Arizona State University - MKT 397 Study Guide for Exam 1. A+ RATED.For every topic, you should be familiar with all the contents of the PowerPoint present
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Week 1
Globalization
Blackboard Lectures
Globalization I - Introduction
1. Definition of globalization: A continuing process of increasing integration of national economies
through enhanced cross-border flows of trade, investment and financial capital, and labor.
2. Major participants in the globalization process
a. Stakeholders: Persons, groups, organizations who can affect, or be affected by an
organization’s actions, objectives, and policies.
i. Country governments (most important; sovereignty); Multinational
corporations, Exporting/Importing firms
ii. Consumers, Employees, Shareholders of firms, Trade unions, NGOs, and
Communities.
iii. Banks, Hedge funds, Sovereign wealth funds
iv. Governmental agencies
v. Supra-national agencies/organizations (WTO), European Union (EU)
Globalization II – Trade in Goods and Services
1. Brief history of global trade
a. Pre-1800’s
b. First wave of globalization (1800’s-1914); during the industrial revolution
i. Involved European countries and US and Canada
ii. Trade between various European countries and their colonies in Africa and India.
(think Great Britain)
c. Inter-war slump (1914-1945) 2 world wars, trade stopped because of the wars.
i. Depressions in Europe, restrictions on trades with America
d. Second wave of globalization (1945-present)
i. Brought emerging markets, and developing countries in Asia and Africa.
2. The economic and business case for trade in goods and services
a. Countries should specialize in those products in which they have a relative advantage
b. Cross-border trades increase the overall market size. It also increases the productivity of
labor, which makes the economy grow.
c. Increased production can boost efficiency and increase labor productivity
3. Drivers of increased trade in goods and services
a. Moves by country governments to liberalize trade
b. Decrease in transportation costs
i. Deregulation of transport industry (1970 US Airline Industry)
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ii. Innovations in transportation (containerization, intermodal transportation);
Facilities exporting
c. Decrease in communication costs
i. Allows firms to organize themselves globally
ii. Allows certain services to be traded
d. World economy has become less transport incentive (goods and services have become a
higher value)
4. Assessing the extent of integration
a. Ratio of trade (exports + imports) to output (GDP)
b. Convergence in prices for specific products (after controlling for differences in “tastes,”
taxes, transportation/distribution costs.
c. Comparison of “within-nation” and “between-nations” trade. (ex.) the flow of goods and
services in the 50 states and provinces versus the flow of the US and Canada directly.
Globalization III – Integration Through Capital Flows
1. Types of capital flows
a. Bank in one country makes loans to firms/governments in other countries
b. Investors buy shares/bonds in foreign markets
c. A multinational starts business operations in a foreign country (foreign direct
investment); stock markets, bond markets. (Countries prefer this type of investment
because it implies a long-term commitment
2. Recent history of cross-border capital flows
a. Pre-World War I: there were not significant pediments considering capital
b. Tight restrictions on capital flows in the “inter-war” period
c. Controls on capital flows were maintained after World War II
i. Bretton Woods System: system of fixed exchange rates among major currencies
(American Western European). US currency would be backed by gold. They
needed something to ease capital flows.
d. Financial system founds ways to “get around” capital controls (e.g. development of
Euromarkets, markets for offshore market departments in Europe.
e. Collapse of Bretton Woods system in the 1970’s
f. Major currencies were allowed to “float” against one another
3. The case for allowing cross-border capital flows
a. Enables “savers” to maximize their returns
b. Allows for more efficient allocation of capital
c. Diversification of risk
d. Greater access for countries that need capital
4. Governments’ perspectives on cross-border capital flows
a. Insufficient domestic savings
i. Investments in the domestic economy have to be financed from abroad.
ii. Governments may need to borrow to finance their own expenditures (US has
been spending more than they have been making and they do this by borrowing.
b. Excessive domestic savings
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i. Savers might get better returns investing in other countries
ii. Forcing savers to invest locally might result in speculative bubbles
c. Increased volatility in financial markets (makes them cautious of portfolio flows)
d. Governments ability to formulate and implement economic policy
i. Trade-off between managing exchange rates versus interest rates
e. Countries with relatively under-developed financial systems can be adversely affected by
volatility of capital flows (free capital flows is the ideal case, in certain markets it may be
necessary to make prudent
5. Assessing capital markets integration
a. Prices of similar financial assets should converge across countries
b. Real interest rates should converge across countries whose capital markets are
integrated
Globalization IV – Labor/Job Flows
1. Brief history
a. Human history has been punctuated by large-scale migrations
i. “Out of Africa” theory of human origins [Show Less]