Globalization, Trade & International Business — Comprehensive Exam Notes

Chapter 1: The Rise of Globalization

  • Meaning & Scope

    • Socio-economic reform process eliminating barriers to trade, investment, information, technology, culture and politics across borders.

    • Aims to generate higher economic growth and deeper geopolitical interdependence.

    • Implies freer international flows of goods, services, capital, labour & ideas; tends to make nations more efficient, interdependent, inclusive & homogeneous.

    • Reform pillars:

    • Strengthening the private sector & free-market pricing.

    • Abolishing international barriers to the free movement of the 5 flows above.

    • Promoting institutions that enforce transparency, disclosure & rule of law.

  • Historical Acceleration

    • Rapid post-WW II expansion (≈ 1944 onward) driven by Bretton Woods institutions: World Bank, IMF, and GATT (now WTO).

Emerging Economies

  • Implementing open-trade & free-market policies.

  • Pre-2000: business mainly flowed from developed → developing.

  • Today: flows both directions & South-to-South.

  • Centre of economic gravity shifts toward China, India, etc.

  • Emerging markets increasingly conduct R&D, redesign products to lower cost without sacrificing quality.

Decoupling & the Multipolar World

  • Decoupling: developing economies grow on own fundamentals rather than rich-country cycles.

  • Sustained decoupling → multipolar world with many growth engines (US, EU, China, India, Brazil, Russia, S Africa…).

Key International Institutions Facilitating Globalization

1 International Monetary Fund (IMF)

  • Created July 1944 to ensure stable exchange-rate system & remove FX restrictions.

  • Functions:

    • Track global trends & issue early warnings.

    • Forum for policy dialogue & dissemination of reform know-how.

    • Lend temporary FX under safeguards to solve BoP\text{BoP} problems.

    • Promote exchange-rate stability & open payments system.

2 World Bank Group

  • Original mission: rebuild Europe post-WW II.

  • Five focus areas:

    1. Global integration via trade liberalisation.

    2. Advisory role to strengthen free-market institutions & infrastructure.

    3. Support for international standards (esp. finance).

    4. Knowledge & IT transfer for sustainable development.

    5. Eradicating communicable diseases while respecting cultural heritage.

  • Development arms:

    • IBRD – reconstruction & restructuring (raises funds in capital markets).

    • IDA – long-term low-interest loans to poorest members.

    • IFC – loans & equity in private firms; develops capital markets.

    • MIGA – political-risk insurance.

    • ICSID – arbitration of investment disputes.

3 World Trade Organization (WTO)

  • Originated 1948 as GATT; evolved into WTO.

  • Mandate: administer agreements, forum for talks, settle disputes, review policies, assist developing nations, cooperate with IMF/WB.

  • Five governing principles:

    1. Non-discrimination (MFN & national treatment).

    2. Freer trade through negotiations.

    3. Predictability – binding tariffs/commitments.

    4. Fair competition – curb export subsidies & dumping.

    5. Development – special & differential treatment for emerging economies.

Institutional Structure & Governance

  • Institutions = rules, enforcement mechanisms & organisations supporting markets.

  • Roles:

    1. Channel information on markets & players.

    2. Define property rights/contracts.

    3. Promote competition & innovation.

  • Transparency: WB presses governments to be open and manage “winners vs. losers” via social policies.

  • Adaptive Institutions (democratic checks & balances): create investment incentives.

    • Require accountability & transparency.

  • Media & IT (newspapers → TV → Internet → smartphones) expand oversight & access to information.

  • Independent judiciary & free press raise investor confidence via secure contracts & low crime.

Effective Domestic Policies Supporting Globalization

  1. Good Governance – high-quality public management.

  2. Competitive Markets – antitrust laws, minimise state-owned enterprises.

  3. Property-Right Protection – trust for transactions.

  4. Anticorruption – reduces cost & uncertainty.

Information Technology & Globalization

  • Digital era: lifestyles integrate Internet & wireless tech.

  • Falling bandwidth costs link more people.

  • Digital divide myth: cheaper devices/services narrow gap.

  • Leapfrogging: firms lead diffusion in developing economies; e.g. M-Pesa mobile money in Kenya/Africa.

  • NGOs see SMS dominance because it is universal, predictable cost, and low device requirement.

Globalization Controversy

  • Critics claim:

    1. Job losses & stagnant wages in advanced nations.

    2. Loss of local policy control.

    3. Disappearance of old industries.

    4. Erosion of communities.

  • Sustainable Development: meeting present needs without harming future; CSR increasingly shapes MNC location decisions.

  • Economists: globalization can raise quality of life but creates winners & losers; support mechanisms needed.

Winners

  • China (600 m lifted from poverty), India (> 500 m middle class), Brazil, Indonesia.

  • Rapid growth may spike commodity prices short-term; supply catches up, benefiting exporters long-term.

Losers

  • Nations unable/unwilling to participate; often authoritarian.

  • Central America, much of Africa, Central & West Asia, Myanmar, North Korea.

Chapter 2: Evolution of International Business

  • International business = all private & public cross-border transactions.

  • Growth in China/India shifts blue- & white-collar jobs overseas.

