Misthinking Globalisation

Transcription

1 2013 Harcourt Lecture Misthinking Globalisation Richard Baldwin Graduate Institute, Geneva & University of Oxford

2 Conventional view of globalisation No-trade to free-trade, slowly.

3 : Globalisation Trade costs Falling transport costs Rising tariffs 1.9 Averge trade cost Global trade flow (right scale) Falling tariffs & transport costs Source: Gravity model based estimates of trade costs (Jacks, Meissner, Novy 2011).

4 Globalisation changed around 1990

5 Globalisation as the great unbundling(s) Globalisation: 2 processes, not 1

6 What changed globalisation? Follow the clues

7 Global GDP shares, % 70% 60% 50% 40% 30% 20% RoW 67% G7, 48% 10 gainers 27% Post-1990: G7 share loss goes to 10 developing nations. RoW see little change. 10% 0% 11% 1990

8 People in poverty (under $2/day) Millions under $2/day by national income class 1,600 1,400 1,200 1, Lomiddle Hi- Middle Low poverty: Rising in Low and Low-middle income nations. Flat in High-middle income nations. 1990

9 People in poverty (under $2/day) Millions under $2/day by national income class 1,600 1,400 1,200 1, Lomiddle Hi- Middle Low 1993 Post 1993 Hi-middle poverty plummets million fewer poor! Others poverty keeps rising. 1990

10 World manufacturing share Global manufacturing shares, % 70% 60% 50% 40% 30% 20% 10% 0% RoW 6 risers, 5% 1990, G7 65% China, 3% 3% 47% China, 18% 9% 7 losers. 7 risers. RoW = little change. Source: unstats.un.org; 6 risers = Korea, India, Indonesia, Thailand, Turkey, Poland

11 Nature of trade: Vertical specialisation Vertical specialisation index LatAm Asia ex Jpn G7 Africa 1990 Source: Amador and Cabral (2009).

12 Nature of trade changed: Intra-industry trade (IIT) Intraindustry trade indices 80% 70% 60% 50% 40% 30% 20% 10% Germany -France US- Mexico Germany- Poland US- Mexico Japan- Thailand 0% 1990

13 Trade & investment policies Protectionism becomes destructionism BITs signed per year (right scale) 1988 World FDI ($ billion) Applied tariffs (%) Middle East & North Africa East Asia Sub- Saharan Africa South Asia US, Japan & EU

14 Smile curve : Distribution of value Share of value added Post-1990 value distribution 1970s & 1980s value distribution Pre-fab services Fabrication Post-fab services Stage

15 What changed globalisation?

16 Clue #1: The change is: Historic in size, Global in reach, Clues VERY unevenly spread geographically. Clue #2: The change is: Related to manufacturing & trade in intermediates. Clue #3: Transformed developing nations views of trade & investment.

17 Buzzwords in lieu of analysis It s hyperglobalisation It s FDI It s FDI It s the East Asian miracle It s capital flows It s vertical specialisation It s Emerging Markets

18 Elephant = international movement of firm-specific know-how. It s FDI It s FDI It s hyperglobalisation GVC revolution Know-how becomes: 1) Firm-specific, not nation-specific. It s the East 2) Rapidly combined with Asian South labour but only in miracle a few developing nations. It s capital flows It s vertical specialisation It s Emerging Markets

19 We need a new narrative for globalisation Globalisation as 2 processes, not 1

20 Globalisation: 3 cascading constraints High High High = Preglobalised world Steam revolution Low High High = 1 st unbundling Stage A Stage C Stage B ICT revolution Low Low High = 2 nd unbundling Stage A Stage B Stage C

21 Distance still matters Figure 1: North American and Europe auto supplier plants. Regionalization of supply chains Hypothesis: people still expensive to move. Face-2-face and Face-2- machine constraints.

22 Why globalisation changed? ICT revolution Unbundled factories Comparative advantage denationalised Unbundles rich-nation factories & offices. Rich-nation knowhow combines with lowwage labour in emerging markets. Hi-tech goes to low-wages; National outcomes depend upon many nations advantages. Uneven industrialisation & growth Miracle only happens where the hi-tech goes. - Regional supply chains

23 Basic economic difference 1 st unbundling: old-paradigm globalisation Globalisation allows nations to exploit their comparative advantage. 2 nd unbundling: new-paradigm globalisation Globalisation changes nations comparative advantages. Mainly due to technical, managerial and marketing knowhow moving inside Global Value Chains.

24 Misthinking industrialisation: Spence growth commission (2008) Economy Period of +7% growth GDP/pop at start GDP/pop in 2005 Botswana ,800 Brazil ,000 China ,400 Hong Kong, China* ,100 29,900 Indonesia Japan* ,500 39,600 Korea, Rep. of* ,100 13,200 Malaysia ,400 Malta* ,100 9,600 Oman ,000 Singapore* ,200 25,400 Taiwan, China* ,500 16,400 Thailand ,400

25 Misthinking globalisation: Hausmann & Rodrik

26 Key difference for policy 1 st unbundling = UB Slow, predictable, controllable (tariff cuts). By sector and skill-group. 2 nd unbundling = 2UB Sudden, individual, unpredictable. Globalisation with a finer degree of resolution.

27 GVC revolution: Policy rethinks necessary 1. Social & education policy. 2. Industrial policy. 3. Urban policy.

28 Misthinking trade policy 2 nd unbundling changed trade & necessary disciplines. Only 30 to 40 nations really engaged in Global Value Chains. Current trajectory with WTO & Megaregionals: 1930s or 1940s?

