ECONOMIC INTEGRATION IN A
GLOBALISING WORLD ECONOMY:
HISTORY, DRIVERSAND EFFECTS
Jacob A. Jordaan
Utrecht University School of Economics
j.a.jordaan@uu.nl
Outline today
• Introduction of the course and context
• Globalisation
• Meaning
• Growing importance
• Trade, inputs, multinational enterprises, global value chains
• Economic integration
• Meaning
• Growing importance
• ↑ Effects of globalisation, global governance
• Topics of the course
• Trade theory and empirics
• World Trade Organisation
• Economic effects of membership trade agreements
• European Economic Integration and economic effects
• Political economy of trade policy
• Brexit
2Economic Integration in a Globalising World Economy
Set up of course
• See course manual for all the information
• I will be here for two weeks for all the lecture sessions
• Examination of the course
• Written exam (open questions covering the lecture slides and
required readings)
• I will make 6 questions, any 4 need to be answered
• I don’t know when this will take place
• Essay
• Hand in sometime close to end of term, will investigate
• Grading
• Maximum score is 90; 60 for exam, 30 for essay
3Economic Integration in a Globalising World Economy
Essay
• Topics
• The Heckscher-Ohlin model still provides a good explanation for trade
between developed economies;
• WTO membership does not enhance trade;
• International trade is an important driver of economic growth;
• Membership of the EU generates large economic effects in Eastern Europe;
• The concept of endogenous policy making is very useful in understanding
government trade policy choices.
• Feel free to be creative!
• Email me if in doubt
• The length of the essay should be maximum 7 pages
(excluding references and appendices)
Economic Integration in a Globalising World Economy 4
Essay structure
• Introduction: relevance/importance/interesting aspect of your essay
topic? How do you interpret the topic? What is your specific research
question?
• Theory: what is (are) the main theory(ies) that is (are) relevant for
your essay topic?
• Empirical evidence on the topic: use the findings from 2-3
academic papers that provide empirical evidence that relate to your
essay topic. What are the research approaches and what are the
findings?
• Critical analysis: critical assessment of the 2-3 academic papers that
you discussed in the previous section; you could for instance
challenge the estimation strategy that researchers use. Alternatively,
you could analyze to what extent the findings are linked to the
underlying theories that you identified in section 2.
• Summary and conclusions
• The academic papers that you use for your essay need to be different
from the articles that are on the required readings list.
Economic Integration in a Globalising World Economy 5
Goals of the course
• Obtain overview of main developments related to
globalisation and economic integration
• Develop better understanding of the meaning and
development of key components
• Develop better understanding of key relationships
• Develop capacity to particiate in and critically evaluate
current debates
• Link main theories to empirical evidence
Economic Integration in a Globalising World Economy 6
Context (1)
• World economy is still recovering from latest crisis
• Strong debate on how to restart economic growth
• Variability in ability to recover
• Crisis reveals structural bottlenecks
• Important changes in field of economics regarding drivers of
economic growth
• From proximate to fundamental causes of growth
• Roles of institutions, social values, culture
• Policy implications of these not fully worked out yet
• Economic growth linked to growing inequality
• Developing countries
• ↑ recognition in developed countries
7Economic Integration in a Globalising World Economy
Context (2)
• Globalisation under increased scrutiny (again!)
• Globalisation did not prevent latest crisis
• Globalisation facilitated worldwide spread of crisis
• Globalisation caused crisis?
