Globalization and Sustainability
What are the three potential areas of global economic governance?
- Allocation: overcoming market failures to increase the efficiency of markets - Distribution: overcoming poverty and social inequality - Stabilization: overcoming recessions and crises
Show in a global IS-LM model the impact of an expansionary monetary policy on global income in a recession. Could the Bank of England provide such a monetary impulse?
- Demand side • Recession in a (major) trading partner • New risk perception surrounding a crisis event (with impact on consumer and business confidence) - Supply side • Oil price shock • Financial crisis and credit crunch (see next chapter below) • Sudden increase or decline in productivity (e.g. lockdown; GVC disruption)
Why is the current phase the most pronounced globalization process in history?
4th industrial revolution - including the pace at which per capita GDP expanded • New technology • New production processes and innovations • Accumulation of productive capital (capital also entering economic theory as a concept) • Globalisation encompassing the whole world for the first time - Peace probably also played a role (after Napoleonic wars ended in 1815, and after World War II) First time the entire world was looking at being incorporated with globalization
Is the Corona crisis in your view a demand shock, a supply shock or both?
Both
What is a systemic risk--and what market failure causes it?
Capital flows cause systemic risks which is when the financial system is threatened or collapses
What do you think is the reason why China grew so strongly since the 1970s, whereas North Korea did not?
China became a global contributor whereas North Korea shut its borders and does not look to grow and accept help from outsiders so they are stuck in their old ways
What does "race to the bottom" mean when discussing globalization?
Countries competing to lower taxes and fees could be a good thing, but leads to unsustainable levels and leads to increases in other fees making the economy distorted
Why--from a public choice viewpoint--globalization opponents often get through their views against globalization supporters?
Countries have always been separate and no one wants to be the crazy person who made everyone become global and then it not work out. People do not like change? The nonsupporters are louder and more people hear the negative things?
How should a country with large oil reserves behave in your opinion? Please take into consideration the Hotelling rule as well as factors of a "resource curse".
Current versus future extraction, only take what you need? Look for a way to reuse old oils and use limited amounts of the oil reserve. Also look at market prices, and do not extract when prices are low. Wait until they rise again because that means there is low supply.But in Hotelling rule, they are told to extract now? Think about what they should put the money they make in to, is it something that is for the economy or something not necessarily needed.
Describe one example each for the three kinds of market failures in globalization.
Externalities: Trade could cause more mobility/transport ways, causing energy loss plus carbondioxide emissions (climate change) negative externalities. Natural Monopolies: Other national monopolies will be removed, increasing competitive prices which is a good thing for globalization Asymmetric Information: Quality is less known and will not fulfill agreements
Is there any global governance institution that has been a clear success so far?
FSB allocation policy, since 2008 but not without critism
What are the positive economic effects of international capital flows?
Financial liberalization, trade, wealth to investing countries
Why can growth skepticism be wrong from an economics viewpoint?
For an economic, there is always a way to improve and look for a new way to allocate scarce resources because they are not always short in one area of the world, it moves around and provides opportunities to continue to change. They can always grow
How can you measure globalization from an economics viewpoint?
For economists, the positives have to out weigh the negatives for the group as a whole. So you could measure by seeing if pollution rates go down, if unemployment goes down, if GDP goes up with the least amount of negative aspects.
What is the most important single leading indicator of the world economy?
GDP, the output or value of products produced
What are typical properties of global business cycles since 1980?
Global recession every decade, volatility has intensified, shocks, financial crises, migration crises
Why do you think many are still opposed to globalization? And why is this resistance to globalization strongest when it comes to migration?
Globalization would mean giving up some of your own power and money in order to get everyone on the same page governmentally and financially. The resistance is strongest with migration because opening borders means open up to other people's cultures, and sharing with those less fortunate. There would be less resources and financial support for those of their own country because it would be going to other countries' people
Who are the losers in free trade?
Home country businesses: b/c customers could find cheaper items elsewhere Government: no taxes
What do future generations have to do with the term "sustainability"?
