Globalization

Everyday Economics
Federal Reserve Bank of Dallas
2
 Globalization

I t is often said that the world is getting smaller. While the earth may not be shrinking in any physical sense,
the people of the world are increasingly connected. Goods and services are traded across the globe. Interna-
tional financial markets allow investors to move vast sums of money from country to country in mere seconds,
enabling companies to invest in business ventures in far-flung corners of the world. People leave their home
country in search of opportunities found in foreign lands. All these connections are formed in a process called
globalization. When used in an economic context, globalization is a complex means through which national
resources become more and more internationally mobile while national economies become increasingly
interdependent and integrated.

Early Connections The trade and colonial policies of the Europeans

were supported by a school of economic thought
These connections are not new. Civilizations have called mercantilism. Mercantilists believed that a
traded throughout recorded history. Chinese and nation’s wealth and power could be enhanced by ac-
Islamic traders controlled the Silk Road that brought cumulating large stores of gold and silver by means
exotic goods over land to Europe. Near the end of the of always exporting more goods than it imported.
15th century, the Spanish and Portuguese began to look Although people of the world have interacted for
for ocean routes to enter these lucrative trade markets. centuries, many economic historians argue that these
Columbus reached North America while searching for earlier periods of trade do not represent true glo-
a westward route to Asia, and Vasco da Gama sailed balization. Rather than seeking greater integration,
around the Horn of Africa. During the three centuries nations protected their markets through colonies,
that followed, European nations extended their reach monopolies and military conquests.
around the world as they traded and colonized in Asia,
Africa and the Americas. Technological advances in In 1776, Adam Smith challenged the assumptions of
navigation such as improvements in rudder, compass the mercantilists in his book The Wealth of Nations. He
and ship design made this reach possible. argued that nations should specialize in the produc-
tion of certain goods and trade for other items. By do-
The benefits from this period were not shared by all. ing so, the entire country could realize the same gains
Large companies, such as the British, Dutch and Por- from efficiency that were found in a factory through
tuguese East India companies, monopolized this trade. division of labor. David Ricardo extended Smith’s
These firms controlled trade between Europe and the ideas with the concept of comparative advantage.
rest of the world. European nations established colonies These economists laid the foundation for a new school
that became critical markets for these nations to buy of economic thought that emphasized the benefits of
cheap resources and sell more expensive finished goods. free trade. It came to be called the classical school.

1
First Era of Globalization countries. Before international trade could recover,
the Great Depression began, and countries responded
The 19th century witnessed dramatic innovations by enacting a series of measures designed to protect
that allowed the first true era of globalization and domestic industries. These acts, often called beggar-
integration to emerge. New technology reduced the thy-neighbor policies, sought to benefit a country at
obstacles and transportation costs created by distance the expense of other nations. In the United States,
between trading partners. More efficient and power- passage of the Smoot–Hawley Tariff Act of 1930 had
ful oceangoing steamships reduced the time required an enormous negative impact on international trade.
to cross the seas, and new networks of railroad tracks By increasing the taxes on imported agricultural
enabled trains to move vast cargos over land. With goods and a variety of other products, this act raised
the opening of the Suez Canal in 1869, ships could the average level of protection on imports to the U.S.
avoid the long and treacherous trip around Africa to new heights. Other countries responded with their
as they traveled from Europe to Asia. Travel time own new tariffs and protectionist policies. The result
decreased, and the size of payloads increased. Com- was a dramatic decrease in the level of world trade.
munication was revolutionized as telegraph lines
stretched under the ocean and connected North and Second Era of Globalization
South America to Europe, Asia, Australia and Africa.
After World War II, many leaders believed that
At the same time, dramatic political developments economic interdependence would help maintain
opened world markets to trade. Britain unilaterally peace between nations. In the years following the
repealed its Corn Laws, tariffs on grains designed to war, nations agreed to multilateral trade negotiations.
protect domestic farmers. In Asia, American military In 1947, the General Agreement on Tariffs and Trade
forces led by Commodore Matthew C. Perry forced (GATT) brought large groups of countries together
Japan to open its markets, and in the Opium Wars, to discuss reductions of various barriers between
a British victory caused China to open port cities to nations. Between 1947 and 1995, a series of GATT
trade. At the end of the 19th century and the dawn of rounds, or multinational trade negotiations, resulted
the 20th century, innovations in transportation and in major reductions in tariffs, quotas and other barri-
communication, as well as political developments, ers to trade in goods and services. These negotiations
resulted in an unprecedented level of integration of involved 128 nations and served as a major force in
the world’s economies. However, as world output this new wave of globalization. In 1995, GATT’s func-
was reaching its highest level in history, a protection- tions were taken over by the World Trade Organiza-
ist backlash in both Europe and the Americas began tion (WTO), an international body that administers
to take hold, and the network of connections and the trade laws and provides a forum for settling trade
resulting growth created by this first globalization disputes among nations. Trade negotiations under
did not last. the umbrella of GATT and WTO allowed the world
to enter a second major era of globalization during
World War I and the difficult international relations the last half of the 20th century.
that followed led to a period of isolationism in many
While these political developments set the foun-
dation for a new era of globalization, technological

