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Midterm

Questions IB Midterm.rtf

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Department
Management Core
Course
MGCR 222
Professor
Mallika Banerjee
Semester
Winter

Description
Question 1 What is Globalization? Globalization is a new contemporary stage of development of capitalism over the world. It is a process of social change in which geographical and cultural barriers are reduced. This break down of barriers is the result of transportation, communication and electronic communication. It also involves a process by which economies of different countries are oriented to a global market and are controlled by multinational and global financial institutions. It is not merely an economic process, it is also a cultural process. It creates, by the help of media, a mono-culture - a culture of rich and powerful. It is no longer a theoretical concept; it is a glaring reality, impinging upon almost every aspect of human existence - economic, political, environmental, and cultural and the like. Globalization can be described as ‘…a widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritual’. Tom G. Palmer of Cato Institute defines "globalization" as "the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result." Thomas L. Friedman "examines the impact of the 'flattening' of the globe", and argues that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. He also argues that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice. Noam Chomsky argues that the word globalization is also used, in a doctrinal sense, to describe the neoliberal form of economic globalization. Herman E. Daly argues that sometimes the terms internationalization and globalization are used interchangeably but there is a slight formal difference. The term "internationalization" refers to the importance of international trade, relations, treaties etc. International means between or among nations. "Globalization" means erasure of national boundaries for economic purposes; international trade (governed by comparative advantage) becomes inter-regional trade (governed by absolute advantage). Who profits from economic globalisation? What are its advantages/disadvantages? Phil Lawn defined economic globalisation as “the integration of many national economies into one single economy through free trade and free capital movement.” Like the first phase of globalisation (from the mid 19th century to 1914), the second phase has been characterised by rapid advances in communications and transportation technology, travel and trade; and by a greater consciousness of the world as a single place, highlighted by global environmental concerns, more widespread demands for participatory democracy, concerns about a “race to the bottom” in labour standards and wages and increased class stratification between and within countries. Economic globalisation has provided new opportunities for those with capital to increase it, creating greater concentration of wealth in the hands of minority elites. Most international trade and investment takes place within the triad of the US, EU and Japan, and it is the multinational corporations based in these countries which have benefited the most from the free trade rules enforced by the WTO, and the deregulation of financial markets, that have brought financial instability, and hence exacerbated political corruption and instability, in parts of the world (such as South East Asia). Integration with the global economy, measured as an increase in trade relative to GDP, is not a one-size-fits-all recipe for economic development. This is not just because economic globalisation sometimes cannot benefit the poorest countries (and sectors of society) who lack sufficient capital, technology and sound institutions to underpin economic growth and development. There are many valid routes to economic growth. But there are limits to the planet’s capacity to absorb all this so- called ‘growth’. In the pursuit of economic growth and corporate profits, the natural environment is often sacrificed and not considered in government policies. Question 2 Concerns about political risk are particularly high for South-based investors.South-based investors are also concerned about macroeconomic instability and limited access to financing in the short term, but the majority of them see political risk as the biggest constraint to their investment plans over the medium term. This is in contrast with North-based investors, for whom macroeconomic instability remains the principal concern in both the short and medium term. Regulatory risks (adverse regulatory changes) ranked first among concerns in the MIGA-EIU 2011 survey over the next 12 months and over the next three years, surpassing breach of contract as the political risk most vexing to investors (figure 1.8). The importance of regulatory risk is a finding that has been consistently supported in both the 2009 and 2010 surveys, underscoring the weight that investors place on risks posed by regulatory uncertainty and “market-unfriendly” changes in laws and regulations in host countries. Difficulties in predicting future regulatory changes also render investors less able to assess how such changes might affect the value of the future income streams and investment in general. Discussions with investors point to the instability of the regulatory regime as the key concern, rather than the regulatory regime itself. Especially for investors in the financial sector, regulatory changes have increased in the aftermath of the global financial crisis, as host-country governments have considered a range of possible interventions, in particular to regulate foreign banks and other financial institutions. Box 1.1 Definition of Political Risk Political risk broadly defined is the probability of disruption of the operations of companies by political forces and events, whether they occur in host countries or result from changes in the international environment. In host countries, political risk is largely determined by uncer- tainty over the actions not only of governments and political institutions, but also of minority groups and separatist movements. For the purposes of the MIGA-EIU Political Risk Survey, the definition of political risk includes the following: Transfer and convertibility restrictions: risk of losses arising from an investor’s inability to convert local currency into foreign exchange for transfer outside the host country. Currency devaluation is not covered. Expropriation: the loss of investment as a result of discriminatory acts by any branchof the government that may reduce or eliminate ownership, control, or rights to the investment either as a result of a single action or through an accumulation of acts by the government. Bre
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