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Firms and Markets in Global Economies

Lecture 1: Notes
2015-2016
Introduction
A bird’s eye view of globalization:
Globalization: a large share of the population can access goods
made available by long distance trade.
The Roman peasants living in the Po river plane ate off tableware
from Naples……
The Fall of the Roman Empire: the end of trade? East, West and
Islam
The Age of discoveries:

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2 . 6).Source: Helpman Elhanan. Understanding Global Trade (p. 2010.

The aim: new markets for the Chinese manufactured goods.000 men. China’s trade routes link the Far East to Malindi and the Red Sea 20/9/1414……The first giraffe in town…… A typical Zheng Hue’s expeditions: 370 ships and 30. 3 .But a hundred years earlier: Between 1403-1430.

4 . brakes on liberalitation and competition. 7). 2010. After the II WW: an unprecedented expansion of long distance trade.The Golden Age of Globalization Source: Helpman Elhanan. Understanding Global Trade (p. accelerating in the ‘90s (Trade as a percentage of GDP). 1870-1913: drastic reduction in maritime transport costs due to innovation 1913-onwards: the IWW and after that.

30). Jonathan. Source: Eaton. in 2009 it is down to ¼ of its peak value.2007: the financial crisis hits The order of magnitude: Baltic Dry Index (BDI) falls by 90% btw June and October 2008. 5 . Samuel.” NBER Working Paper 16666. 2011. January (p. Kortum. “Trade and the Global Recession. Brent Neiman and John Romalis.

 The fall in download time  Consequences: improves in market efficiency. 2) Liberalization of trade and fall in transport costs:  NAFTA (1994)  Mercosur (1991-1994)  China and the WTO (2001)  European Enlargement.How we explain the surge in trade in the ’90? Mind: the forces at work then are at work also nowdays. pro-competitive government coalitions in the West (shift to the right) 6 . 1) The widespread adoption of ICT:  From 2 millions in 1994 to 2 billions internet users in 2010. 3) The fall of the Soviet Union and the opening up of East and Far East markets.

The main consequence: the disintegration of production processes across borders It shows up in statistics: In 2000:  50% of US imports were intra-firm trade  33% of US exports were toward affiliates The labour statistics tell the same story (eg. diagnostic imagining) Who are the Zue Hang of our time? 7 .

trading relationships are ever more customized/taylor made.. The LEGO in the ’60 and in 2015….For the sake of brevity. G. consider Europe Mayer. 8 . T. (2008) The Happy Few: The internationalisation of European firms. more productive. Intereconomics: 135-148  10% of exporting firms account for’80% of exports  Firms exporting more than 10 products in more than 10 countries accounts for 75% of exports  Exporting firms are larger. In the world of 3D printing. pay higher wages and makes more profits than non-exporting firms in the same industry The same holds true for investing firms. and Ottaviano.

Contract enforceability and economic institutions in early trade: The maghribi traders' coalition.Production is contract-intensive. 9 .  Reputation? See: Greif. A. American Economic Review. (1993). . 83: 525-548. But contracts are notoriously difficult to write and to enforce: a) State contingency: not of this world! b) Choice of law (the court may reject…) c) Are local courts fair to foreigners? d) The enforcement of remedies Tentative solutions:  United Nations Convention on Contracts for the International Sale of Goods: not all countries have signed it.  International Arbitration: competent but not cheap!  Heterogeneity: how long does it take to clear a bounced check? 39 days in Netherlands. 645 days in Italy.

How do firms deal with contract incompleteness? Contracts incompletess shapes organizational and location choices:  Outsourcing vs. Vertical Integration  Off-shoring vs. Domestic Production We will study how firms behave on international markets under the assumption of contract incompleteness:  we will consider exporting and investing firms  we will discuss the implications of imperfections on capital markets  we will study policy implications Our road map 10 .

Reading material (to be updated): Antras. E. FDI. and Trade Structure. How to study Assessment 11 . Princeton Univsersity Press. and the Organization of Firms. Contracts. Helpmann. (2011) Understanding Global Trade. (2015) Global Production: Firms.it/ Area economico statistica Corso di laurea magistrale International Economics…. The website http://elearning. E. P. (2006).unimib. University Press Harvard Helpman..” Journal of the Economic Literature: 589-630. “Trade.

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