HU Gang (Ada) PhD in Economics Senior Lecturer Asia-Australia Business

© 2018 Pearson Education, Ltd. All Rights Reserved.

data on trade, capital flows and migration.

1.2 Compute the trade-to-GDP

ratio and
explain its significance.

world economy today that are different from the economy at

the end of the first wave of globalization.

1.4 List the three types of evidence that trade supports economic growth.

components, including culture, language, economics, politics and more.
Globalization in the

economic sphere is also called international economic integration.
International economic integration has occurred rapidly since approximately 1950, but especially since the early 1970s.

of international economic integration is not the first.
A major wave

of globalization occurred between approximately 1870 and 1913.
This earlier wave was destroyed by World War I and II and the worldwide Great Depression of the 1930s.

integration by looking at
World trade
International capital flows
International migration
Convergence of

prices in different markets

integration by looking at
World trade
International capital flows
International migration
Convergence of

prices in different markets

of World War II in 1945, world trade has grown

much faster than world production.
In 1950, world trade equaled about 5.5 percent of world gross domestic product (GDP).
In 2013, world trade was about 30 percent of world GDP.

importance of world trade with the trade-to-GDP ratio.
Trade-to-GDP ratio is

exports plus imports divided by GDP:
Trade-to-GDP ratio = (exports + imports) ÷ GDP
The ratio does not tell us much about a country’s trade policies or openness to trade.

fell between 1913 and 1950, but has risen since then.

Each country shows the same pattern over time.

by:
A. exports divided by GDP. B. imports divided by GDP. C.

exports plus imports divided by GDP.
D. exports minus imports divided by GDP.

GDP and slower than during the first 50 years of

the twentieth century.
B) faster than GDP and faster than during the first 50 years of the twentieth century.
C) slower than GDP. D) None of the above.

$2000 million and 1000 million in exports. According to openness

indicator, Frontland is
A) a wealthier nation. B) a poorer nation.
C) a larger nation.
D) a smaller nation.

across international boundaries are part of international economic integration.
International migration

was larger, relative to population, before World War I than it is today.
Before World War I, most countries did not require passports and visas, and there were few border controls.

percent of the U.S. population was immigrants.
Today, it is around

13 percent.
Migration has increased since the 1960s, but immigrants as a percentage of the total population is less than it was in 1900.

capital flows:
Financial flows representing paper assets such as stocks and

bonds.
Capital flows that are used to purchase real assets such as real estate, or to set up businesses and factories.
The purchase of real assets is known as foreign direct investment (FDI).
Technological improvements facilitate increased capital flows.

larger than during the earlier wave of globalization;
Include many more

types of financial instruments;
Are frequently devoted to protecting against currency fluctuations;
Have lower transaction costs than in previous eras.

one country that are invested in another.
High savings countries tend

to have high investment, and low savings implies low investment.
Capital flows are not completely integrated.
Countries cannot completely depend on others for their investment funds.

deep integration, moving beyond shallow integration.
The presence of multilateral organizations

such as the World Trade Organization (WTO)
The growth of regional trade agreements, such as the European Union or the North American Free Trade Agreement.

integration consists of the removal of tariffs (taxes on imports)

and quotas (physical limits on import quantities).
As tariffs and quotas come down, other policies begin to limit trade.
Environmental policies
Labor policies
Safety standards, etc.
Deep integration occurs when countries try to reform domestic policies that limit trade.
Deep integration is much more controversial.

organizations are open to all countries.
They are new since World

War II. Prominent examples include:
International Monetary Fund;
World Bank;
World Trade Organization.

organizations reduce uncertainty in international economic relations. They
Mediate disputes;
Are forums

for setting rules;
Propose solutions to problems;
Provide technical and financial assistance.
Multilateral organizations are controversial; we look at them more closely in the next chapter.

trade agreements (RTAs) are composed of countries that give special

market access to each other.
Examples include the North American Free Trade Agreement (NAFTA) and the European Union (EU), among many others.
RTAs have dramatically grown in number since the 1980s.

trade agreements (RTAs) are not new.
RTAs are controversial among economists.
Some

economists think they hurt world trade by focusing a country’s attention on just a few trade partners.
Others believe they help world trade by loosening some barriers and trying out new agreements.

enables countries to grow faster and its people live better.
Evidence

comes in three forms:
Historical examples of countries.
Statistical comparisons of countries.
Economic models and deductive reasoning.
As we will see, trade benefits a nation but not necessarily every individual in the nation.