CHAPTER 12
Globalization is one of the most
frequently used words in discussions of
development, trade, and international
political economy. The increasing
integration of national economies into
expanding international markets.
It is a process by which the economies
of the world become more integrated,
leading to a global economy and,
increasingly, global economic
policymaking.
Globalization also refers to an emerging
“global culture,” in which people
consume similar goods and services
across countries and use a common
language of business.
World Trade Organization (WTO)
Geneva-based watchdog and enforcer of
international trade agreements since
1995; replaced the General Agreement
on Tariffs and Trade (GATT).
Adam Smith wrote in 1776, “the
division of labor is limited by the extent
of the market.”
China and India, have recently been
using globalization as an opportunity to
accelerate their rate of catch-up by
growing faster.
General Agreement on Tariffs and
Trade (GATT) An international body
set up in 1947 to explore ways and
means of reducing tariffs on
internationally traded goods and
services; replaced in 1995 by the World
Trade Organization.
Rent In macroeconomics, the share of
national income going to the owners of
the productive resource, land (i.e.,
landlords). In everyday usage, the price
paid for the use of property (e.g.,
buildings, housing). In microeconomics,
economic rent is the payment to a factor
of production over and above its highest
opportunity cost. In public choice theory,
rent refers to those excess payments that
are gained as a result of government
laws, policies, or regulations.
Primary products are products
derived from all extractive
occupations—farming, lumbering,
fishing, mining, and quarrying,
foodstuffs, and raw materials.
Export dependence is a country’s
reliance on exports as the major source
of financing for development activities.
Current account is an excess of import
payments over export receipts for goods
and services. The portion of a country’s
balance of payments that reflects the
market value of the country’s “visible”
(e.g., commodity trade) and “invisible”
(e.g., shipping services) exports and
imports.
Capital account is a receipt of foreign
private and public lending and
investment in excess of repayment of
principal and interest on former loans
and investments. The portion of a
country’s balance of payments that
shows the volume of private foreign
investment and public grants and loans
that flow into and out of the country.
Four basic economic concepts:
efficiency, equity, stability, and growth.
Free trade is the importation and
exportation of goods without any
barriers in the form of tariffs, quotas, or
other restrictions.
China as “workshop of the world”
highlights the connection between
manufactured export share and high
growth in developing countries.
Income elasticity of demand is the
responsiveness of the quantity of a
commodity demanded to changes in the
consumer’s income, measured by the
proportionate change in quantity divided
by the proportionate change in income.
Price elasticity of demand is the
responsiveness of the quantity of a
commodity demanded to a change in its
price, expressed as the percentage
change in quantity demanded divided by
the percentage change in price.
Export earnings instability is a wide
fluctuations in developing country
earnings on commodity exports
resulting from low price and income
elasticities of demand leading to erratic
movements in export prices.
Commodity terms of trade is the ratio
of a country’s average export price to its
average import price.
economies not fully monetized.
Comparative advantage is a
production of a commodity at a lower
opportunity cost than any of the
alternative commodities that could be
produced.
Specialization is a concentration of
resources in the production of relatively
few commodities.
The concept of relative cost and price
differences is basic to the theory of
international trade. The principle of
comparative advantage, as it is called,
asserts that a country should, and under
competitive conditions will, specialize
in the export of the products that it can
produce at the lowest relative cost.
Absolute advantage is a production of
a commodity with the same amount of
real resources as another producer but at
a lower absolute unit cost.