Globalization Tidbits

The Erie Canal connected Lake Erie and the The Liverpool and Manchester Railway
1825 Hudson River. Freight rates fell 90 percent
1830 opened as the world’s first intercity railroad,
compared with shipping by ox-drawn connecting the mills around Manchester,
wagon. Midwestern farmers, loggers, miners England, with the Port of Liverpool.
and manufacturers could now access world
2
markets from the Port of New York.
 Fiber Optic Technology Has Revolutionized Communication

Optical fibers, long thin strands of glass about the diameter of a human
hair, are bundled into cables and used to transmit light signals over long
distances at rapid speed.

innovation drove the integration forward. Modern and sales worldwide. Services once available only
container ships carried enormous cargos around the from local providers were now delivered from inter-
world, and airplanes began to offer access to the most national producers to buyers throughout the world.
remote corners of the earth. These developments
dramatically reduced the time and the cost of moving Both the first and the second eras of globalization
goods to new markets. Breakthroughs in communica- originated in political developments and innovations
tions were equally important. Computers, cell phones in transportation and communication. But the level of
and the Internet revolutionized modern communi- integration achieved during the second era has been
cation. Fiber optic networks circled the globe, and striking. This integration has three important facets
vast quantities of information began to move almost that characterize the global marketplace: (1) the trade
instantly between locations on opposite sides of the of goods and services, (2) the international flows of
world. Multinational corporations used this com- financial capital and investment, and (3) the move-
munications network to manage production, delivery ment of people and labor.

