IntroductionIntroduction to the Global to the Global EconomyEconomy

Firm in Homeserve foreign markets / source from abroad?

Stay domestic

Export

Export or local production?

Import or local production?

ImportMultinational activity:

horizontalMultinational activity:

vertical

no

yes, serve foreign market

yes, source from abroad

exportlocal

productionimportlocal

production

Part I Part I IntroductionIntroduction

Part IIPart IIFirms, trade, Firms, trade, and locationand location

Part IIIPart IIICapital, currency,Capital, currency,and crisesand crises

Part IV Part IV Consequences Consequences of globalizationof globalization Economic consequencesEconomic consequences

Figure IFigure I Firm decision tree and book overview Firm decision tree and book overview

Data sources: Louis Henri Fournet (1998) and the website http://www.nasa.gov, ‘A baby picture of the universe Data sources: Louis Henri Fournet (1998) and the website http://www.nasa.gov, ‘A baby picture of the universe tells its age’, 11 February 2003.tells its age’, 11 February 2003.

big bang

first stars

beginning of our galaxy beginning of our solar system

beginning of the geologic erasoldest know n fossil

beginning of photosynthesisend of precambrian era

end of primary era

present time13.7 billion years

10 billion years

200 million years

200 million years

800 million years

5 billion years3.5 billion years

3 billion years

2 billion years

Figure 1.1Figure 1.1 ‘Big Bang’ and beyond ‘Big Bang’ and beyond

Figure 1.2Figure 1.2 Development of world population over the last 2,500 years Development of world population over the last 2,500 years

170 265425

7000

0

1000

2000

3000

4000

5000

6000

7000

-500 0 500 1000 1500 2000year

po

pu

latio

n (

mill

ion

)

Mongol invasions

Black death

30 years war, Ming collapse

Data sources: Data sources: Kremer (1993, Kremer (1993, table 1) and table 1) and UN Population UN Population Division World Division World Population Population Prospects: Prospects: The 2010 The 2010 Revision.Revision.

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Table 1.1 The twenty countries with highest population and population density, 2010

Rank Country Population Country Density 1 China 1,338 Macao SAR, China 19,416 2 India 1,171 Monaco 17,704 3 United States 309 Singapore 7,252 4 Indonesia 240 Hong Kong SAR, China 6,783 5 Brazil 195 Gibraltar 2,924 6 Pakistan 174 Bahrain 1,660 7 Nigeria 158 Bermuda 1,292 8 Bangladesh 149 Malta 1,291 9 Russian Fed. 142 Bangladesh 1,142 10 Japan 127 Sint Maarten (Dutch part) 1,113 11 Mexico 113 Maldives 1,053 12 Philippines 93 Channel Islands 807 13 Vietnam 87 West Bank and Gaza 690 14 Ethiopia 83 Barbados 636 15 Germany 82 Mauritius 631 16 Egypt 81 Aruba 597 17 Iran 74 St. Martin (French part) 556 18 Turkey 73 Mayotte 552 19 Thailand 69 San Marino 526 20 Congo DR 66 Korea, Rep. 504 Source: World Development Indicators Online; population in million, population density in people per square kilometer

0

2

4

6

8

10

1900 1940 1980 2020 2060 2100year

wor

ld p

opul

atio

n (b

illio

n)

Figure 1.3Figure 1.3 Development in world population, UN projection to 2100 Development in world population, UN projection to 2100

Data source: UN Population Division World Population Prospects: The 2010 Revision, medium variant Data source: UN Population Division World Population Prospects: The 2010 Revision, medium variant

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Table 1.2 Population projections, 2000–2050, the world and continents

Population Total fertility Life expectancy Median age

2010 2050 2010 2050 2010 2050 2010 2050

World 6896 9306 2.45 2.17 69.3 75.6 29.2 38.5

Africa 1022 2192 4.37 2.89 57.4 68.2 19.7 27.4

Asia 4164 5142 2.18 1.88 70.4 76.7 29.2 41.9

Latin Americaa 590 751 2.17 1.79 74.7 79.8 27.6 42.3

Europe 738 719 1.59 1.91 76.5 81.7 40.1 45.5

Northern America

345 447 2.04 2.07 79.0 83.2 37.2 40.5

Oceania 37 55 2.45 2.21 77.7 82.5 32.8 38.5 a Unless otherwise specified, the term ‘Latin America’ includes the Caribbean throughout this book.