How sustainable we are today has to do with how much we are willing to use and develop the needs of today without compromising the ability of future generations to make decisions
Development policy may have both the goal to support growth in poor countries, and also the goal to remove poverty in poor countries. How could this contribute to global sustainability? And what are the risks of development policy?
If they development policy helps enhance poor countries, then they are able to contribute on a more global basis and work towards the goal of having a sustainable world. The risks however, are that they are given more tech such as cars and then are adding to the environmental issues of GHG and climate change
Why do you think poor countries often have problems to achieve higher economic growth? Describe at least four reasons.
Industrial Revolution (poor countries have not gone through them so have not grown into industrial power), Education (poor countries do not give access to education to everyone), Technology changes (rich countries are able to have higher tech and poor countries are stuck in old times and therefore labor output does not increase), Migration (poor countries end up with less workers and less outputs)
Describe the development of global economic growth since the 19th century in contrast to previous times. What is the major phenomenon here?
Industrial revolution occurred, only in the last two decades did the poor countries start to catch up and now globalization is starting to touch all countries of the world
Which growth theories could predict continues global economic growth in the next centuries-- and which could not? (name two each and reasons why)
Malthusian sees resources constraints and Solow sees limit in growth per capital accumulation
Who are the losers of migration in immigration country and in the emigration country--and why?
Migrant countries customers because less resources for them, home countries businesses because less workers
Which are in your view has most market failures: trade, capital flows or migration? And why?
Migration because it has some of all three market failures: pos externality is more workers, neg externality is less work/money/resources for migrant country, natural monopoly is more workers and more people buying product so prices can increase in competitive market, asymmetric information is the new country does not know these people whether they are good or bad or well they work
How do migration and capital flows interact with he public finance of a country?
Migration increases the public finance of the host country because they are now given more hands in the labor force, more purchasers of public goods and more people paying taxes. The capital flows would be a negative affect on public finance because investing keeps the money flowing round but increased inflows could cause credit booms and inflation
What are the risks of global monetary policy and global fiscal policy for sustainability?
Monetary: interest rates are close to 0 so no expansionary monetary policy, inflation, viscious bank circle Fiscal Policy: debt crisis, risk of defaulting, higher inflation
Show in a neoclassical migration model the benefits of migration for the whole world (including a graph with descriptions)
Neoclassical Model of Capital Movement Capital increases and interest rate goes down for country A Vice versa for country B Capital flows where interests rates are high in order to make the interest rate decrease
In what direction could a migration crisis shift the overall impact of migration on the immigration economy--into a better development or net negative impact? Try to explain your answer.
Net negative, because they are not increasing the per capita (dividing by more people), they would have gotten more resources per person, do not gain business knowledge
Will China surpass Western industrial countries with its economic system?
No, because China is one country and having multiple countries working together means more minds coming up with solutions and continuing to adjust to what the Western industrial countries view as the next step in the industrial revolution
The Solow model assumes a declining marginal rate of capital productivity. Do you think this is realistic?
No, because as population increases, we are likely to laziness set in and the idea that someone else will do it. While it is possible we might see more Einsteins, looking at capital productivity with more people means some will do more than the average, but some will do less than the average so overall the margin will ultimately stay the same.
In what way could globalization contribute to economic growth in the Solow model? How could it do that in new growth theories?
Positive on welfares and increases on capital flow at a faster rate but negative on unemployment for immigrants.The new growth models are looking for innovation through population growth, higher education, and governmental conflicts being solved
Discuss how globalization could on the one hand help against climate change-- and how it could on the other hand make climate change worse. Explain why you would see globalization as either more negative or positive for climate change.
Positive: if all the smart minds of the world are working together they can come up with a way to solve climate change and working on a global scale would mean agreeing upon something to pollute less Negative: globally commuting and trading would mean more trains, planes, and transportation exhaust to go up
Could development policy with official development aid (ODA) by governments of rich countries help? Describe at least two factors that are in favor of such ODA and two that are against ODA.