• Trade, migration, multinationals
• Opponents of globalisation provide variety of criticisms
• Developed versus developing economies
• Dependency, exploitation
• Environment, race to the bottom
• Governance, multinational enterprises, democracy
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Context (3)
• Economic Integration
• Always mixture of economics and politics
• EU good example
• For a considerable time positively viewed
• Focus on economic gains
• Free movement of goods, capital, people
• Gains clearly visible
• Joint processes of globalisation, liberalisation and integration
• Integration facilitated by GO’s and NGO’s
• Last 10 to 15 years decreasing popularity
• (unsurprising) stagnation of gains
• Stagnation of international trade agreements
• WTO, TTIP, TPP, Brexit
• Decreasing economics, increasing politics
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Context (4)
• Globalisation and economic integration intricately
linked
• Important and heated debates on positives and
negatives
• Currently negatives emphasised
• Debates not always clear
• Interpretation of concepts
• Facts and fiction
• Relations with an array of topics
• Clear need for more focused analysis
• History, causes and effects
• Start with this today
• Followed by key topics
10Economic Integration in a Globalising World Economy
Globalisation
• Popular understanding clear
• Various dimensions
• Economic
• Political
• Cultural
• In this course we focus on economic elements
• International trade and investment earliest
proponents of globalisation
• Some debate on when it started
• 17th century: Transatlantic trade
• 19th century: Industrial revolution
• Post WW II: recovery and growth of world economy
11Economic Integration in a Globalising World Economy
Meaning and main components
• Globalisation
• Increases in cross-border movements of goods, services, capital,
people and knowledge
• Growing interdependence between countries
• Growing dependence of individual economies on developments
world economy
• Important components
• Trade
• Inputs: Capital and people
• Multinational enterprises
• Global value chains
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Divergence between countries
Economic Integration in a Globalising World Economy 13
Acemoglu, D., Johnson, S. and Robinson, J. (2005) The rise of
Europe: Atlantic trade, institutional change and economic growth.
American Economic Review, vol. 95(3), p. 546-579
Trade and economic divergence
Economic Integration in a Globalising World Economy 14
Acemoglu, D., Johnson, S. and Robinson, J. (2005) The rise of
Europe: Atlantic trade, institutional change and economic growth.
American Economic Review, vol. 95(3), p. 546-579
International trade – first wave of globalisation
15
Source: based on Cambridge Economic History
Economic Integration in a Globalising World Economy
International trade – stagnation and decline
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International trade – second wave of globalisation
17
Source: Based on Annual Report 2016-2017
Bank for International Settlements
Economic Integration in a Globalising World Economy
Second wave of globalisation
18Economic Integration in a Globalising World Economy
19Economic Integration in a Globalising World Economy
Main trading blocs
20
North
America
South and
Central
America Europe CIS Africa
Middle
East Asia
World 17.3 4 36.7 2.8 3.5 4.2 29.7 100
North America 50.2 8.6 15.2 0.7 1.7 3.2 20.4 100
South and
Central America 24.8 25.8 16.4 1.4 2.5 2.4 24.5 100
Europe 7.9 1.7 68.5 3.2 3.3 3.4 10.8 100
CIS 3.9 0.9 52.4 17.8 2.1 3.1 18.2 100
Africa 7 5.1 36.2 0.4 17.7 3.3 27.3 100
Middle East 7.7 0.8 11.5 0.5 2.8 8.8 53.9 100
Asia 18 3.1 15.2 2.1 3.5 5.1 52.3 100
Source: Based on International Trade Statistics 2015
Economic Integration in a Globalising World Economy
Growing importance services
21
Source: Based on UNCTAD
Economic Integration in a Globalising World Economy
Trade in commercial services
22
The Economist,
March 3, 2001
Economic Integration in a Globalising World Economy
Globalisation: Trade and capital
23
Source: OECD
Economic Integration in a Globalising World Economy
International portfolio investment
• Cross-border transactions and positions involving
equity or debt securities, other than those included in
direct investment or reserve assets
• Key importance: negotiability
• Ownership readily transferable
• Traded on organised markets
• Often very liquid
• Variety of institutions active
• Central banks
• Governments
• Financial corporations
• Non-financial corporations and households
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Foreign Direct Investment
When is international capital investment FDI?
1. Investment made to acquire lasting interest in
enterprises operating outside of the economy of the
investor
2. Purpose is to gain an effective voice in the management
of the enterprise
Multinational enterprise / Transnational corporation
= parent enterprise and affiliates in other countries
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26Economic Integration in a Globalising World Economy
27Economic Integration in a Globalising World Economy
Global value chains
• International production, trade and investment are
increasingly organised within global value chains
• Different stages of production are located in different
countries to take advantage of comparative
advantage of these countries
• Design, production, marketing, distribution, etc.
