Chapter 1 Globalization
What is globalization? Define globalization.
Globalization refers to the shift to a more integrated and more independent economy.
(Based on the China case: China globalized, after waiting 15 years, by entering The WTO
(world trade organization) and lowering 7000 tariffs, quotas and other barriers).
What are the main drivers of globalization?
Decline in barriers International trade when a firm invests resources in business
activities outside its home country (at least 10% FDI) and when a firm exports goods
or services to consumers in another country.
Role of technology lower transportation costs that enable firms to separate
production to economical, geographically separate locations. Lower information
processing and communication costs that enable firms to create and manage
globally dispersed production systems.
The pros and cons of globalization are:
Decrease of trade barriers and technological change.
This effects:
Jobs and income (more jobs for the developing countries and detriment of jobs in
the advanced economies also outsourcing creates insecurity for home countries
regarding declining of jobs in home country and increasing job opportunities in host
country.
Labor policies and the environment (There are no strict regulations in the
developing countries concerning human rights or labor regulations).
National sovereignty (the economic power is shifting away from national
governments of host countries towards the WTO, EU or UN).
Gap b/w rich and poor nations how to improve is to (1) reduce barriers to trade
and invest (2) implement policies based on free market economies (3) receive debt
forgiveness.
,Chapter 2 (&3) national differences in political economy
Political economy of a nation refers to how the; political, economic and legal systems of a
country are independent. How they work and influence each other. Political systems refer
to the system of government in a nation. There are two aspects for that:
Collectivism vs. Individualism (In a individualism nation, each individual is free to make
their own economic choices however in a collectivism nation this is the exact opposite
individuals are no individuals their choices are being made by other groups (government,
sovereignties etc.).
Democratic vs. totalitarian (democracy is when citizens of a nation choose their own
government the opposite of this is totalitarian one person has the power and decides
everything what happens in the nation)
Economic systems:
Market economy (All productive activities are privately owned)
Mixed economy (Certain sectors of the economy are left to private ownership and free
market mechanisms while other sectors have significant state ownership and government
planning)
Command economy (The government plans the goods and services that one country
produces, the quantity in which they are produced, and the prices at which they are sold
(collectivism “the good of society”)
Legal systems:
Civil law (based on a set of detailed laws, rules and regulations)
Theoretic law (based on religious law and codes)
Common law (based on traditions)
Property rights Refers to legal rights over the use to which a resource is put and over the
use made of any income that may be derived from that resource. Property rights can be
violated by theft, piracy, blackmail, bribes etc.
Intellectual property refers to property that is the product of intellectual activity
Intellectual property can be protected using:
▸ Patents – exclusive rights for a defined period of an invention
▸ Copyrights – the exclusive legal rights of authors, composers, playwrights, artists,
and publishers to publish and disperse their work as they see fit
▸ Trademarks – design and names by which merchants or manufacturers designate
and differentiate their products
Motivates of economic development:
▸ Gross national income (GNI) per person is a common measure of economic
development
▸ Purchasing power parity (PPP) involves adjusting GNI by purchasing power
How is the political economy changing?
Democratic revolution (Middle-East, Europe)
Move away from the command economies and mixed economies towards a market
economy. (In order to so it involves deregulation, privatization and creation of legal systems
to safeguard property rights.
, HDI:
Human development index (HDI) and is based on;
- Life expectancy at birth
- Educational attainment
- Whether average incomes are sufficient to meet the basic need of life in a country
Scoring is from 0 to 1.
Bellow 0.5 = having low human development
From 0.5 to 0.8 = medium human development
Above 0.8 = high human development
Benefits:
The long-run benefits of doing business in a country are the function of: the size of the
market, the present wealth of consumers in that market and the likely future wealth of
consumers. Firms may be able to gain first mover advantages, which lead to benefits such
as: customer loyalty, experience in the county (e.g. the first oil company in the Middle East).
Risks involved:
A number of political, economic, and legal factors determine the risks of doing business:
Political risk is the likelihood that political forces will cause drastic changes in a country's
business environment that adversely affects the profit and other goals of a business
enterprise.
Economic risk is the likelihood that economic mismanagement will cause drastic changes
in a country's business environment that adversely affects the profit and other goals of a
business enterprise.
Legal risk is the likelihood that a trading partner will opportunistically break a contract or
expropriate property rights.
In overall:
The overall attractiveness of a country as a potential market and/or investment site depends
on the benefits-costs-risks trade off, which is likely to be favorable in:
1. Stable, democratic political institutions
2. Market based economies
3. Strong legal systems that protect property rights and limit corruption
What is globalization? Define globalization.