Electromagnetic telegraphs The steamship Great Britain was

1837–38 were developed independently 1843 launched. The ship was the largest
in England by Cooke and of its day and combined many new
Wheatstone and in the U.S. by technologies as the first iron-clad ship
Morse and Vail. to use a steam engine to power a
3
screw propeller.
Trade of Goods and Services As countries specialize in particular segments of the
production process, trade in intermediate (or unfin-
International trade of goods and services has played ished) goods has become an important part of interna-
an essential part in this second era of globalization. tional transactions. Simple items like pencils and com-
Trade has increased in importance to the economies plex products like airplanes contain components from
of many nations, and producers have marketed their multiple countries. A striking example is the Boeing 787
goods and services worldwide. According to the World assembled in the United States near Seattle. Sections of
Bank, in just 40 years (from 1960 to 2000), the share of the plane are built across the globe. Parts arrive in Wash-
world production that was exported increased from 12 ington from South Korea, Australia, Japan, Canada, the
percent to 25 percent. Trade in the second half of the U.K., France, Sweden, Germany and Italy, as well as
20th century has been marked by dramatic increases in multiple states in the U.S. (See diagram on page 5.)
the trade of both goods and services.
Technology Spurs Services
Trade of Goods Evolves While the increase in trade of goods is significant,
An incredible array of goods is traded between the growth in trade of services has been remarkable.
countries. Food and forestry products are among the This growth can be attributed to the advancement in
many traded agricultural goods. Fuels and mining information and communication technologies, which
products from many nations are used by producers have resulted in a wide range of services, from call
and consumers. These products include metals and center operations to sophisticated financial, engineer-
ores, as well as fuels like crude oil and natural gas. ing, legal, medical and entertainment services. Inter-
The flow of manufactured goods between coun- estingly, foreign audiences often account for more
tries includes both intermediate goods and finished than half of Hollywood’s box-office revenues from
products. Steel used in factories around the world is movies, and American programmers design video
produced in Europe, North America and Asia. Capi- games that are played all over the world.
tal equipment used by businesses is bought and sold
in a global market. Cranes and bulldozers move to Other examples of global trade of services abound.
construction sites far from the place of manufacture. McDonald’s and KFC might appear to be on every
Clothing, textiles and a host of other consumer goods corner, but they have more restaurants abroad than
travel internationally to their final destinations. in the U.S. American architects design office towers,
airports and stadiums in China, Dubai, Canada and
As new production methods have emerged, a new other foreign locales. International students enroll at
type of goods trade has become significant. In earlier American universities and create jobs for faculty and
periods, manufacturing processes were located in staff at the schools. American forensic experts inves-
countries that had industrialized, and trade focused tigate accidents and crimes around the globe. Foreign
on importing raw materials and exporting finished tourists visit the United States and create job opportu-
products. Today, many different countries are in- nities at hotels, airlines and tourist attractions.
volved in the production process. Various parts of
many goods are produced in locations throughout But globalization is more than trade—it includes the in-
the world and shipped to a final assembly plant. creased flow of money and people across national borders.

(Continued on page 8)

The first transatlantic telegraph cable The Suez Canal opened and
1858 became operational. Queen Victoria and 1869 linked the Mediterranean Sea
President James Buchanan exchanged and the Red Sea, dramatically
messages to celebrate. reducing shipping distances
between Europe and Asia.
4
 Boeing 787 — A Global Project

SOURCE: Boeing, [Link]/commercial/787family/dev_team.html, accessed June 2009.

Alexander Graham Bell made The first mechanically refrigerated ship

1876 the world’s first telephone call 1876 (the Frigorifique) sailed from Argentina
when he said, “Mr. Watson, to France carrying frozen meat,
come here. I want to see you.” allowing the development of global
agricultural markets.
5
 Explore the Concept...
Foreign Currency Exchange
To buy foreign goods or services, or to invest in other • Speculators are seeking to make a profit as the
countries, companies and individuals may need value of certain currencies rises or falls.
to first buy the currency of the country with which • Central banks are acting to affect the international
they are doing business. The price of one currency in value of their currency.
terms of another is called an exchange rate.
The currency of a growing economy with relative
For most of the 20th century, exchange rates were price stability and a wide variety of competitive goods
fixed using gold as the standard. Under the gold- and services will be more in demand than that of a
exchange standard, governments guaranteed country in political turmoil, with high inflation or with few
that currency could be exchanged for a specified marketable exports.
amount of gold or gold-backed currency. By the
early 1970s, this system was abandoned in favor of Money will flow to wherever it can get the highest
the floating exchange rates that exist today. Now, return with the least risk. If a nation’s financial
currencies rise and fall in value according to the instruments, such as stocks and bonds, offer relatively
forces of demand and supply. high rates of return at relatively low risk, foreigners will
demand that nation’s currency to invest in financial
These market forces drive the buying and selling of instruments.
different currencies in the foreign exchange market.
This vast market is global in scope and is active Traders also speculate within the market about how
around the clock. different events will move the exchange rates. These
speculators buy currency they expect will rise in value
Foreign Exchange Market and sell currency they expect will fall in value.
There are many different participants in the foreign
exchange market. Each one has particular goals Foreign Exchange Rates
and objectives for involvement in the market: The exchange rate—the price of a currency in terms
of another currency—is stated in two ways: as the
• Importers and exporters are buying and selling amount of foreign currency required to purchase a
goods and services around the world. single unit of domestic currency or as the amount of
domestic currency required to purchase a single unit
• Investors are investing in real assets (such as facili-
of foreign currency.
ties or properties) and financial assets (such as
stocks or bonds).

