Topic 2: The challenges of international trade
Globalization: a process of growing integration and interdependence of nations, characterized by the intensification of international links of all types – commercial, financial, cultural, migratory…
Growth factors for globalization:
The innovation and improvement of major technologies (especially in communications and transportation services)
The liberalization of international exchanges (geopolitical)
Technological revolution: It is an all-purpose revolution with a rapid and ample diffusion of the IT process.
“Leapfrogging”: small and incremental innovations lead the dominant firm to stay ahead. However, sometimes, radical innovations will allow new firms to get ahead of the dominant firm
It’s a process initiated after WWII which seek world peace through wealth sharing.
Bretton Woods agreements (IMF, World Bank, GATT (General Agreement on Tariffs and Trade, later WTO)
Most visible in international trade and the financial markets
Average tariff in manufactures in the industrialized countries was 40% at the end of WWII. At the beginning of this century they were 5%
In the recent past, we have also witnessed an increase in economic and political freedom
Reduction of trade costs:
Trade liberalization, more freedom and technological advances have facilitated economic integration and a lower cost of transaction among countries
Lower transaction costs:
Border effect: asymmetries in trade patterns between cities and regions of different countries that share a national border and those that are located in the same country.
Gravity model: predicts bilateral trade flows based on the economic sizes (often using GDP measurements) and distance between two units.
Countries are expected to have larger trade flows if they are large and close