Globalization and Outlook

(Part 3)
 In case you´re interested

https://www.worldbank.org/en/events/2021/09/29/trade-part-of-solution-to-climate-change
Outline
 What is globalization?
 Two main drivers of globalization
 Technological revolution
 Liberalization
 False ideas about globalization
 Current trends in world trade
 False ideas
about globalization
Three false ideas

1. Globalization is something new, exclusive to

our times

2. Globalization is irreversible

3. Globalizacion is complete or, at least, very

profound and extensive
Globalization is new
“The archaeological record demonstrates that our Ice Age
ancestors were already trading tens of thousands of years ago.
Cromagnon sites in the interior of the Pleistocene Europe
contain Baltic marine amber and Mediterranean seashells
transported a thousand miles inland, plus obsidian, flint,
jasper and other hard stones especially suitable for stone-tool-
making transported hundreds of miles from the sites where
they had been quarried”

The World Until Yesterday: What Can We Learn From

Traditional Societies (Jared Diamond, 2012)
Globalization is new
First Globalization (1870-1913)

Several factors contributed to a deep economic

integration
• Pax Britannica (“British Peace”)
• Monetary stability (gold standard)
• Improvements in transport and communications
• New territories
• Economic growth and productivity
Reduction in costs

Source: O´Rourke and Williamson (1999) and Williamson (1999 and 2000)
Irreversible?
• Several forces operate against globalization
• The descontent with the shape of globalization and its results (Stolper–
Samuelson theorem: relationship between relative prices of goods and
relative returns to f.o.p)
• Political tensions (US- China trade war, the two World Wars) and different
ideologies (North Korea)
• Economic crises (Great Depresion)
• The rise of populism and protectionism
• Fear (Xenophobia, terrorism, covid)
Irreversible?

link
Irreversible?

link
Irreversible?
Irreversible?
Irreversible?
Irreversible?
An incomplete process
• Border effect (“Home bias” in trade and equity)
• Feldstein-Horioka paradox (in theory: it is not necessary for levels
of domestic I and S to be correlated, as investors would seek the best
opportunity, wherever it is. This is not the case in real life and domestic S and
domestic I are in fact correlated)

• Reduction in purchasing power

• The problem of exchange rates

• Severe limitations on migration

• Non-tradeable nature of many goods and especially
services
Current trends
Current trends in world trade
1. Some goods and services become tradable
(technological advances)
2. Trade patterns change because of FDI. The role of
global value chains
3. Increase in south-south trade and new global players
4. Uncertainty about trade partnership. Maybe an increase
in bilateral agreements?
5. The threat of protectionism
Tradables vs non-tradables
• Some goods and services lose their "non-tradable" status because
of technological advances

• Reduction of transportations costs

• The information and communications technology breaks the

geographical link between the production and consumption
of services: expansion of trade in services
• Outsourcing  send it to another comapany (not need to be
international)
• Offshoring  NEEDS TO BE INTERNATIONAL
Current trends in world trade
1. Some goods and services become tradable
(technological advances)
2. Trade patterns change because of FDI. The role of
global value chains
3. Increase in south-south trade and eew global players
4. Uncertainty about trade partnership. Maybe an increase
in bilateral agreements?
5. The threat of protectionism
Global value chains
International production, trade and investments are
increasingly organized within so-called global value chains
(GVCs) where the different stages of the production process
are located across different countries.

52%
of world trade in goods
(excluding fuels) is in
intermediate goods and services

Source: WTO
Global value chains
Trade in intermediate goods took a significant hit during the
pandemic, but is rebounding
Global value chains
Firms try to optimize their production processes by locating the
various stages across different sites.

The past decades have witnessed a strong trend towards the

international dispersion of value chain activities such as design,
production, marketing, distribution, etc.

Drivers Decisions
Globalization Localization
Information technology Product / process design
Regulation Supply
Logistics

Objectives
Quality
Cost COMPETITIVE
Services
Time
ADVANTAGE
Flexibility
Global value chains
This emergence of GVCs challenges conventional wisdom on
how we look at economic globalization and in particular, the
policies that we develop around it.

https://www.wto.org/english/res_e/booksp_e/gvc_dev_report_2019_e_ch1.pdf
Global value chains

https://www.wto.org/english/res_e/booksp_e/gvc_dev_report_2019_e_ch1.pdf
Global value chains

https://www.wto.org/english/res_e/booksp_e/gvc_dev_report_2019_e_ch5.pdf
Global value chains
International trade is in part the flow of inputs and
intermediate products of the same production process (trade
connecting the various links in the chain)
Forward integration is a form of vertical integration in which
companies expand their activities to control the direct distribution
Indices of participation in of their products. Ex: handling the shipping of products directly to
global supply chains (% of customers
Exports)
(Source: WTO/OCDE)
Backward integration is a form of vertical integration involving the
purchase (or merger) of suppliers in the supply chain

“forward”

“backward”
Global value chains
GVCs intensify the relationship between international trade and
foreign direct investment

https://thedocs.worldbank.org/en/doc/
c9af0143184de77cb58ddd5adf024508-
0350012021/original/Chapter-1-An-
Investment-Perspective-on-Global-Value-
Chains.pdf

Against popular belief, more and more this involves south-south

trade
Global value chains
Problems:

1)The costs of tariffs accumulate as intermediate products move

between countries

2) Costs incurred by the procedures and customs requirements,

which often create uncertainty (changes in the necessary
documentation in the procedure, in processing permits, ...)