An American in Paris

To buy the €60 shirt,

If the exchange rate is... the American needs...

US$1.00=€1 or €1.00=US$1 US$60

US$1.50=€1 or €0.67=US$1 US$90
US$2.00=€1 or €0.50=US$1 US$120

6
Consider the example of the euro and the U.S. dollar. The A stronger U.S. dollar means that:
exchange rate might be stated as 1.50 dollars = 1 euro. On
the other hand, it could be stated that 0.67 euros = 1 dollar. • Americans can buy foreign goods more cheaply
These exchange rates are equivalent. If 1 dollar will buy
and U.S. imports will increase.
0.67 euros, each euro costs 1.50 dollars.
• Americans can travel abroad less expensively.
Many people experience the foreign exchange market • Foreigners find U.S. goods more expensive and U.S.
when they travel to another country and want to buy exports will fall.
something. Look at the tables below. An American
When a single dollar will buy less foreign currency (or it
shopping in Paris finds a shirt priced at 60 euros. To pay for
takes less foreign currency to buy a dollar), the dollar
the shirt in local currency, the American must exchange
is said to be weakening, or depreciating. A weaker
U.S. dollars for euros.
U.S. dollar implies that:
At an exchange rate of 1.50 dollars = 1 euro (or 0.67 euros
= 1 dollar), the tourist will need to exchange almost 90 U.S. • Foreigners can buy American goods
dollars for the 60 euros required to buy the shirt. But even more cheaply and U.S. exports will
if the price of the shirt stayed at 60 euros, the price paid increase.
by the American goes up or down as the exchange rate • Foreigners can travel to the U.S. less
fluctuates. expensively.
• Foreign goods become more expen-
If someone from Paris visits New York and wants to see a
sive for U.S. residents and demand for
play on Broadway, the visitor will need to exchange euros
imports will fall.
for U.S. dollars. If the ticket costs 75 U.S. dollars and the
exchange rate is still 0.67 euros = 1 dollar (or 1.50 dollars = 1 Changes in the strength, or value, of a
euro), the European will need to exchange 50 euros for the currency affect different sectors of the
75 U.S. dollars. Once again, movement in the exchange economy in different ways. Some sectors
rate affects the price that the European pays, even if the benefit, while others are harmed.
ticket remains 75 U.S. dollars.

Currency Strength
When a single dollar will buy more foreign currency (or it
takes more foreign currency to buy a dollar), the dollar is
described as strengthening, or appreciating.

3 B 6
A European on Broadway

2 To buy the $75 ticket,

B
6 If the exchange rate is... the European needs...

€1.00=US$1 or US$1.00=€1 €75

€0.67=US$1 or US$1.50=€1 €50
€0.50=US$1 or US$2.00=€1 €37.50

7
 A A F N
F N
A F H N A N N

A A N
F
N H A N A H
N N
N
F F H A N A N
A H N A N
N A F H N N A
A F A N
N N
H N N H
A A
F H A F H N
H A F N F H
N H N N A F H N A N
N
F
N
H F
H H
A N N

F H N
N H

H A H N

A F N
N
Headquarters Locations A F
A
F
N
H
A N
N
F

H Making Global Tracks

N This map shows the locations of four multinational corporations—Adidas, Ford, Honda
and Nike—that have facilities throughout the world.