Data source: UN Population Division, World Population Prospects: The 2010 Revision.

Notes: Population in millions, total fertility in average number of children per woman. Data for total fertility and life expectancy at birth are five-year estimates (for 2010–2015 and 2045–50). The projections for 2050 are based on the UN’s medium variant.

Figure 1.4Figure 1.4 GDP and GNP, current $, 2010 GDP and GNP, current $, 2010

10

100

1,000

10,000

100,000

10 100 1,000 10,000 100,000

GDP (current US $, bn)

GN

I (c

urre

nt U

S $

, bn

)

USA

China

Germany

Japan

Luxembourg

Data source: World Bank Development Indicators Online; data are for 167 countries; the thin line is a 45° line; Data source: World Bank Development Indicators Online; data are for 167 countries; the thin line is a 45° line; bubbles proportional to size of GDP; double logarithmic scales.bubbles proportional to size of GDP; double logarithmic scales.

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Table 1.3 The twenty most powerful economies, 2010

GDP ppp GDP GDP per capita Current int. $ Current US $ Cur. int. $ Country Billion % total billion % total Dollar Rank 1 United States 14,587 19.4 14,587 23.5 47,199 8 2 China 10,170 13.5 5,927 9.5 7,599 96 3 Japan 4,302 5.7 5,459 8.8 33,753 25 4 India 4,195 5.6 1,727 2.8 3,582 124 5 Germany 3,044 4.0 3,281 5.3 37,260 19 6 Russian Fed. 2,812 3.7 1,480 2.4 19,840 47 7 Un. Kingdom 2,234 3.0 2,249 3.6 35,904 21 8 France 2,194 2.9 2,560 4.1 33,820 24 9 Brazil 2,185 2.9 2,088 3.4 11,210 76 10 Italy 1,909 2.5 2,051 3.3 31,555 27 11 Mexico 1,644 2.2 1,035 1.7 14,498 59 12 Spain 1,478 2.0 1,407 2.3 32,070 26 13 Korea, Rep. 1,418 1.9 1,014 1.6 29,004 30 14 Canada 1,330 1.8 1,577 2.5 38,989 17 15 Turkey 1,115 1.5 734 1.2 15,321 56 16 Indonesia 1,037 1.4 707 1.1 4,325 118 17 Australia* 891 1.2 953 1.5 40,589 13 18 Iran* 872 1.2 341 0.5 11,917 73 19 Poland 755 1.0 469 0.8 19,783 48 20 Netherlands 702 0.9 779 1.3 42,255 11 Data source: World Development Indicators Online, based on information for 180 countries * based on adjusted information for 2009

100

1,000

10,000

100,000

100 1,000 10,000 100,000current US $

PP

P in

tern

atio

nal $

Figure 1.5 Figure 1.5 Correction of GDP Correction of GDP per capitaper capita for purchasing power, 2010 for purchasing power, 2010

Data source: World Bank Development Indicators Online.Data source: World Bank Development Indicators Online.

