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JAN 6 - 8 Reading.docx

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University of British Columbia
ECON 255
Ashok Kotwal

JAN 6 – 8 READING INTRODUCTION: - The understanding of globalization needs to be defined. It’s not the same as during the th end of 19 century  the effect is getting micro (individual level) - The 1 unbundling (old globalization)  Reduction in the transportation cost and the clustering of bigger continents  Involve only the firms and the sectors  Causes the unskilled-intensive labor sectors to be concentrated while causing the skilled labor sector to expand - The 2 unbundling (new globalization)  Reduction in the communication cost and outsourcing in the service sector FIRST UNBUNDLING [Globalization: 6 Stylized Facts] 1) Industrialization/Deindustrialization  First wave (1850-1914): The North industrialized while the South deindustrialized  Second wave (1960-present): The North deindustrialized while the South industrialized 2) International Divergence/Convergence  First wave: the North and South income diverge  Second wave: converge 3) Trade  International trade of goods and factors during the first wave > international trade of goods and factors during the second wave. Largely due to the World Wars 4) Growth Take-off  For the North, it occurred during the period of Industrial Revolution as for income convergence in the South during the second wave is due to the industrializing South 5) Urbanization: the progress of creating new cities grow rapidly for the South during the 2 wave 6) Internal Divergence (referring to Inequalities): during the 2 wave, inequality in incomes and rate of unemployment increase for the Northern part THE DEEP ECONOMIC LOGIC OF THE FIRST UNBUNDLING (hump-shape&home market effect) th - Globalization first hit the North and later, during the late of the 20 century, it hits the South. However, GDP multiplied at a greater rate for the South during the late 20 th century - Agglomeration’s hump-shape  is there a video that illustrates this thing?  Definition: Agglomeration refers to the tendency of a spatial cluster of economic activity to generate forces that foster spatial clustering  which means the effort of economic factors to invest (even though it will involve higher cost) to mass produce stuffs to gain higher profit  Closed trade versus Costless Trade: closed trade has to be done near the consumer, bundled with consumption and it can’t be exported to other countries. As for costless trade, the location of production is not important. - Home market magnification effect: it explains how trade costs, scale of economies and imperfect competition give large markets an uneven share of world industry. For example, successful car companies are located in Japan and Europe because the market share is bigger over there.  One of the factors is companies want to be located near their customers. This will also cut cost although the competitions between local and foreign car manufacturer are influenced by trade restriction by the local governments  Home Market Magnification effect also advocates the Scissor-like effect (pg 12. Have to read back)  When the trade cost is high… rd page 12 ACCOUNTING FOR THE FACTS - Fact #1: Agglomeration process is balanced by dispersion forces. Among the dispersion forces are:  First wave: The diminishing productivity of labor in agriculture. When many labors left the land, productivity of the remaining laborers increase and this leads to their income increasing. To hire them to leave the farm means having to pay higher wages  at that time, agriculture was the focus . - Fact #2: The North won at the expense of the South 1) the Northern industrialization and the Southern deindustrialization 2) the rapid expansion of international trade 3) income divergence*** read pg 13 /Google/ask proff - Growth take-offs and Economic Geography  Usually, an innovation that has just been produced or occurred will concentrate in a localized region because to transport ideas, it will be highly costly  leads to advantage over cost (cheaper cost)  that’s why development was slower in the South and agglomeration was rapid in the North during the 1 wave st nd  The development for the South during the 2 wave occurred when the cost of transporting ideas became cheaper [some graph explaining at page 16 that I left] THE OLD PARADIGM (please print page 17 – 18) - Graph Analysis: it’s between Wage (vertical axis) and productivity (horizontal axis) - The concept of trade cost:  Trade cost is the central feature of globalization  EU products become more expensive than the Southern product due to trade costs POLICY THINKIN
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