Flow of Financial Capital plants in the United States, as U.S. automobile com-
panies have built facilities in other countries. These
As firms compete to sell goods and services in the firms are seeking both lowest-cost resources as inputs
global marketplace, producers search the world to to production and freer access to global markets that
find the most cost-effective methods of production. comes from owning a plant in a given region.
Some companies import intermediate products from
foreign firms, as is the case with the Boeing plane. Many firms build or buy physical capital such
Other firms locate their plants or production facili- as buildings, tools and machinery in other parts of
ties in foreign countries. Rather than producing food the world. Foreign direct investment refers to these
in one plant and exporting it throughout the world, capital expenditures and the money (or financial
Kraft, based in the United States, and Nestlé, based in capital) that moves across international borders to
Switzerland, have built facilities around the world to pay for these assets. The end of the 20th century saw
serve a growing international customer base. Japanese explosive growth in foreign direct investment. United
and European car manufacturers have built enormous Nations statistics show that the amount of invest-

Transatlantic No. 1 (TAT-1), the The Ideal X became the world’s first
1956 first transatlantic telephone 1956 container ship when it was modified to
cable system, began service carry 58 containers from Newark, N.J.,
and carried more than 700 calls to the Port of Houston.
between London and North
8
America in the first 24 hours.
ment flowing into countries from outside of International Investment:
their borders rose from $54 billion in 1980 to Linking the World
$1.4 trillion in 2000. As a result of this inter-
national investment, a new type of business
called the multinational, or transnational,
International investments fall into four
corporation has emerged. These global com-
primary categories.
panies own facilities and employ workers
throughout the world.

In addition to foreign direct investment,

investors have increasingly diversified their Commercial loans—loans generally
investment portfolios to include financial as- initiated by banks to foreign businesses or
sets such as stocks and bonds that originate governments.
outside of the buyer’s country of residence
and are valued in a foreign currency. These
investors might be banks, pension funds
or private individuals seeking the highest
return for their investments in both domes-
tic and international financial markets. This
Official flows—financial assistance that
type of global investment is called foreign
developed nations give to developing ones
portfolio investment. Foreign portfolio in-
to help with their economic development.
vestment is somewhat different from foreign
direct investment because the ownership
of these financial assets does not imply a
controlling interest or a majority stake in a
foreign business. Foreign direct investment—the purchase
of a productive asset in a foreign country.
Some fear that foreign portfolio invest- Buying a company or constructing a new
ment can be volatile and lead to financial plant are examples of FDI. Because FDI
panics. When a company builds and owns involves controlling interest in the business
a firm or a production facility in another and ownership of physical assets, it is not as
country, the firm has made a longer-term easily traded as other types of investments.
commitment with the investment. This type
of foreign direct investment is difficult to
sell quickly; the types of financial assets as-
Foreign portfolio investment—the
sociated with foreign portfolio investment COM
M
STO ON purchase of financial assets such as foreign
can be sold almost instantly. At the first CK 10
shar stocks, bonds and currencies in amounts
sign of economic downturn in a particular es

that do not result in a controlling interest. FPI

economy, international investors can sell off
is easily traded and thus can be volatile.
financial assets rapidly. This can result in a