467 453566

666

7614

100

1,000

10,000

0 500 1000 1500 2000year

Wor

ld G

DP

per

cap

itaFigure 1.6 Figure 1.6 Development of worldDevelopment of world per capita per capita income over the last 2,000 years, income over the last 2,000 years, logarithmic graph logarithmic graph

Data source: Maddison Historical Statistics 1-2008 AD; 1990 international Geary-Khamis dollarsData source: Maddison Historical Statistics 1-2008 AD; 1990 international Geary-Khamis dollars

400

200

-400

-200

1 1000 15001600 1700 1800 1900 2000

% above world average(world = 100)

% below world average (country = 100)

ItalyIranIraq

Italy

UKNetherlands

Switzerland

USAAustralia

Many Many

Western

Offshoots

Australia

New

Zealand

New

Zealand

Western

Offshoots

Other

Africa

China

India

Iraq

Figure 1.8 Figure 1.8 Leaders and laggards in GDPLeaders and laggards in GDP per capita per capita: a widening perspective: a widening perspective

Data source: Maddison Historical Statistics 1-2008 AD; Data source: Maddison Historical Statistics 1-2008 AD; deviation relative to world index = 100 for positive and country deviation relative to world index = 100 for positive and country index = 100 for negative deviations.index = 100 for negative deviations.

Carrying capacity of merchant fleets, 1470-1780

0

200,000

400,000

600,000

800,000

1,000,000

1470 1570 1670 1780

Netherlands Germany Britain France Italy, Portugal, Spain

Figure 1.9Figure 1.9 Carrying capacity of European merchant fleets, 1470–1780, metric Carrying capacity of European merchant fleets, 1470–1780, metric tons tons

Data source: Maddison (2001, p. 77); absence of a bar in a year for a particular country /group indicates that no Data source: Maddison (2001, p. 77); absence of a bar in a year for a particular country /group indicates that no data are available.data are available.

Figure 1.10Figure 1.10 Two ‘waves’ of globalization, merchandise exports, per cent of GDP Two ‘waves’ of globalization, merchandise exports, per cent of GDP

Merchandise exports, % of GDP

4.6

22.8

2.5

11.3

18.7

0

5

10

15

20

25

1870 1890 1910 1930 1950 1970 1990 2010

World USA Japan

Data sources: Maddison (2001, table F-5) in constant 1990 prices, extended to 2010 using WTO International Data sources: Maddison (2001, table F-5) in constant 1990 prices, extended to 2010 using WTO International Trade Statistics and World Development Indicators Online. Trade Statistics and World Development Indicators Online.

Figure 1.11Figure 1.11 Trade and market integration Trade and market integration

price

quantity

A

Home import demand

Foreign export supply

BC

1

1

1

2

paF

pbH

paH

pbF

pc

qa qb qc

price

quantity

A

Home import demand

Foreign export supply

BC

1

1

1

2

paF

pbH

paH

pbF

pc

qa qb qc

Beugelsdijk, Brakman, Garretsen, and van MarrewijkBeugelsdijk, Brakman, Garretsen, and van Marrewijk International Economics and International Economics and BusinessBusiness© Cambridge University Press, 2013© Cambridge University Press, 2013 Chapter 1 – The global economyChapter 1 – The global economy

Table 1.5 Price convergence and declining transport cost, 1870–1913

Transport cost reductions (index)

American export routes, deflated freight cost 1869/71–1908/10 100 to 55

American east coast routes, deflated freight cost 1869/71–1911/13 100 to 55

British tramp, deflated freight cost 1869/71–1911/13 100 to 78

Commodity price convergence at selected markets (% deviation)

Liverpool–Chicago, wheat price gap 1870–1912 58 to 16

London–Cincinnati, bacon price gap 1870–1913 93 to 18

Philadelphia–London, pig iron price gap 1870–1913 85 to 19

London–Boston, wool price gap 1870–1913 59 to 28

London–Buenos Aires, hides price gap 1870–1913 28 to 9

Source: O’Rourke and Williamson (2000, table 1).

