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Entrepreneurs, Firms, Growth and Poverty

Globalization and trade

Antonio Argandoa
Emeritus Professor of Economics
la Caixa Chair of Corporate Social Responsibility
and Corporate Governance

MCE Research Center

Rome, November 28 December 1, 2014

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Globalization is a strong growth in international flows of
goods, services, capital, labor, technology and information,
and an intensification of relations of interdependence
between countries
Ideas, knowledge and culture
Reduction of natural barriers
Reduction of political barriers
Reduction of social barriers

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Three phases of globalization

Phase 1: 1870-1914
Enormous increase in international exchange of goods, capital and
labor (10% of the world population emigrated; trade grew from
2% of global products in 1820 to 18% in 1914)
Growth of world per capita income and inequality
Phase 2: 1950-1980
Integration of the rich countries. Convergence of per capita
income among developed countries
Gap between rich and poor countries widened
Phase 3 : 1980-present
Economic reforms in poor countries (pro-market and opening of
these economies to foreign trade).
The countries that adopted this policy grew rapidly

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Trade globalization

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Some implications

Expanding markets, interdependence

Change in competitive advantages
New winners and losers
Breaking the value chain
Globalization + technology = competition
Taking advantage of economies of scale vs niche markets
Inequalities, conflicts
Innovation, creative destruction
Liberalization: removal of barriers
Global markets vs. regional blocs
Deregulation / re-regulation

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Financial Times, 24-25 mayo 2014

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Labor globalization

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Labor mobility

Forms of mobility
Migration: the worker is mobile
Trade: the goods are mobile
Outsourcing: the factory is mobile
Foreign investments: the capital is mobile

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The costs

Uncertainty, flexibility, turbulences
Polarization of jobs and wages, inequality
Quality of work
The sustainability of the welfare state
The role of institutions
Destruction of the community fabric
Change of values

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Financial globalization

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Financial globalization

Open, integrated markets

Financial operations
International movements of capital
Portfolio diversification
Foreign direct investment
Lower financial costs, more efficiency
Risk of instability (crisis)
Regulation (lack of)

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Domestic supply

World price

Price before trade

Domestic demand

QS Q* QD Quantity

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Domestic supply

Price before trade

World price

Domestic demand


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All countries gain from trade
but the distribution of costs and benefits is not irrelevant
Free trade vs protecionism: tariffs and subsidies
Import substitution
Standing up to foreign competition
Competition of low wages countries
Specific factors

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Comparative advantage
Every country has a comparative advantage in certain products or
markets, and not in others. It has no advantage in all of them
Origin of the comparative advantages
Traditional advantages
Geographical location (climate)
Factor endowment (arable land, minerals, population / labor)
Acquired factor endowment (physical capital, human capital, technology)
"New" advantages
Economies of scale
Anticipation: learning curve, "locking-in" the customers
The State as a partner (public procurement)
Collective strategies

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Comparative advantages
are dynamic and change
they are won and lost
they tend to change slowly over time
Different industries coexist for many years (some in decline, some
the companies in a sector in decline can maintain its comparative
advantages for a long time, perhaps losing them little by little
protecting the losers increases the costs of others, and reduces
the efficiency of the whole

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Arguments against comparative advantage
Creation of new industries (infant industries)
Development of new capacities
National safety
Jobs protection
Unfair competition
Argument for negotiation
Dual economy

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Thank you!