Intro to Globalization (PS180) Midterm 1

Globalization

The increasing interconnectedness and interdependence of peoples and countries, characterized by the opening of international borders for flows of goods, services, capital, people, and ideas.

Economic Globalization

The degree of integration of a country's economy into the world economy, including international trade flows, foreign direct investment (FDI), capital restrictions, and trade tariffs/taxes.

Social Globalization

The international spread of ideas, information, images, and people. Expressed through both De Facto flows (e.g., international tourism, migration, telecommunications) and De Jure access (e.g., internet freedom, telephone infrastructure).

Political Globalization

The diffusion of government policies, international cooperation, and participation in global governance (e.g., membership in international organizations like the UN, treaties, and embassies).

KOF Globalization Index

A composite index that measures globalization along three primary dimensions: economic, social, and political globalization.

Public Goods

Goods that are both non-excludable (no one can be prevented from using them) and non-rivalrous (one person's use doesn't reduce availability to others). Global public goods face severe free-rider problems due to the lack of a world government.

Free-Rider Problem

A market failure that occurs when individuals or states benefit from a public good without contributing or paying for its provision.

Anarchy in International Relations

The absence of a central world government or supreme sovereign authority above nation-states to enforce laws or agreements.

State Sovereignty

The principle that a state has supreme authority and exclusive jurisdiction over its territory and domestic affairs, free from external coercion or interference.

Hyperglobalist View on Sovereignty

Argues that economic globalization significantly erodes and constrains state sovereignty, forcing governments to reduce spending and regulation to attract foreign capital (the "race to the bottom").

Efficiency Hypothesis

Argues globalization forces governments to cut corporate taxes, weaken labor laws, and shrink welfare spending to stay competitive internationally.

Compensation Hypothesis

Argues globalization causes economic dislocations and job instability, prompting democratic governments to expand social safety nets and welfare spending to compensate citizens exposed to international trade risks.

Offshore Outsourcing

Relocating business processes or manufacturing functions from one country to another to take advantage of lower labor costs or specialized skills.

Comparative Advantage

The ability of a country to produce a specific good at a lower opportunity cost than another country, serving as the core justification for free trade.

Stolper-Samuelson Theorem

A class-based trade model showing that free trade benefits owners of a country's abundant factor of production (e.g., skilled labor or capital in rich countries) and hurts owners of the scarce factor (e.g., low-skilled labor in rich countries).

Factor Mobility

The ease with which factors of production (capital, land, or labor) can move from one industry or sector to another within an economy.

Ricardo-Viner Model

An industry-based trade model assuming factors of production are immobile across sectors. Winning and losing from trade is determined by industry sector (e.g., export-oriented vs. import-competing) rather than broad factor class.

Import-Competing Industry

A domestic sector that competes directly with imported goods (e.g., US steel or textile manufacturing). These sectors typically oppose free trade and lobby for tariffs or protectionist policies.

Export-Oriented Industry

A domestic sector that exports its products to global markets. These sectors benefit from free trade and open foreign markets.

Tariff

A tax or duty imposed by a government on imported goods, used to protect domestic industries or raise revenue.

Non-Tariff Barriers (NTBs)

Trade regulations other than tariffs used to restrict imports, such as quotas, licensing requirements, subsidies, or product standards.

Foreign Direct Investment (FDI)

An investment made by a firm or individual in one country into business interests located in another country, establishing a lasting interest and control (e.g., building factories, acquiring controlling stakes).

Inward FDI

Foreign companies investing capital directly into the domestic host country.

Outward FDI

Domestic companies investing capital directly into foreign countries.

Multinational Corporation (MNC)

A company that owns or controls the production of goods or services in one or more countries other than its home country.

OLI Framework

Explains why firms engage in FDI through three advantages: Ownership (unique firm assets), Location (foreign country advantages), and Internalization (retaining control within the firm rather than licensing).

Expropriation

The political risk that a host country government will seize or nationalize foreign-owned assets or capital without fair compensation.

Obsolescing Bargain

A situation where an MNC initially holds power when negotiating FDI terms, but once fixed assets are built in the host country, bargaining power shifts to the host government.

Greenfield Investment

A form of foreign direct investment where a parent company constructs new operational facilities and infrastructure from the ground up in a foreign country.

Brownfield Investment

A form of foreign direct investment where a company purchases, leases, or merges with existing facilities or assets in a foreign country to expand operations.

Immigration

The movement of people into a foreign country to reside permanently or long-term.

Emigration

The movement of people out of their native country to settle in another.

High-Skilled Immigration

Immigrants with tertiary education or specialized training; generally welcomed for innovation and higher tax contributions.

Low-Skilled Immigration

Immigrants filling essential manual or service roles; often subject to intense political debate over wage depression and fiscal burdens.

