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XII. Globalization: International Trade and Migration
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 "Globalization" refers to the growing interdependence of countries resulting from their
increased economic integration via trade, foreign investment, foreign
aid, and international migration of people and ideas. Is globalization an inevitable phenomenon of
human history? Can all countries benefit from it? Or does it bring about new forms of inequality and
exploitation? The balance of globalization’s costs and benefits for different groups of countries
and different groups of people within these countries is one of the hottest topics in development.
It inspires not only academic and public debates but also violent clashes in the streets of many capital
cities.
Most activists of various antiglobalization movements would probably agree that they are not against
the idea of closer international trade ties and cooperation per se. What really concerns them is the
practice of globalization driven by narrow economic interests of large transnational corporations (TNCs).
They argue that the interests of poorer countries and the interests of the less privileged in developed
countries are often not taken into account. Or that the environmental and social costs of economic
development tend to be underestimated. And the economic benefits of globalization are distributed too
unfairly. In short, they see the ongoing globalization process as unsustainable (see Chapter
1). Is it the only kind of globalization possible? Is deglobalization the only alternative? Or
can a more democratic, more inclusive management of globalization turn it into the most effective tool
for dealing with the pressing problems of our time?
Waves of Modern Globalization
Globalization is not altogether new. Researchers point out three waves of modern globalization, the
first of which started more than 100 years ago and took place between 1870 and 1914. Over this period,
exports nearly doubled relative to world GDP (to about 8 percent) and
foreign investment nearly tripled relative to the GDP of developing countries in Africa, Asia, and
Latin America. International migration was particularly dramatic, with about 10 percent of the world’s
population moving from Europe to the New World and from China and India to the less populated neighboring
countries. However, this impressive wave of globalization was virtually reversed during the First World
War, the Great Depression, and the Second World War. By the end of the 1940s foreign trade as a share
of GDP was at about the same level as in 1870.
The second wave of globalization lasted from the 1950s to the 1980s and involved mostly developed
countries. Trade and investment flows were growing among the countries of Europe, North America,
and Japan, aided by a series of multilateral agreements on trade liberalization under
the auspices of the General Agreement on Tariffs and
Trade (GATT). At the same time most developing countries were
stuck in the role of primary goods exporters and were largely isolated
from international capital flows. Researchers also noticed that while there was a trend toward convergence
of per capita incomes between the richer and poorer members of the Organization
for Economic Cooperation and Development (OECD), the gap between the developed and the developing
countries widened (see also Figure 4.4).
The third, current wave of globalization started in the 1980s and continues today, driven by two main
factors. One involves technological advances that have radically lowered the costs of transportation,
communication, and computation to the extent that it is often economically feasible for a firm to locate
different phases of production in different and far-away countries. The other factor has to do with
the increasing liberalization of trade and capital markets: more and
more governments of developing countries choose to reduce protection of
their economies from foreign competition and influence by lowering import
tariffs and minimizing nontariff barriers such as import quotas,
export restraints, and legal prohibitions. A number of international institutions established in the
wake of the Second World War—including the World
Bank, the International Monetary Fund (IMF), and
the World Trade Organization (WTO, preceded by the
GATT until 1995)—play an important role in promoting global free trade in place of protectionism.
Over the past two decades some 24 developing countries have approximately doubled their ratio of
trade (exports plus imports) to GDP. This group of “new globalizers” includes the countries
with the largest populations–China and India–and is home to about 3 billion people overall.
On the other hand, about 2 billion people live in developing countries that are trading less today
than they did 20 years ago.
Statistical data suggest that the most globalized developing economies enjoyed the highest GNP per
capita growth rates and were gradually catching up with the group of developed countries (see Asian
newly industrialized economies and China in Figure 4.4). But much
of the rest of the developing world, including most of Sub-Saharan Africa, failed to participate in
globalization processes and faced negative income growth rates (see Chapter
4). There are good reasons to believe that international trade and foreign investment do explain
much of the difference in economic growth between the more and the less globalized developing countries
(see below in this chapter and Chapter 13). However, some may argue that
the cause-and-effect connection can also work in the opposite direction: those countries that are most
successful in economic development and growth can afford to be more open to foreign trade (and thus
to foreign competition) and also tend to be more attractive for foreign investors (see also Chapter
13). Moreover, for countries that are actively engaged in globalization, the benefits come with
new risks and challenges.
Costs and Benefits of Free Trade
For participating countries the main benefits of free foreign trade (unrestricted,
liberalized trade) stem from the increased access of their producers to larger, international markets.
For a national economy that access means an opportunity to benefit from the international division
of labor by moving its resources to the most productive uses—by specializing in producing and
exporting what it can produce best, while importing all the rest. Overall, domestic producers utilizing
their country’s comparative advantages in the global markets produce
more efficiently, and consumers enjoy a wider variety of domestic and imported goods at lower prices.
