The

Global
Economy
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(GE 3)
GLOBALIZATION
A modern term used to describe the
changes in societies and the world
economy that result from
dramatically increased international

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trade and cultural exchange.
WHY DO NATIONS TRADE?
“Countries engage in international trade for two basic
reasons, each of which contributes to their gain from trade.
First, countries trade because they are different from each
other. Nations, like individuals, can benefit from their
differences by reaching an arrangement in which each does
the things it does relatively well. Second, countries trade to
achieve economies of scale in production. That is, if each
country produces only a limited range of goods, it can
produce each of these goods at a larger scale and hence
more efficiently than if it tried to produce everything. In

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the real world, patterns of international trade reflect the
interaction of both these motives.”
~Paul Krugman, International Economics
TRADE BARRIERS
Preventing a foreign product from freely
entering into a nation’s territory.

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TYPES OF TRADE BARRIERS

 Import Quota
 Voluntary Export Restraint
 Tariff
 Informal Barriers
 Government Licensing Restrictions
 Government Health and Safety

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Requirements
QUOTA
A quota is a government-
imposed trade restriction that
limits the number or monetary
value of goods that a country
can import or export during a
particular period. Countries
use quotas in international

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trade to help regulate the
volume of trade between them
and other countries.
VOLUNTARY EXPORT RESTRAINT

A voluntary export restraint (VER) is

a trade restriction on the quantity of a good
that an exporting country is allowed
to export to another country. This limit is
self-imposed by the exporting country.

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TARRIF
A tariff is a tax imposed by one country on the
goods and services imported from another
country.

KEY TAKEAWAYS
 Governments impose tariffs to raise revenue,
protect domestic industries, or exert political
leverage over another country.

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 Tariffs often result in unwanted side effects,
such as higher consumer prices.
EFFECTS OF TRADE BARRIERS

The overall impact of trade barriers is that

they limit supply. This results in two
common consequences:
 Increased price of foreign goods
 Trade wars

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PROTECTIONISM
The use of trade barriers to protect industries
from foreign competition.
POSITIVES
 Protect jobs
 Enhance national security
NEGATIVES
 Reduces global living standard

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 Limits attempts for international peace
INTERNATIONAL AGREEMENTS
World Trade Organization (1995)~ The only international
organization dealing with the global rules of trade
between nations. Its main function is to ensure that
trade flows as smoothly, predictably and freely as
possible. European Union (1951/1999)~ A regional
economic agreement among 27 countries across the
European continent. NAFTA (1994)~ This agreement
removed most barriers to trade and investment among
the United States, Canada, and Mexico. Under the

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NAFTA, all non-tariff barriers to agricultural trade
between the United States and Mexico were eliminated.
The agreement was phased in from and has increased
trade by over 200% since it was enacted.
ISSUES IN DEVELOPMENT
 Rapid population growth
 Resource distribution
 Lack of physical capital
 Lack of human capital
 Health/Nutrition
 Education/Training
 “Brain Drain”
 Political Factors
 Colonial Dependency to Independent Planning

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 Government Corruption
 Political Instability (civil wars, social unrest, lack of
government infrastructure)
 Debt
RAPID POPULATION GROWTH
Many countries of the world are experiencing
rapid population growth and although every case
is different one consistent similarity is that these
nations are most often less developed countries.

Examples: Sudan, Ethiopia and Kenya

Why is population growing in these countries?

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At the core it is simple math - many more people
are being born than are dying.
 Why are there more babies being born?
 Children may be needed to help earn money
 Lack of contraceptive devices may lead to unwanted
pregnancies and babies.
 The local or national culture or government may
encourage large families
 Parents may be fearful of infant mortality (children dying
very young)
 Better medical facilities could be increasing the lives of
mothers and therefore increasing their chances of having
larger families
 Why are there fewer deaths now?

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 Better birthing facilities
 More widely available medicines and medical expertise
 A general improvement in diet and nutrition in many
countries
 RESOURCE DISTRIBUTION
In parts of Africa, Asia, and Latin America,
physical geography makes development
more difficult. Only about 10 percent of the
world’s land is arable, or suitable for
producing crops.

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LACK OF HUMAN CAPITAL HEALTH AND
NUTRITION
 Proper food and nutrition are necessary for physical
and mental growth and development.
 Inadequate nutrition is called malnutrition.
 Education and Training
 To be able to use technology and move beyond mere
subsistence, a nation must have an educated work
force.
 Brain Drain

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 The scientists, engineers, teachers, and entrepreneurs
of LDCs are often enticed to the benefits of living in a
developed nation. The loss of educated citizens to the
developed world is called “brain drain.”
POLITICAL INSTABILITY
Political instability plagues less developed
nations with civil wars and social unrest
acting to prevent the necessary social
stability required for sustained
development.

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CORRUPTION

“Corruption is a major cause of poverty as

well as a barrier to overcoming it. The two
scourges feed off each other, locking their
populations in a cycle of misery. Corruption
must be vigorously addressed if aid is to

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make a real difference in freeing people
from poverty.” Peter Eigen
“Corruption isn’t a natural disaster: it is the
cold, calculated theft of opportunity from
the men, women and children who are least
able to protect themselves. Leaders must go
beyond lip service and make good on their
promises to provide the commitment and
resources to improve governance,
transparency and accountability.”

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David Nussbaum
DEBT
“Debt is an efficient tool. It ensures access to other
peoples' raw materials and infrastructure on the
cheapest possible terms. Dozens of countries must
compete for shrinking export markets and can export
only a limited range of products because of Northern
protectionism and their lack of cash to invest in
diversification. Market saturation ensues, reducing
exporters' income to a bare minimum while the North
enjoys huge savings. The IMF cannot seem to understand
that investing in ... [a] healthy, well-fed, literate

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population ... is the most intelligent economic choice a
country can make.”--  Susan George, A Fate Worse Than
Debt, (New York: Grove Weidenfeld, 1990), pp. 143,
187, 235
 EFFECTS
OF
GLOBALIZATION

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