These are particularly troublesome for companies that need to

plan carefully the time and resources required for production (ie,
the "just in time")
Current trends in world trade
1. Some goods and services become tradable
(technological advances)
2. Trade patterns change because of FDI. The role of
global value chains
3. Increase in south-south trade and new global players
4. Uncertainty about trade partnership. Maybe an increase
in bilateral agreements?
5. The threat of protectionism
6. Covid-19
New global players

https://www.businessinsider.com/mckinsey-worlds-economic-center-of-gravity-2012-6
New global players

https://www.tradefinanceglobal.com/posts/summary-dits-global-trade-outlook-future-of-international-trade/
New global players

https://developmentfinance.un.org/trade-and-sustainable-development-goals
New global players

https://www.wto.org/english/res_e/statis_e/
wts2019_e/wts2019chapter02_e.pdf
New global players
New global players

https://www.ft.com/content/6f65b053-af11-4fee-a0c6-43adbe3f4e00
South-South trade
South-South trade

https://stats.unctad.org/handbook/MerchandiseTrade/ByPartner.html

Source:UNCTAD
Current trends in world trade
1. Some goods and services become tradable
(technological advances)
2. Trade patterns change because of FDI. The role of
global value chains
3. Increase in south-south trade and new global players
4. Uncertainty about trade partnership. Probably an
increase in bilateral agreements?
5. The threat of protectionism
6. Covid-19
Intra-regional trade
AFR Africa
Much of trade trade flows are intra-regional ASI Asia
CIS Commonwealth of independent states
EUR Europe
World merchandise exports (US billions) MEA Middle East
NAX North America Source: WTO
Regional Trade Agreements

EFTA states: Iceland, Liechtenstein, Norway and Switzerland

CIS: Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and
Ukraine.
Regionalism
• The number of RTAs (regional trade agreements) keeps growing

• As of September 2021, 350 RTAs were in force.

• The trend is likely to continue given the numerous such agreements currently
being negotiated.
Regionalism
• Various types of regional agreements are possible:

• Free Trade Agreement (FTA): eliminate mutual barriers

• Customs Union: FTA + establishment against common external tariffs

(FTA + common external tariff, with common external trade policy)

• Single Market: trade barriers eliminated and freedom of movement of

factors of production and enterprise
Regionalism vs multilateralism
• In principle, regional agreements seem at odds with the
principles of the multilateral system

• But they can be complementary, hence these agreements are seen

as permissible exceptions in the multilateral system

• They must meet certain conditions:

• The agreement facilitates trade between countries that subscribe to it
• The agreement does not involve the establishment of protectionist
conditions to other countries
Current trends in world trade
1. Some goods and services become tradable
(technological advances)
2. Trade patterns change because of FDI. The role of
global value chains
3. Increase in south-south trade and new global players
4. Uncertainty about trade partnership. Maybe an increase
in bilateral agreements?
5. The threat of protectionism
6. Covid-19
Feb 14th 2018

link

link

link
https://www.santander.com/en/press-room/insights/protectionism-vs-
globalization
Current trends in world trade
1. Some goods and services become tradable
(technological advances)
2. Trade patterns change because of FDI. The role of
global value chains
3. Increase in south-south trade and new global players
4. Uncertainty about trade partnership. Maybe an increase
in bilateral agreements?
5. The threat of protectionism
6. Co-Vid 19
CoVid
• Movement of people was severely restricted

https://www.economist.com/europe/2020/08/22/covid-19-is-threatening-europes-schengen-passport-free-zone
CoVid
• Disruption and mistrust of global value chains
CoVid
• Sharp decline in trade:
• International trade fell by 5.6 percent in 2020
• The number, albeit large, is smaller than expected as we saw a rebound in
late 2020, partly due to government programs that supported
consumption

• Estimates suggest strong recovery: 8-10% growth for 2021 and

about 4% in 2022

• Risks:
• Regional disparities
• Insufficient production & distribution of vaccines
• Public deficits and debt (because trade is highly linked to GDP)
CoVid

https://www.wto.org/english/news_e/pres21_e/pr876_e.htm
CoVid
• Protectionism
Going forward
• Sharp decline but rapid rebound in international trade, with
regional disparities
Going forward
• Sharp decline but rapid rebound in international trade, with
regional disparities

https://www.wto.org/english/res_e/statis_e/wts2021_e/wts2021_e.pdf
Going forward
• Regional disparities
Going forward
• Recovery is stronger in manufacturing than services

https://www.wto.org/english/res_e/statis_e/wts2021_e/wts2021_e.pdf
Going forward:

• Recovery after CoVid:

• Maybe the trade recovery was partially caused by restocking in 2021
after lower-than-average inventory-to-sales ratios in 2020

• New CoVid variants could affect high-contact sectors (particularly

services) and global value chains

• Global trade disputes and trade negotiations

• US-China relations, uncertainty about 2021 Doha round and WTO Ministerial
conference…
• Likely more protectionism in trade and investment
• Regionalism vs multilateralism
Going forward:

• Population dynamics:
• Smaller global population growth, and mostly concentrated in emerging
economies, could lead to more moderate increases in trade

• Aging populations may shift demand to service-intensive sectors and increased

dependency ratios may reduce available income

• Pressure towards more sustainability

• Regulations
• Demand for changes in products and processes

• New technologies that could affect GVC

• Advanced robotics and AI
• Digitalization
https://www.wto.org/english/news_e/news_e.htm
https://www.wto.org/english/news_e/news21_e/
wtoi_23sep21_e.htm
In case you´re interested…
In case you´re interested…
https://www.worldbank.org/en/events/
2021/09/29/trade-part-of-solution-to-climate-
change
 In case you´re interested

https://www.worldbank.org/en/events/2021/09/29/trade-part-of-solution-to-climate-change