• Within production, this process has been going on for
some time now
• Outsourcing and off-shoring
• Opens up new opportunities and challenges
28Economic Integration in a Globalising World Economy
29
Emerging Asian
regionalism:
A partnership for
shared
prosperity
Asian
Development
Bank 2008
Economic Integration in a Globalising World Economy
30Economic Integration in a Globalising World Economy
Hyundai in the Czech Republic
Economic Integration in a Globalising World Economy 31
Products
Economic Integration in a Globalising World Economy 32
33Economic Integration in a Globalising World Economy
Key aspects globalisation
• Trade and capital flows core components globalisation
• Post WWII: second wave of globalisation
• North America, EU and Asia
• ↑ importance trade in services
• ↑ importance of multinational enterprises
• Strongly related to trade flows
• Global value chains latest example of what
globalisation processes are creating
34Economic Integration in a Globalising World Economy
Economic integration
= Effect of globalisation
• Growing interdependence of countries on international markets
(goods, services, capital)
• Operations multinational enterprises link countries’ economies
• Global value chains further reinforce this
= Cause of globalisation
• Efforts by (groups of) countries to advance positive effects of world
economy
= Ways to govern, regulate and manage economic
cooperation and interdependence
35Economic Integration in a Globalising World Economy
Globalisation, cooperation and integration
• Following WW II
• Openness and international trade key elements for
international development
• Reaction against isolation politics from the 1930s
• Needed to restore world economy
• United Nations, World Bank, IMF, OECD
• General Agreement on Tariffs and Trade, later WTO
• Different levels of commitment, enforcement, etc.
36Economic Integration in a Globalising World Economy
Growing overall importance…
37
Source: UNCTAD 2015
Economic Integration in a Globalising World Economy
…but different levels of integration
38
Economist, October 12, 2013
Free trade Area
Customs Union
Common Market
Monetary Union
Fiscal Union
Political Union
Economic Integration in a Globalising World Economy
EU and preferential trade
39Economic Integration in a Globalising World Economy
Globalisation and integration
• Globalisation fosters the desire and need to strengthen
informal and formal integration
• How to solve problems with trade agreements?
→ Strengthen integration
• Preferential trade agreement → customs union
• Customs union → common market
• Common market → monetary union
• Monetary union → fiscal union
• Fiscal union → political union
• More and more issues are tied to economic integration
• Inequality, environment, labour issues, etc.
40Economic Integration in a Globalising World Economy
Stagnation economic integration
• Last decade has seen stagnation of economic
integration
• Stagnation trade negotiations World Trade Organisation
• US withdrawal from TPP
• Heated debates surrounding TTIP
• Brexit
• Growing protests other member states EU
• Public opinion against free trade, multinationals, etc.
• Decreasing gains from economic integration
• Not surprising, given huge gains in the past!
• Economic downturns are linked to globalisation and integration
• Decreasing importance of economics, increasing importance of
politics
41Economic Integration in a Globalising World Economy
US tariffs on steel and aluminium
Economic Integration in a Globalising World Economy 42
March 8, Trump signed presidential proclamation on steel and aluminium
tariffs (25% on steel, 10% on tariffs)
Trump on CNN: "Today I'm defending America's national security by
placing tariffs on foreign imports of steel and aluminum"
Topics of the course (1)
• So how can we get a better understanding of these
developments and debates?
• International trade: theory and empirical effects
• Standard trade theory & new trade theory
• What are expected effects from trade?
• International trade and economic growth
• World Trade Organisation
• How does this organisation work?
• What are the key issues obstructing further economic integration?
43Economic Integration in a Globalising World Economy
Topics of the course (2)
• Effects of economic integration: membership of trade
agreements
• What types of agreements are currently in operation?
• What are the actual economic effects of membership?
• European Economic Integration
• EU unique case study
• Overview of main developments
• What are the key issues obstructing further progress?
• Economic effects of EU membership
• What are the main expected effects of EU membership?
• What is the empirical evidence?
44Economic Integration in a Globalising World Economy
Topics of the course (3)
• Political economy of trade policy
• Theory usually treats trade policy as exogenous factor
• In reality: choice for trade policy endogenous!
• What is the evidence on this?
• Opinions on free trade and Brexit
• Politicians follow public opinion, so we need to know what the
public thinks of globalisation and integration
• Brexit as case study
45Economic Integration in a Globalising World Economy