Airlines in the U.K. and The Fairland sailed from the

1958 U.S. began scheduled 1966 U.S. to the Netherlands with
trans-Atlantic jet service 236 containers on the first
between New York and international voyage of a
European capitals in the container ship.
9
same month.
dramatic fall in the country’s financial markets and family or friends in another country. Often, this mon-
can worsen the downturn. ey comes from immigrants who send money back to
their country of origin. This is a significant source of
Foreign direct investment, foreign portfolio invest- money for some developing nations. In some cases,
ment, and international trade in goods and services remittances from U.S. residents outpace foreign aid
require a specialized financial market called the for- provided to that country by the U.S. government.
eign exchange market, where currencies from around
the world are bought and sold. This market allows Movement of People
multinational corporations to operate efficiently
and companies to invest across the world. It allows The movement of people across national borders,
consumers and businesses to buy goods and services sometimes referred to as migration, has long shaped
from producers in any country. Investors who wish the world. People have moved around the globe for
to buy financial assets that are valued in a currency centuries in search of opportunity, as well as safety
other than their own must acquire that currency to and security.
complete the transaction.
People often leave one country and move to an-
For example, if Americans want to buy Japanese other in search of economic opportunity. During the
products, they must pay the Japanese firm with yen, first era of globalization, people moved from Europe,
the Japanese currency. In the foreign exchange mar- where labor was plentiful and opportunities were
ket, Americans buy the necessary yen using U.S. dol- limited, to the United States, where a small labor force
lars. This means Americans sell U.S. dollars to buy was matched with a rapidly growing economy and
yen. On the other hand, Japanese who wish to buy numerous jobs. In the second era of globalization,
stock in an American company must first buy U.S. people have moved from countries of origin to grow-
dollars. To do so, they must sell yen. The number of ing economies around the world. Saudi Arabia and the
U.S. dollars required to buy yen (or the number of United Arab Emirates employ significant numbers of
yen required to buy a U.S. dollar) is called the ex- workers from Egypt and India. Immigrants to the U.S.
change rate. (A more in-depth discussion of foreign come from around the world, including Mexico and
currency exchange is presented on pages 6–7.) the nations of Europe. Many U.S. immigrants come
from the Philippines, India and China. However, the
The foreign exchange market is the largest financial size of these migrations is small compared with the
market in the world, and it operates 24 hours a day. levels seen at the end of the 19th century.
While most transactions can be accomplished electroni-
cally, trading is often centered in cities with a significant Other reasons for migration vary. Some people
concentration of banks and other financial services. leave a country to escape a repressive political regime
Important foreign exchange markets can be found in or a humanitarian crisis. Millions of students move to
London, New York, Chicago and Tokyo, among others. other countries seeking educational opportunities.

Another important channel of international mon- Whatever the motivation for the movement, migra-
etary flows has been remittances by immigrants. A tion has important effects on the economy and social
remittance is money that is sent by an individual to structure of both the country of origin and the des-

Martin Cooper of Motorola Walmart completed a private satellite

1973 made the first public telephone 1987 network that linked stores, distribution
call placed on a portable centers and the corporate office with
cellular phone. He called his voice, data and video communication.
rival at AT&T’s Bell Labs from the
10
streets of New York City.
tination country. Emigration— the flow of goods and services
the departure of both skilled and between nations. Capital controls
unskilled workers from their country limit the amount of financial capital
of origin—can change the makeup of the labor force that moves across the globe. While a negative attitude
and affect wage rates and employment in their native toward globalization can impact a country’s policies, the
country. Through immigration, new residents compete trend appears to be toward greater levels of integration.
for jobs in a variety of fields and change the dynam-
ics of the labor market in the destination country. As In addition to the work of the World Trade Orga-
immigrants change the social structure in their new nization, which seeks to reduce tariffs around the
place of residence, opposition can emerge. Because of world, smaller groups of nations have increased the
all these forces, immigration can become a politically level of integration with their neighbors. One such
charged topic. Throughout history, changes to the po- arrangement is the creation of a free trade area. This
litical landscape have had profound implications for is an agreement between a group of countries to com-
immigration. Overall limits on immigration have been pletely remove tariffs and other restrictive barriers on
imposed at various points in history. the flow of goods and services between those nations.
An example is the North American Free Trade Agree-
Growth of Global Integration ment (NAFTA) between Canada, the United States
and Mexico. As a result of this agreement, the three
Globalization has important political implications countries agreed to lower tariffs and other barriers on
because a country’s policies determine the level of in- the flow of goods and services until they have been
teraction between a nation and the rest of the world. completely removed. The Association of Southeast
Restrictive immigration laws limit the movement of Asian Nations (ASEAN) is also developing a free
people. Trade policies such as tariffs or quotas restrict trade agreement between its member nations.