Fiscal Exposure Model

Suggests that native voters in high-tax/high-benefit states oppose low-skilled immigration due to fear of higher public tax burdens or dilution of government services.

Cultural Backlash Hypothesis

The view that opposition to immigration and globalization stems from concerns over national identity, cultural shift, and disruption of societal homogeneity rather than pure economic self-interest.

De Facto Globalization

Measures actual cross-border flows and activities, such as real trade volume, capital flows, international tourism, and telecommunication traffic.

De Jure Globalization

Measures policies, legal frameworks, and regulatory openness that allow or encourage flows, such as tariff rates, capital account restrictions, visa requirements, and civil liberties.

Flat World Thesis

The argument by Thomas Friedman that technological innovation, political changes, and institutional integration have leveled the global economic playing field.

Cooperation in International Relations

An interaction where at least one actor is made better off without making any other actor worse off, resulting in a net increase in total social welfare.

Bargaining in International Relations

A zero-sum or redistributive interaction where one actor gains strictly at the expense of another actor, while total welfare remains constant.

Collective Action Solutions

Methods to reduce free-riding, such as reducing actor numbers, improving transparency, repeating interactions, monitoring compliance, and implementing enforcement sanctions.

Pessimistic View on Globalization and Welfare

The perspective (e.g., Kat Wall) that globalization forces states into neo-liberal policies, triggering a "race to the bottom" and shrinking welfare spending to stay competitive.

Transformative View on Globalization and Welfare

The perspective (e.g., Panitz) that market-led growth increases tax revenues, allowing states to expand social safety nets to cushion citizens against global market shocks.

Absolute Advantage

The ability of an actor or country to produce more of a good or service using the same amount of resources compared to another actor.

Portfolio Investment

Purchase of foreign stocks, bonds, or financial instruments where the investor holds no operational or managerial control.

Political Geography and Protectionism

The idea that protectionist policies favor specific sectors due to electoral structures, such as US Senate representation favoring agriculture or swing states protecting steel.

Leftist Governments and FDI

Empirical finding that leftist governments often attract higher FDI per capita because voters and leaders expect foreign MNCs to bring positive wage and standards spillovers.

Automation Anxiety

The psychological tendency of workers experiencing job insecurity from technology/AI to misattribute structural displacement to immigrant populations.

Self-Interest Model of Public Opinion

Assumes individuals evaluate economic policies based strictly on personal wage rates and direct job competition.

Socio-tropic Model of Public Opinion

Assumes individuals evaluate policies based on perceived broader impacts on the overall national economy, public tax burden, or national security.

Ethnocentric Anti-Immigrant Sentiment

Hostility toward immigrants driven by prejudice against their ethnic or national origin.

Norm-Based Anti-Immigrant Sentiment

Objections based on social assimilation expectations, such as acquiring local language fluency, adhering to civic norms, and self-reliance.

Brain Drain

The net emigration of highly educated individuals from developing to developed countries, depleting human capital and tax bases in origin nations.

Brain Gain

The phenomenon where migration opportunities increase the overall incentive to acquire higher education in origin nations, boosting overall human capital.

Before an interaction, Country A earns $200$ units and Country B earns $200$ units. Following the interaction, Country A earns $300$ units and Country B earns $800$ units. Is this cooperation, bargaining, or neither?

Answer: Cooperation. Both actors increased their net returns (from $400$ total to $1100$ total) without making either party worse off.

Practice Question: Stolper-Samuelson Model Application

Jane is an unskilled factory worker in the US (a capital-abundant, low-skilled-labor-scarce country). If the US eliminates trade tariffs on labor-intensive manufactured goods, how will Jane react according to the Stolper-Samuelson model?

Answer: Jane will oppose trade liberalization. Stolper-Samuelson predicts that free trade hurts owners of the country's scarce factor (unskilled labor in the US), driving down their real wages or eliminating their jobs due to cheap imports.

Junko is an auto factory worker in Japan, and her company exports cars globally. When Japan removes trade restrictions, how will Junko and her company's owner view this change according to the Ricardo-Viner model?

Answer: Both Junko and her employer will support trade liberalization. Ricardo-Viner assumes factors are industry-specific (immobile across sectors in the short run), meaning workers and capital owners in an export-oriented sector gain together from free trade.

How do American public attitudes shift when survey questions reframe general economic investment as "foreign investment" and "Chinese investment"

Answer: Public support drops significantly when investment is labeled "foreign," and drops even further when specified as "Chinese investment," illustrating that public attitudes toward inward FDI are driven by non-material nationalistic and security concerns rather than capital inflows alone.

Practice Question: Fiscal Exposure and Low-Skilled Immigration

In states with high taxes and generous public welfare benefits (high fiscal exposure), which native demographic group expresses the highest opposition to low-skilled immigration?

Answer: Poor native citizens. They fear low-skilled immigrants will increase competition for public services and dilute state social benefits.