Beugelsdijk, Brakman, Garretsen, and van MarrewijkBeugelsdijk, Brakman, Garretsen, and van Marrewijk International Economics and International Economics and BusinessBusiness© Cambridge University Press, 2013© Cambridge University Press, 2013 Chapter 1 – The global economyChapter 1 – The global economy

Table 1.6 Tariffs on manufactures for selected countries, 1820–2010, per cent

1820a 1875a, b 1913a, b 1931c 1950c 2010c

Denmark 30 15–20 14 – 3 1.9 (EU)

France Prohibition 12–15 20 30 18 1.9 (EU)

Germany – 4–6 13 21 26 1.9 (EU)

Italy – 8–10 18 46 25 1.9 (EU)

Russia Prohibition 15 84 Prohibition Prohibition 6.0

Spain Prohibition 15–20 41 63 – 1.9 (EU)

Sweden Prohibition 3–5 20 21 9 1.9 (EU)

Netherlands

7 3–5 4 – 11 1.9 (EU)

UK 50 0 0 – 23 1.9 (EU)

USA 45 40 44 48 14 3.0 Sources: a Baldwin and Martin (1999, table 8); b O’Rourke and Williamson (1999, table 6.1); c World Development Indicators Online; – = data unavailable.

Figure 1.12 Figure 1.12 London external bond spread, 1870–1940, fourteen core and London external bond spread, 1870–1940, fourteen core and empire bonds empire bonds

1870 1910 1920 1930 19401890 19001880-10

-5

0

5

10

1870 1910 1920 1930 19401890 19001880-10

-5

0

5

10

Source: Based on Obstfeld and Taylor (2003); the units are percentage points.Source: Based on Obstfeld and Taylor (2003); the units are percentage points.

Figure 1.13 Figure 1.13 Foreign capital stocks; assets/world GDP, 1860–2000 Foreign capital stocks; assets/world GDP, 1860–2000

0.6

0.4

0.2

01860 1880 1900 19601920 1940 1980 2000

Foreign capital stocks; assets / world GDP0.6

0.4

0.2

01860 1880 1900 19601920 1940 1980 2000

Foreign capital stocks; assets / world GDP

Source: Based on Obstfeld and Taylor (2003).Source: Based on Obstfeld and Taylor (2003).

Figure 1.14Figure 1.14 Relative migration flows, Western Europe and Western Offshoots, Relative migration flows, Western Europe and Western Offshoots, 1870–2010, per 1,000 inhabitants 1870–2010, per 1,000 inhabitants

-2

0

2

4

6

1870-1913 1914-1949 1950-1973 1974-1998 2000-2010

Western Europe Western Offshoots

Data sources: Net migration in the period (Maddison, 2001, table 3-4) is divided by the (simple) average Data sources: Net migration in the period (Maddison, 2001, table 3-4) is divided by the (simple) average population and length of the period, normalized per 1,000 inhabitants; updated for the period 2000-2010 with population and length of the period, normalized per 1,000 inhabitants; updated for the period 2000-2010 with data from UN Population Division, Migration Section; Western Europe consists of Belgium, France, Germany, data from UN Population Division, Migration Section; Western Europe consists of Belgium, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, and UK. Italy, Netherlands, Norway, Sweden, Switzerland, and UK.

Figure 1.15 Figure 1.15 Traditional and globalized fragmented production processes Traditional and globalized fragmented production processes

production block

country Afirm 1

inputs markets

production block 1

country Afirm 1

inputs

markets

production block 4

country Afirm 1

production block 3

country Cfirm 2

production block 2

country Bfirm 1

inputsinputs

inputs

I. traditional production process

II. globalized fragmented production process

service link

service link

service link

service link

production block

country Afirm 1

inputs markets

production block 1

country Afirm 1

inputs

markets

production block 4

country Afirm 1

production block 3

country Cfirm 2

production block 2

country Bfirm 1

inputsinputs

inputs

I. traditional production process

II. globalized fragmented production process

service link

service link

service link

service link

Figure 1.16Figure 1.16 Change in night light intensity on the Korean peninsula, 1992-2008 Change in night light intensity on the Korean peninsula, 1992-2008

Source: Henderson, Storeygard, and Weil (2011), reprinted with permission Source: Henderson, Storeygard, and Weil (2011), reprinted with permission