In addition, an actively trading country benefits from the new technologies that “spill over” to
it from its trading partners, such as through the knowledge embedded in imported production equipment.
These technological spillovers are particularly important for developing countries because they give
them a chance to catch up more quickly with the developed countries in terms of productivity.
Former centrally planned economies, which missed out on many of the benefits of global trade because
of their politically imposed isolation from market economies, today aspire to tap into these benefits
by reintegrating with the global trading system.
But a country opening to international trade (undertaking trade liberalization) also faces considerable
risk associated with the strong competition in international markets. On the one hand, it can be argued
that international competition creates the necessary pressures to prevent economic and technological
stagnation, to stimulate domestic producers to produce better goods, and to lower the costs of production.
But on the other hand, there is a high risk that many national enterprises and even entire industries—those
that are less competitive and adaptable—will be forced out of business. Unfortunately, in real
life, the physical capital and human capital previously
employed in these industries is not easily transferable to other, more productive uses for many reasons--the
lack of additional investment, shortage of information on markets and new technologies, and others.
Meanwhile, closing of enterprises and higher unemployment impoverish people and slow national economic
growth. That explains why trade liberalization is so often opposed even in high-income, better prepared
countries.
Not
surprisingly, governments of developing countries often argue that many of their national industries
require temporary protection until they become better-established and less vulnerable to foreign competition.
To protect domestic producers, governments seek to weaken competition from foreign-produced goods by
introducing import quotas or, more often, by imposing import tariffs to make foreign goods more expensive
and less attractive to consumers. Economists justify protectionist policies--used by developed countries
too--mostly as temporary measures. In the long run, such policies can be economically dangerous because
they allow domestic producers to continue producing less efficiently and eventually lead to economic
stagnation. Wherever possible, investing in increased international competitiveness of key industries
should be considered as an alternative to protectionist policies.1
But “free global trade” is still more of an ideal to be reached than a present-day reality.
Although developing countries have cut their average import tariffs by half over the past 20 years
(from 15 percent to 7 percent), the remaining tariffs still constitute a serious obstacle to expanding
trade relationships within the developing world.2 In developed countries,
the average import tariffs are considerably lower (about 2-2.5 percent), but they are much higher for
exactly those goods in which developing countries are most competitive—for agricultural products
(frequently higher than 100 percent) and labor-intensive manufactures, such as textiles and clothing.
As a result, according to the World Bank estimate, developing countries on average face tariffs twice
as high as those faced by developed countries. The situation is additionally aggravated by the non-tariff
barriers (sanitary, environmental, and others) extensively used by developed countries and often seen
as unjustifiable by developing countries. The World Bank has estimated that lowering tariff barriers
to trade in textiles and agricultural products by developed countries could boost annual economic growth
in developing countries by an extra 0.5 percent in the long run and by 2015 could lift an additional
300 million people out of poverty.
The issues of trade and development interrelationships are at the center of attention during the
current round of global trade negotiations launched by the World Trade Organization (WTO) in 2001 in
Doha, the capital of Qatar. The previous Uruguay round of the WTO negotiations ended in outcomes that
were, according to its many critics, more favorable for developed countries, because trade in industrial
goods and services exported by advanced economies—from automobiles and machinery to information
technology and financial services—was liberalized first. So in the next round developing countries
signaled their determination to push for more balanced liberalization with priority given to the interests
of the poorest countries.
During the WTO ministerial meeting in Cancún (Mexico, September 2003) a new block of 21 developing
countries emerged (the so-called G-21), led by Brazil, China, and India and representing half the world’s
population and two-thirds of its farmers. The major unifying theme was indignation over the destructive
impact that enormous government subsidies paid to developed countries’ farmers have on global
agricultural trade. These subsidies amount to $300 billion a year (compared with about $50 billion
given to all developing countries as official development assistance) and result in much lower world
prices for the agricultural exports of developing countries. But the initial Doha declarations about
the need to contribute to development by reducing “trade-distorting” farm subsidies and
cutting import tariffs on agricultural goods and textiles did not meet with sufficient support from
the rich countries in Cancún. The talks were closed with no agreement achieved and with unclear
prospects for further global trade negotiations.
Geography and Composition of Global Trade
The costs and benefits of participating in international trade also depend on such country-specific
factors as the size of a country’s domestic market, its natural resource endowment, and its geographic
location. For instance, countries with large domestic markets generally trade less. Countries that
are well endowed with a few natural resources, such as oil, tend to trade more. And the so-called land-locked
countries—with no easy access to sea port—face particular difficulties in developing foreign
trade because of much higher transportation costs. (Think of examples of countries whose geographic
location is particularly favorable or unfavorable for their participation in global trade.)
Continued: Please see Page 2
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