Tim Berners-Lee and Robert The Global Positioning System

1990 Cailliau decided to name the 1995 (GPS) became fully operational,
new information-sharing system providing positioning, navigation
that they had developed the and timing services to users
World Wide Web. around the world.
11
 While free trade agreements can significantly in- agreements and treaties. In 1992, the Treaty on Euro-
crease the ties between nations, other types of agree- pean Union was signed in Maastricht, Netherlands.
ments—such as those that allow the free movement of The European Union moved the following year to
labor and capital across national borders—can also bind implement a single market that is characterized by four
nations together. Since the end of World War II, most freedoms: the free movement of goods, services, people
nations of Europe have moved toward greater integra- and money. Many of the European Union nations have
tion of political and economic systems under a series of moved to a common currency, the euro, since 1999.

I n many ways, the globalization seen at the end of the 20th century marked a return to the integration experi-
enced as the century began. The first era of globalization, with unprecedented levels of migration and trade,
ended as the difficulties of World War I and the global economic downturn of the Great Depression severed
ties between nations. While the last decades of the 20th century saw less migration between countries, the
scope of other areas of integration was greater than ever. Innovations in the production process created new
ways of manufacturing that greatly increased efficiency. Technological breakthroughs allowed trade of services
to reach unprecedented levels. Multinational corporations and international capital flows linked the economies
of the world ever more tightly.

But challenges to this level of global interdependence remain. The global economic crisis that began late in
2007 and intensified in 2008 created tremendous pressures on financial systems and significant loss of wealth
worldwide. Although this crisis originated in the subprime mortgage market in the U.S., it quickly spread as
many different assets that were owned by international investors rapidly lost value. The global integration of
financial markets and the international ownership of financial assets prevented the crisis from being contained
in the United States. In response to the global financial crisis and the associated recession in various countries,
some called for new controls on international markets and increased protection for domestic producers. Poli-
cymakers began to consider ways to oversee global financial markets. The response to the crisis could have
ramifications on the pace of integration and globalization for years to come.

12
 Great minds think about…
globalization

Jagdish Bhagwati (1934– ) found that market

distortions that result from trade and government trade
policies can have significant effects on social welfare. He
argued against protectionism and for a world trading system. In
advocating worldwide free trade, he criticized regional trade agreements.

Joseph Stiglitz (1943– ) argued for the reform of global institutions, international
trade agreements and intellectual property laws. He won the 2001 Nobel Prize for his
analyses of markets with asymmetric information and applied those ideas to his studies
of development economics and international public-sector regulation.

Maurice Obstfeld (1952– ) and Kenneth Rogoff (1953– ) developed an economic model
that examined the impact of domestic monetary and fiscal policies on the economic
welfare of a nation and its trading partners. They also studied the role of trade costs in
international trade and found that transportation costs and tariffs, along with other legal
or cultural barriers, can affect everything from consumer preferences to unexplained
movements in exchange rates.

Jeffrey Williamson (1935– ) and Kevin O’Rourke (1963– ) sought to identify

periods of globalization by comparing the domestic and world prices of
goods and resources. They argued that as economies integrated and
resources moved freely between nations, domestic prices would
move toward world prices. So if labor could easily immigrate,
wage differences between countries would be smaller.

13
 Globalization
Globalization is part of the Everyday
Economics series produced by
Economic Education at the Federal
Reserve Bank of Dallas.

Economic Education Contacts

[Link]@[Link]

Dallas Fed Economic Education

materials are available at
[Link]/educate.

Author
Princeton Williams

Editor
Jennifer Afflerbach

Art Director and Illustrator

Darcy Taj

Revised 7/2014
7452