Globalization refers to the shift to a more integrated and more independent economy.
(Based on the China case: China globalized, after waiting 15 years, by entering The WTO
(world trade organization) and lowering 7000 tariffs, quotas and other barriers).
What are the main drivers of globalization?
Decline in barriers International trade when a firm invests resources in business
activities outside its home country (at least 10% FDI) and when a firm exports goods
or services to consumers in another country.
Role of technology lower transportation costs that enable firms to separate
production to economical, geographically separate locations. Lower information
processing and communication costs that enable firms to create and manage
globally dispersed production systems.
The pros and cons of globalization are:
Decrease of trade barriers and technological change.
This effects:
Jobs and income (more jobs for the developing countries and detriment of jobs in
the advanced economies also outsourcing creates insecurity for home countries
regarding declining of jobs in home country and increasing job opportunities in host
country.
Labor policies and the environment (There are no strict regulations in the
developing countries concerning human rights or labor regulations).
National sovereignty (the economic power is shifting away from national
governments of host countries towards the WTO, EU or UN).
Gap b/w rich and poor nations how to improve is to (1) reduce barriers to trade
and invest (2) implement policies based on free market economies (3) receive debt
forgiveness.
,Chapter 2 (&3) national differences in political economy
Political economy of a nation refers to how the; political, economic and legal systems of a
country are independent. How they work and influence each other. Political systems refer
to the system of government in a nation. There are two aspects for that:
Collectivism vs. Individualism (In a individualism nation, each individual is free to make
their own economic choices however in a collectivism nation this is the exact opposite
individuals are no individuals their choices are being made by other groups (government,
sovereignties etc.).
Democratic vs. totalitarian (democracy is when citizens of a nation choose their own
government the opposite of this is totalitarian one person has the power and decides
everything what happens in the nation)
Economic systems:
Market economy (All productive activities are privately owned)
Mixed economy (Certain sectors of the economy are left to private ownership and free
market mechanisms while other sectors have significant state ownership and government
planning)
Command economy (The government plans the goods and services that one country
produces, the quantity in which they are produced, and the prices at which they are sold
(collectivism “the good of society”)
Legal systems:
Civil law (based on a set of detailed laws, rules and regulations)
Theoretic law (based on religious law and codes)
Common law (based on traditions)
Property rights Refers to legal rights over the use to which a resource is put and over the
use made of any income that may be derived from that resource. Property rights can be
violated by theft, piracy, blackmail, bribes etc.
Intellectual property refers to property that is the product of intellectual activity
Intellectual property can be protected using:
▸ Patents – exclusive rights for a defined period of an invention
▸ Copyrights – the exclusive legal rights of authors, composers, playwrights, artists,
and publishers to publish and disperse their work as they see fit
▸ Trademarks – design and names by which merchants or manufacturers designate
and differentiate their products
Motivates of economic development:
▸ Gross national income (GNI) per person is a common measure of economic
development
▸ Purchasing power parity (PPP) involves adjusting GNI by purchasing power
How is the political economy changing?
Democratic revolution (Middle-East, Europe)
Move away from the command economies and mixed economies towards a market
economy. (In order to so it involves deregulation, privatization and creation of legal systems
to safeguard property rights.
, HDI:
Human development index (HDI) and is based on;
- Life expectancy at birth
- Educational attainment
- Whether average incomes are sufficient to meet the basic need of life in a country
Scoring is from 0 to 1.
Bellow 0.5 = having low human development
From 0.5 to 0.8 = medium human development
Above 0.8 = high human development
Benefits:
The long-run benefits of doing business in a country are the function of: the size of the
market, the present wealth of consumers in that market and the likely future wealth of
consumers. Firms may be able to gain first mover advantages, which lead to benefits such
as: customer loyalty, experience in the county (e.g. the first oil company in the Middle East).
Risks involved:
A number of political, economic, and legal factors determine the risks of doing business:
Political risk is the likelihood that political forces will cause drastic changes in a country's
business environment that adversely affects the profit and other goals of a business
enterprise.
Economic risk is the likelihood that economic mismanagement will cause drastic changes
in a country's business environment that adversely affects the profit and other goals of a
business enterprise.
Legal risk is the likelihood that a trading partner will opportunistically break a contract or
expropriate property rights.
In overall:
The overall attractiveness of a country as a potential market and/or investment site depends
on the benefits-costs-risks trade off, which is likely to be favorable in:
1. Stable, democratic political institutions
2. Market based economies
3. Strong legal systems that protect property rights and limit corruption