Benefits of Trade & FDI

  • Trade (exports & imports of goods/services) offers:

    1. More consumer choice.

    2. Lower prices.

    3. Higher living standards.

  • FDI = capital inflows for domestic plant/equipment or firm acquisition.

  • Open trade increases competition; outsourcing obtains goods/services abroad at lower cost.

Major Theories of International Trade

Mercantilism (1500–1750)

  • Wealth measured by precious metals; advocate trade surplus (\text{exports} > \text{imports}).

  • Ignored aggregate effects: universal surpluses impossible.

Specialisation Theories

  1. Absolute Advantage (Adam Smith) – country produces some good more efficiently.

  2. Comparative Advantage (David Ricardo) – produce goods with lowest opportunity cost even with absolute superiority.

Factor Endowment Theories

  1. Heckscher-Ohlin (H-O) – export goods using abundant factors (capital- vs. labour-intensive).

    • Assumptions: perfect competition, immobile factors across countries.

  2. Factor Price Equalisation (Samuelson) – free trade equalises factor prices globally.

Porter’s Diamond of National Competitive Advantage

  • Four internal determinants:

    1. Factor conditions.

    2. Demand conditions.

    3. Related & supporting industries.

    4. Firm strategy, structure & rivalry.

  • External variables: chance (e.g., COVID-19), government policies.

Trade Policy Instruments

  • Tariffs:

    • Specific (fixed/unit) & ad valorem (% of value).

  • Preferential duties (e.g., GSP), export subsidies, export taxes.

  • Most-Favoured Nation (MFN): any concession to one WTO partner → to all.

  • Nontariff barriers:

    • Import quotas/QRs.

    • Voluntary Export Restraints (VER).

    • Domestic content rules.

  • Managed Trade: negotiated outcomes.

Socio-economic Rationale

  • Countertrade, export cartels, infant-industry protection, labour/environment, health & safety.

Geopolitical Rationale

  • National security, strategic industries, embargoes (punitive sanctions).

Chapter 3: Regional Economic Integration

  • Regional integration = economic/political steps for competitiveness & preferential access; requires spatial transformation.

Stages

  1. Free-Trade Area – eliminate internal barriers.

  2. Customs Union – common external tariff.

  3. Common Market – free movement of capital & labour.

  4. Economic & Monetary Union – macro policy coordination & single currency.

  5. Political Union – common foreign & defence policy.

Pros vs. Cons

  • Pros: larger markets, economies of scale, factor mobility, peace & security, social welfare convergence.

  • Cons: undermines MFN, uniform laws ignore local variation, job losses in protected sectors, sovereignty loss, drugs/terrorism via open borders.

Economic Geography & Strategy

  • Three region types:

    1. Near world markets – leverage proximity (e.g., USMCA, DR-CAFTA).

    2. Remote w/ large markets – internal size offsets distance (US, EU, Australia).

    3. Remote small markets – need effective cooperation (many African & Pacific states).

Major Blocs

  • European Union: from ECSC (1950s) → EEC → EU (Maastricht 1992); euro currency; Brexit 2021; Turkey’s accession unresolved.

  • USMCA (2020) replaces NAFTA (1994): adds labour, environmental, SME, stricter auto rules of origin.

  • ASEAN: aims for economic, security, sociocultural communities; advocates rules-based, people-centred integration.

  • Latin America: LAFTA 1960 → Andean Group 1969 → MERCOSUR 1991 → DR-CAFTA 2005.

Chapter 4: International Flow of Funds & Exchange Rates

Balance of Payments (BOP)

  • Records all transactions between residents & rest of world for a period.

  • Current Account:

    1. Trade balance in goods.

    2. Services balance.

    3. Primary income balance (compensation, dividends, interest, rent, etc.).

    4. Secondary income (transfers).

  • Capital Account: non-produced non-financial assets & capital transfers (embassy land, licences, aid for capital projects).

  • Financial Account:

    1. Foreign Direct Investment.

    2. Portfolio investment.

    3. Financial derivatives & employee stock options.

    4. Other investment (hot money, trade credit).

  • Net Errors & Omissions: reconcile timing/illegal trade, ensuring BOP sums to zero.

  • Reserves: foreign assets held by monetary authority; change equals overall BOP +/- errors.

Foreign Exchange Market

  • Network of banks, traders, speculators & central banks.

  • Top currencies: USD, EUR, GBP, CNY, JPY.

  • Top centres: London, New York, Tokyo.

  • Roles: facilitate all BOP transactions.

Exchange-Rate Regimes

  1. Independent floating – market-determined (USD, EUR, GBP, JPY).

  2. Managed float – market + CB intervention (IDR, THB, RUB).

  3. Fixed/pegged – currency tied to anchor currency/basket within band.

Market Segments

  • Spot market: immediate delivery; quotes:

    • Direct (USD/FCU\text{USD}/\text{FCU}) vs. indirect.

    • Bid-ask spread = transaction fee.

  • Forward market: set rate today for future date; terms: forward rate, discount (forward < spot), premium (forward > spot), hedging risk.

  • Futures market: (listed but transcript ends before detail).

These bullet-point notes capture every significant idea, definition, example, statistic and policy mechanism discussed in the provided transcript, organised by chapter and topic to serve as a complete study replacement for the original material.