Lecture Notes: Global Economy and Trade

Introduction to Globalization

• Globalization: Increasing interconnection of people, cultures, economies, and nations.
• Impact: Profound changes in global economy through trade and interaction.
• Open Markets: More competition, consumer choices, and capital investments.
• Labor Market Access: New opportunities for production and workers.
• Income Inequality: Benefits of globalization not equally distributed.

Reasons for Global Economic Participation

• Access to Resources: Countries trade to access natural resources they lack.
• Labor Market: Participation increases efficiency, productivity, specialization, and access to new technologies.
• Political Relationships: Strengthening ties through trade.

Trade Complementary Index

• Definition: Measures export and import compatibility between countries.
• Scale: 0 (no compatibility) to 100 (perfect match).
• Example: Chile better complements with North American countries than with Latin American ones.

Comparative Advantage

• Concept: Focus on producing goods/services with lower opportunity costs.
• Efficiency: Specialization leads to efficiency and better outcomes through trade.
• Example: Comparing personal tasks to illustrate specialization benefits.
• Country Application: Countries specialize in goods they produce efficiently and trade for others.

Government Policies and Trade

• Tariffs: Tax on imports to promote domestic products by increasing foreign goods' prices.
• Trade Deficit: More imports than exports; tariffs may address this.
• Neoliberalism: Promotes free trade, reduces government intervention, encourages competition.

Organizations Promoting Globalization

• World Trade Organization (WTO): Reduces trade obstacles, promotes fairness.
• International Monetary Fund (IMF): Encourages international monetary cooperation and trade growth.
• Regional Examples: Mercoser, European Union (EU), OPEC.
  • EU Goals: Internal market, sustainable growth, economic/monetary union.
  • OPEC: Coordinates petroleum policies for stable prices.

Free Trade Agreements

• NAFTA/USMCA: Focus on free trade between U.S., Mexico, Canada.
• Benefits and Criticisms: Encourages trade, but increases inequality and impacts developing nations negatively.

Global Interdependence and Challenges

• Economic Crises: U.S. financial collapse (2008), COVID-19 pandemic effects.
• Supply Chain Disruptions: Suez Canal blockage as an example of impact.
• Micro-Lending: Ties economies through development projects.

Conclusion

• Interconnected Economies: Local, national, and global levels affected by globalization.
• Future Outlook: Increasing interdependence and economic connection.