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CHAPTER 18
(MACRO CHAPTER 18)
Globalization
FUNDAMENTAL QUESTIONS
1. What is globalization?
2. What are the arguments against globalization?
OVERVIEW AND OBJECTIVES
The primary purpose of this chapter is to introduce the potential costs and benefits of globalization and
to analyze the historical record regarding the effects of globalization.
The unique features of the chapter include a discussion of financial crises in developing countries with
an emphasis on the role that globalization played in those crises.
After reading and reviewing this chapter, the student should be able to:
1. Define globalization.
2. Discuss the role that technological change has played in globalization.
KEY TERM REVIEW
“race to the bottom”
Asian tigers
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LECTURE OUTLINE AND TEACHING STRATEGIES
I. The Meaning of Globalization
A. Globalization is neither new nor widespread: Globalization has increased at an accelerated
II. Globalization Controversy
A. Arguments against globalization: Critics view globalization as enriching corporate elites at
the expense of poor people and the environment.
1. “Fair,” not “free,” trade: Free trade may encourage governments to participate in a
“race to the bottom.”
B. Arguments in favor of globalization: Supporters believe that free trade and international
investment result in higher living standards.
1. Free trade helps developing countries
III. Globalization, Economic Growth, and Incomes
Globalization increases economic growth without increases in income inequality within nations.
Losers in world globalization are the countries that have not participated.
IV. Financial Crises and Globalization
A. Crises of the 1990s: Countries that experienced crises in the 1990s had large amounts of
short-term debt, large drops in the stock market, and substantial drops in the exchange rate
against the U.S. dollar.
B. Exchange rates and financial crises: Each of the countries that suffered a financial crisis had
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OPPORTUNITIES FOR DISCUSSION
1. Why does the dollar fluctuate with other currencies?
2. How did the United States go from being the world’s largest creditor nation to the world’s largest
debtor?
ANSWERS TO EXERCISES
1. Globalization involves an increased cross-border flow of trade in goods, services, and financial
assets along with increased international mobility of technology, information, and individuals.
2. Globalization is not new. The forces that drive globalization have existed as long as humans have
been around. Even primitive societies engaged in trade so that living standards were higher than
otherwise possible.
6. Arguments against globalization include a concern that free trade is harmful to people;
international organizations serve only the interests of corporations; and there is a “race to the
bottom” because countries offer lax regulations for environmental quality and labor standards to
offer multinational firms better opportunities for profit.
7. Supporters of globalization argue that trade based on comparative advantage raises living
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10. This may describe certain industries like the production of shoes or clothing. However,
multinational firm production is aimed increasingly at supplying local markets. The U.S.
12. Globalization allows for international financial flows that punish countries following bad
economic policy.
13. Once it became clear that the domestic currency was overvalued relative to the true free-market
14. A speculative attack occurs when private speculators start selling more domestic currency for
foreign dollars, expecting that the central bank will be forced to devalue the domestic currency.
15. Key variables would be large devaluations of domestic currency with fixed exchange rates, falling
16. The financial crisis of 2007-2008 illustrated how important the integration of international
financial markets could be in contributing to the spread of financial problems from one country to
another.
ANSWERS TO STUDY GUIDE HOMEWORK
1. Globalization refers to the process by which people, goods, and services move more freely across
national borders.
2. The KOF Swiss Economic Institute. It ranks countires in terms of three broad categories:
• \ Economic globalization: long distance flows of goods, capital and services as well as
3. The arguments for globalization are that free trade based on comparative advantage raises living
4. The arguments against globalization are that free trade is harmful to people who might lose their
jobs if lower-cost foreign producers are permitted to compete with domestic producers; countries
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5. The World Bank study concluded: (1) Economic growth has increased with globalization, (2)
6. If a country follows bad economic policies, short-term foreign investment funds will flow out of
the country, which will make its existing problems worse.
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ACTIVE LEARNING EXERCISE
This exercise is intended for students to explore the concepts of globalized versus non-globalized
Split the class into groups of four. Each group is to consider the following scenarios:
1. A report is due at the end of the term from each group. All members of the group will receive the
same grade, regardless of their individual contributions.