EOG: Summary of Week 1 (Lecture)

Definition of Globalization

• Greater interdependence between countries & their citizens.

Different Waves of Globalization

• There are 3 waves of globalization.

1st Wave of Globalization

• Timing: 1870 – 1914

• Key Drivers:
1) Decrease in tariff barriers.
2) Decrease in transport costs.
• Participants: European & American businesses & individuals.
• Additional Information:
o WW1 ended the 1st wave of globalization.
o Great Depression (1930s):
▪ Governments practiced protectionism → Fall in exports as a share of national
income.
2nd Wave of Globalization

• Timing: 1945 - 1980

o Key Drivers:
▪ Fear of retreating into nationalism.
▪ Falling transport costs.
o Impacts:
▪ Significant difference between developed & developing nations.
▪ Reason: Uneven Trade Liberalization
• Barriers facing developing countries had been eliminated for only
agricultural products.
o Mainly benefitted developed countries that export
manufactured goods.
▪ Developing countries were mainly left behind.
3rd Wave of Globalization

• Timing: 1980 – Present

o Many developing countries entered world markets for manufactured goods.
▪ Reason: Harnessed labor abundance to gain competitive advantage in labor-
intensive manufacturing.
▪ Main Participants: China, India & Brazil.
o Key Impacts:
▪ Rise of Global Supply Chains:
• Production is separated into stages/tasks undertaken in many
countries.
▪ Outsourcing:
• Subcontracting of work
• Purchase of components from other suppliers.
Import Substitution (ISI)

• Blocking imports of manufacturing goods can help an economy by increasing the demand
for domestically produced goods.
• If there are fertilizer imports, there should be a fertilizer factory.
o Rationale of ISI:
▪ High trade barriers → Exports cannot compete with advanced countries
▪ Protect infant industries

Measurement of Globalization

• Openness Index:
o Rough measure of the importance of international trade in a nation’s economy.
• Equation:
𝐸𝑥𝑝𝑜𝑟𝑡𝑠 + 𝐼𝑚𝑝𝑜𝑟𝑡𝑠
o Openness Index = 𝐺𝐷𝑃 
o Large countries tend to be less reliant on international trade.
▪ Reason: Many companies can attain an optimal production size (w/o the
need to export).