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Lecture 5

W5 Globalism's Discontent.docx

3 Pages
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Department
Economics
Course Code
ECON 255
Professor
Ashok Kotwal

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Week 5 Reading 6 – Globalism’s Discontent? By Joseph Stieglitz − Globalization is perceived differently in different parts of the world − East Asia: a good exemplar of globalization  they managed to accept globalization by managing an equal distribution of benefits − Stiglitz asserts that: the problem is not with globalization; but with how it is managed − How the international institution such as IMF messed up: the belief of market fundamentalism  which means bad economics and bad policies  this policy doesn’t even work for developed countries and IMF pushed this on the developing countries Beneficial Globalization − East Asia: their growth is largely based on export  they export to the global market and at the same time, they are able to close the technology gap  Government Intervention: plays a key role in this. Contrary to US’ approach which has a minimal government approach − East Asia’s Financial Crisis in 1997: main factor – rapid liberalization of financial and capital market The Darker Side of Globalization − Liberalization of financial and capital market: the growth in East Asia has attracted foreign investors to invest in East Asia  the rapid amount of the money pouring into the East Asian countries only cause the market to be more speculative  when it does, it becomes sensitive to what the investors feel (investors’ confidence)  so, when investors pull their money out, the economy naturally collapses − IMF: said that the collapse was due to the bad policies but it was then refuted when the countries which has confidence in also collapse  New form of the old colonial mentality: we run the capital markets, so, we know what’s best. You just follow what we ask you to Lessons of Crisis − Major crises pertaining capital flows are related to external factors which originate outside of the country − Capital Liberalization  So far, it doesn’t promote growth  Stieglitz asks: How can it promote growth when money can flow in and out overnight  also, the loan regulation to different countries and from different countries are termed differently  The capital movement from outside into East Asian countries was too much to handle by them  the East Asian wasn’t ready to face the volatility of capital market The Costs of Volatility − Capital Liberalization  This process is usually accompanied by market volatility  the volatility is the variable that impedes growth and increase poverty.  Market volatility: because it is risky, market investors demand risk premium  this risk premium has a higher-than-normal profits  Ma
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