Positives: Growth (overcome problems in financial market) and removing poverty (help of globalization) Negatives: Capital transfers distort domestic economy and corruption and/or incentives by rich countries to get poor countries to bow down to them
How are certain key import goods and public goods related?
Public goods are non-rival, non-excludable; and import goods are welcome to everyone who can afford them? If they are key goods, it does not matter where they come from, everyone should be able to acquire some
What are the potential disadvantages of a regional integration?
Regional integration is something to help overcome division to keep the goods and services flowing. Different preferences about policies can lead to regional integration but regional integration can cause discrimination.
Why do migrants bringing capital (including human capital) with them increase the welfare of the immigrant country?
Same amount of resources with less people to provide for
Which financial crisis theory is most convincing in your eyes--and why?
Solow because once a steady state is achieved, then they can start to grow, they will just need some globalization help to get started
The neoclassical Solow model predicts poor countries will grow faster than rich countries. Yet the opposite is true in many cases. Describe three reasons why.
The Solow model looks at the future and how much they can improve, but in order for them to start improving they have to be willing to accept help. They also do not have the resources to start improving without the help. If they receive help, then they are in debt and the country is never able to grow because the big country never lets them get out or forget all they did for them
Who are in your view the biggest winners and losers in globalization-- and why?
The biggest winners are small, poor countries. They get the support of the large countries, are able to move to wealthier locations and find better jobs. Biggest losers are the large, rich countries that now have to financially support smaller countries and deal with immigrants and loss of money made from high import taxes.
If a study and a chart showed to you that countries with high openness to trade often have high real GDP growth rate-- could you conclude without doubt that globalization is good for growth?
The chart and study would have to be well thought through with no holes, for an extended period of time, and be over a time where there was hardship and how the countries were able to adapt with their openness to trade compared to a country who went through the same period but was not able to have the openness
Why could globalization in theory lead to more inequality in the world -- and within the countries?
The idea of globalization is that everything can move smoothly between countries and everyone has the same resources, but this will cause inequalities because some people work for everything they had and they would have to give up things they earned to those who did not work for it and globally will never work because rich countries will thing they should have more control over the global decisions and small countries do not have the money to make decisions. Poor countries will forever be in debt to the rich countries for helping them out.
How could free global commodities markets help overcome resource constraints?
Then you are able to get the commodities needed
How does free trade lead to higher welfare of all participating countries?
They can import and export freely without taxes and fees and able to reach more countries and customers
Restricting asylum seekers to work in an immigration country can help to protect low-skilled workers in a country from losing wages or their jobs. Still, what are the economic problems of such labour market restrictions?
They get put in terrible conditions to work, not paid enough, never can make enough to get better job, do not achieve more skills, no growth in knowledge
How can globalization lead to better national economic policies?
They want to find policies that are best for everyone, easier to economically be involved in the economy, support from richer countries to poorer countries
Why are there world market prices for goods, but the international interest rate convergence is limited in reality?
This is so countries cannot over tax something
Illustrate how unemployment could be made worse by globalization.
Unemployment rate and year on each axis: shows how much immigrants will be affected; immigrate to high populated big cities with not enough space and jobs for new people
Reasons for recent stagnation of globalization?
appear to make global solutions less attractive, no one believes in climate change, migration
Even if a global governance in a certain area would make economic sense, what could prevent or impair it from a public choice point of view?
are they giving the gov too much power, is the it a sustainable choice
What tasks could social policy have on a global scale?
increased welfare, improve effects on migration,
What are the main insights of public choice theories?
limit gov power and focus on reducing taxes ie money for the gov; politicians, NGOs, household, companies
What are the main points of growth critics--and how could their viewpoint provide a better way for more sustainability in the world?
too boring, too vague, too late; maybe we will start to see problems sooner and come up with new creative ideas from past experiences that are able to work if tweeked slightly
Is overcoming poverty in the world a task for global governance and a global institution? Briefly explain your answer from an economic viewpoint.
yes, because global governance is the economic policy on a global scale and global institution such as the World Bank should look for ways to help lower income families and poor countries. They are never able to dig themselves out of the hole if they are not given some options of ways to get out of it.