsunami debt relief to 12 countries affected.
-Even if debt is not cancelled, the major issue with debt is that it is rarely paid while interest builds: many countries struggle to repay loans so this flow of capital is limited.
-And this is from periphery to core: what can it do? What’s the impact?
Development aid
-Not all aid is free of conditions and may overlap with loans (see Japan case study)
-Main donors are core countries USA and Japan to sub-Saharan Africa, Eastern Europe and Russia and SE Asia.
-Aid has decreased in relative terms, due to debt relief instead.
-Although donor countries’ wealth has increased since 1990, levels of aid haven’t.
Remittances
-In South Asian countries, value of remittances is greater than international aid (in India exceeds software industry revenue from its 20 million diaspora: talk about construction in Singapore, Saudi Arabia; PNG; Mexico – illustrates massive flow of labour since globalization and thus relevance).
-Provides household income: lessens regional/global disparities in wealth and standard of living.
-Multiplier effect: increase in money supply from remittances, increased foreign exchange reserves.
-Marginalized countries like sub-Saharan Africa have not received nearly as much.
FDI
-Key indicator of globalization, and increasing in increasingly globalized world and integrated world market.
-Today, a whopping $1.5 trillion. Leading to massive development: China.
-But investors invest in few emerging economies (Asian Tigers case study below) and FDI between the global triad – Africa, so peripheral, isn’t exactly ideal. That said, some countries are good candidates for new generation of NICs: Vietnam.
-Reduces disparities – but between few countries.
Repatriation of profits
-As the number and scale of TNCs increase, many core countries that own parent firms find it easier to flow capital back to country of origin
-Depends on how liberalized the economy is – China makes it legal to repatriate up to 90% of annual profits – but not all peripheral countries are so reformed
-Conclusion not every country is part of trend of globalization e.g. Africa is left out of even flow of capital. Flow from core to periphery is more meaningful and impactful.
Case study: Japan and loans
Offers multilateral aid through international organizations but also bilateral aid as assistance, often to Asian countries e.g. Eastern Indonesia has long dry season, so Japan has loaned to develop irrigation and introduce agricultural technological development.
Why Africa is left out of flow of capital as a peripheral country
-Conflicts are rampant throughout
-Lack of discovery of natural resources like oil reserves
-Institutional quality: corruption, poor law and order, civil unrest
-Lack of demographic transition: culture, traditions
-HIV/AIDS epidemics greatly inhibit productivity
NICs
Asian tigers Singapore, Taiwan, South Korea and Hong Kong had: infrastructure, geographic advantages e.g. access to the sea and became port nations, skilled, low-cost workforce, cultural traditions that revere education and achievements, attractive interest rates.
Flow of capital also targeted to…
Offshore financial centres (OFCs) – islands and microstates that attract money by offering lower taxes and freer regulatory frameworks e.g. Bahamas, Qatar, Luxembourg. Banks, financial institutions, investors and TNCs get flexibility to move money freely and can declare profits strategically
Limitation of flow of capital
-Boosted economic growth in countries like China, South Korea and Singapore but other economies less integrated into global economy are marginalized: Africa not experiencing increased flow of capital
-Difficult for peripheral countries to enter world financial trade – cities that control financial market are also centres of information interpretation.
-Countries which have established corporate culture and expertise dominate e.g. London, New York and Tokyo
Role of financial institutions (such as the WTO, IMF and World Bank) in the transfer of capital.
-WTO:Formed in 1955. Trade in manufactured goods, raw materials, agricultural services and interllectual property rights. Aims to establish rules to govern and regulate international trade such that there is liberalization of trade.Over 150 member countries.
-World Bank: established to provide aid to poor countries in terms of loans for projects, such as infrastructure developments, but from 1980 onwards, help for debt repayments.
-IMF: 185 member countries. To promote international monetary cooperation, exchange stability and orderly exchange arrangements, foster economic growth and high levels of employment, provide temporary financial assistance to countries to help ease balance of payments.
Case study: China and FDI, China and WTO’s influence
-China joined WTO
-Moderate, reformist policies making it easier for foreign countries to expand into China.
-Forced to specialize in fields of comparative advantage.
-World aware of huge market potential (attracted over $90 billion in FDI a year).
-Economic growth increased by average of 10% a year in past decades.
Case study of the influence of financial institutions in flow of capital
Heavily Indebted Poor Countries initiative - IMF and World Bank
-Countries can qualify for debt relief only if IMF economic policy (including SAPs) for total of 6 years
Structural adjustment programmes (SAPs) by the World Bank
-reduce active role of state: cut government expenditure
- introduced school fees as part of cost-recovery program
- reduced spending on health so health clinic fees
- privatization: firms streamline – unemployment
-promote international trade and economic competitiveness.
-Promoted agricultural exports: primary product dependency.
Context of USA/Mexico labour flow: over a million Mexicans migrate to US every year. Mostly concentrated in a few states, but now not just traditional destination such as Texas, but also southern and mid-western states like Georgia and Nebraska. Connect to labour.
Explain the causes and effects of major flow of labour between USA and Mexico
Causes at source and destination
-40% unemployment in Mexico vs. many low-skilled jobs for Mexicans which Americans don’t want to do like construction.
-Range of goods and services in city life vs. rural lifestyle.
-Perception of America as the land of opportunity and prosperity vs. agricultural society in rural Mexico
-Better standard of living for children of labourers e.g. 99% vs. 55% literacy, healthcare and schooling
Effects at destination
-Illegal immigration costs US millions of dollars for border patrol and prison
-Tense political relations: US Border Patrol always tries to control the many illegal immigrants desperate for a better life, militarization