Trading Barbs: A Primer on the Globalization Debate

By Kliesen, Kevin L. | Regional Economist, October 2007 | Go to article overview

Trading Barbs: A Primer on the Globalization Debate


Kliesen, Kevin L., Regional Economist


Support for free trade in many parts of the world, though still favorable, appears to have waned recently. this erosion may reflect rising uncertainties associated with job losses in industries that are exposed to international competition. it may also reflect a widening in the income distribution that has been associated with the rise of china, india and other fast-growing countries. on the flip side, imports of low-priced goods and services convey measurable benefits to consumers and companies, and multinational firms are responsible for a significant portion of the rising u.s. productivity growth over the past dozen years.

Hence, like most economic developments, trade produces costs and benefits. despite these ups and downs, economic history shows that increased economic integration is a long-running process that enhances living standards for an increasing share of the world's population.

Globalization: Past and Present

Globalization can be defined as a phenomenon of increased economic integration among nations, characterized by the movement of people, ideas, social customs and products across borders. this phenomenon has a long history, as attested by the historic trade routes developed during the roman empire, as well as those pioneered by Marco Polo or ocean voyagers like columbus and Magellan. Globalization has been crucial for economic growth over time. in his influential study The World Economy: A Millennial Perspective, the noted economic historian angus Maddison argued that economic advancement across time was sustained by three interactive processes:

* conquest or settlement of relatively empty areas that had fertile land, new biological resources or a potential to accommodate transfers of population, crops and livestock;

* international trade and capital movements; and

* technological and institutional innovation.

As Maddison and others have noted, technological innovations have played a key role in spurring previous globalization episodes. transfers of technology from asia and egypt (e.g., silk, spices, textiles, glass blowing and rice) helped venice and its colonies play a key role in the development of europe. similarly, innovations in shipbuilding and navigation were crucial to developing new trans-oceanic routes and to reducing shipping costs. later, advancements in science and finance helped to spur the rise of the dutch republic and britain as colonial powers and intellectual hubs (universities). as economic integration spread across continents, political and financial institutions evolved to enhance and regulate the global marketplace.

The current globalization period, which more or less began in the 1960s, contains many of the same aspects of earlier episodes. in today's case, falling transportation costs, the opening up of new markets (asia, eastern europe and south america) and the general lowering of tariffs worldwide have helped boost international trade as a share of domestic economic activity.

A key development behind the current globalization wave is the revolution in information and communication technologies (ict). although the movement of ships, trucks or railroads carrying merchandise goods is still the dominant form of trade between countries, trade in services that takes place across transoceanic cables or by satellite is of increasing importance. as with earlier episodes, falling real costs of transportation, of the processing of information and of the spread of new ideas-in this case, via the internet-have been crucial.

The increased openness of the united states and the rest of the world to international trade can be seen in the figure, which shows the sum of imports and exports of goods and services as a share of GdP. Whereas the u.s. share of trade is a little more than a quarter of GdP, the rest of the world's exposure to international trade is considerably larger: 70 percent. From this standpoint, developments that affect the movement of financial capital across international borders-the opposite of trade in goods and services-can sometimes have significant consequences for many countries. …

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