29 Trade changed 20 th century trade: Goods made in one nation sold in another 21 st century trade: Using trade system to make goods 20 th century trade Baldwin (2012). WTO 2.0, CEPR Policy Insight

30 Governance demands changed Bay A Bay C 1) Seamless supply chains (supply chain disciplines): Intermediates tariffs, NTBs, transportation & ICT infrastructure, service barriers, business mobility, etc. Bay B 2) Doing business abroad (offshoring disciplines) Behind the border barriers (BBB) reform, property rights, local business climate, capital mobility, competition policy, SOEs, etc.

31 Political economy changed 20 th century trade = Selling things. Political economy = exchange of market access. 21 th century trade = Making things. Developing nations industrialise by joining a supply chain, not building one. Political economy = Northern factories for Southern reforms. NB: No factories on offer in Geneva China is different: My market for your factories & technology

32 Doha, TPP, WTO Doha deadlock + mega-regionals are likely to transform world trade governance. Mega-regionals are mostly about establishing 21 st century trade disciplines. Like Mac versus Windows; less about trade creation/diversion. Need to start thinking ahead about shape of global trade governance.

33 #5: Development policy Traditional industrialisation = build a supply chain (e.g. Korea). After 2 nd unbundling, industrialisation = join a supply chain (e.g. Thailand). Some key points: Industrialisation is easier but less significant. 2 nd unbundling killed import substitution. North tech + South labour unbeatable.

34 Development paths changed Holmes- Lopez- Gonzales curve Importing to export: Rising then falling with income - 10,000 20,000 30,000 40,000 50,000 Per capita GDP (2000 $s) Exporting intermediates: Falling then rising with income

35 END Thank you for listening. Unpaid avert: please visit: Research-based policy analysis and commentary by leading economists

36 Extra slides for Q&A

37 Supply-chain trade by industry All services Food & related Manufacturing, Leather & Machinery, nec Transport equip Textiles & related Elect & Opt'l equip Ag & related Fuels Chemicals & Paper & related Rubber & Plastics Wood & related Basic metals & Mining Non-metallic World final share, '09 World final share, '95 0% 20% 40% 60% 80% All services Food & related Manufacturing, Leather & Machinery, nec Transport equip Textiles & related Elect & Opt'l equip Ag & related Fuels Chemicals & Paper & related Rubber & Plastics Wood & related Basic metals & Mining Non-metallic Total world export shares '09 0% 10% 20% 30%

38 I2P trade: Bilateral intermediate imports as % of global flows, 2009 UK Germany France Itlay NL Belgium Austria Poland Czech Denmark Spain Portugal Finland Greece Ireland Turkey Sweden Brazil Russia India Indonesia Australia Taipei China Japan Korea US Mexico Canada RoW I2P '09 UK 0% 0% 0% 0% 1% Germany 0% 1% 0% 0% 0% 1% 0% 2% France 0% 1% Itlay Factory 1% NL 1% 0% 0% Belgium 0% Europe Austria Poland Czech Denmark 0% Spain 0% Portugal Finland Greece Ireland 0% Turkey 0% Sweden Factory 0% Brazil 0% Russia Asia 1% India 0% Indonesia 0% Australia 1% 0% Taipei 1% 0% China 1% 0% 1% 1% 2% 4% Japan 1% 0% 0% 2% Korea 1% 1% US 0% 0% 0% 1% 0% 1% 1% 4% Mexico 1% Canada 2% RoW 1% 1% 1% 1% 1% 0% 0% 0% 1% 0% 0% 0% 4% 2% 1% 3% Facto NorA

39 2 nd unbundling: Industrialisation easier, but less meaningful 2UB: External economies with GVC wage SVMPL M (ISI) M Social Value Marginal Product of Labour in Manufacturing A U U VMPL A L M L M L L M 39

40 1UB w/w* w e EU exports Postwar tariff liberalisation z x Nontraded Non-traded Job creation Job destruction z m Globalisation s impact is: 1. Slow & controlled. - Mainly tariff liberalisation 2. Predictable. - Sunset sectors like those already lost. - Sunrise Foreign goods sectors in Home like those already exporting. A(z) 3. Globalisation s impact felt at level of sectors & skill groups. Home goods in Foreign EU imports z, sectors

41 Misthinking globalisation = misthinking economics 1 st unbundling thinking: Y A F[ L, K ] Jpn Jpn Jpn Jpn 2 nd unbundling thinking: Globalisation changes technology in some developing nations. Know-how flows directly in global value chains & indirectly via intermediates.

42 Economics of 2 nd unbundling 2 ways of recombination hi-tech & low-wages: Direct: North know-how moves to South labour (offshoring). Indirect: North know-how moves to South in components. (trade in parts & components). NB: Comparative advantage becomes a multicountry concept.

43 1 st unbundling: D S S S euros euros euros D N P T XS S N P -T MD Quantities World trade Quantities

44 1 st unbundling: Trade costs fall North industrialises; South de-industrialises D S S S euros euros euros D N P T XS N produces & exports more S N P FT P FT S produces less & imports more MD P -T Quantities World trade Quantities

45 2 nd UB Direct recombination of North tech with South labour D S S S euros euros euros D N XS S N P FT P 2UB S exports S S MD MD N Quantities World trade exports Quantities XS P FT P 2UB

46 Trade in parts can switch comparative advantage euros South euros D Z South S Z D Y S Y P W Z S Z P Y MC Z P P Y Q Y Q Y Quantity, parts Q Y =Q Z M Z X Z Quantity, final goods