Gei All Slide

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Rodolphe Desbordes and Frederic Munier

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What will you learn?
1. Why trade is at the core of the civilisation process.

2. Why technology and policies can explain trade globalisation.
3. How our current globalisation differs from previous globalisation.
4. The implications of a more interconnected world.
5. The meaning of a trade deficit.
6. Why international trade can promote economic growth.
7. Why trade can be good for the environment and reduce poverty.
8. Why the future of trade in uncertain with the ‘Fourth Revolution’.
9. How globalisation can generate a populist backlash.
10. How to deal with trade and technology shocks.
Made in World
2019-09-20
1. Why trade is at the core of the civilisation process.

2. Why technology and policies can explain trade globalisation.
3. How our current globalisation differs from previous globalisation.
4. The implications of a more interconnected world.
5. The meaning of a trade deficit.

6. Why international trade can promote economic growth.
7. Why trade can be good for the environment and reduce poverty.
8. Why the future of trade in uncertain with the ‘Fourth Revolution’.
9. How globalisation can generate a populist backlash.
10. How to deal with trade and technology shocks.
Keep these learning outcomes in mind during the lecture.

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Outline
The shifting nature of globalisation throughout History
Civilisation, domestic trade, and international trade
The jagged process of trade globalisation
Globalisation 3.0: the integration of world production
Trade, protectionism, and economic growth

Trade deficit, tariffs, and output
Trade and economic growth
Trade and the Great Convergence
Concerns about trade

Trade and the environment
Trade, inequality, poverty, and jobs
The future of trade
Conclusion
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The shifting nature of

globalisation throughout
History
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Civilisation, domestic trade, and

international trade
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Why are we civilised?
Civilisation is:
I the process by which a place reaches an advanced stage of social and

cultural development and organisation.
I characterised by the presence of large cities; indeed, the word
civilisation stems from the Latin word for city civitas.
The history of the world can be traced through the history of urbanisation.
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The history of urbanisation
Source: Forbes website.
Urbanisation started in the Middle East, moved to the East, and then spread to the
West... and back to the East!
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What all of this has to do with trade?

How was civilisation possible?
Think about civilisation as having people specialised into a large number of

occupations: farmer, cloth-maker, house-builder, tool-builder, priest, ruler, butcher,
soldier...
Each household specialises in what he does relatively well and sells his goods and
services to other households in exchange for other goods and services. There are
gains from division of labour based on comparative advantage.
Of course, full specialisation is possible only if the market is large enough. So it

makes sense for people to live close to each other in large cities. This often triggers a
virtuous circle of agglomeration, innovation, sophistication (and population growth).
What have we demonstrated? Increased division of labour and trade are at the
core of civilisation. We do not notice it but think about it: how would you live
without the rest of society?
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2019-09-20
The shifting nature of globalisation throughout How was civilisation possible?
Think about civilisation as having people specialised into a large number of
History
occupations: farmer, cloth-maker, house-builder, tool-builder, priest, ruler, butcher,
soldier...
Each household specialises in what he does relatively well and sells his goods and
services to other households in exchange for other goods and services. There are
gains from division of labour based on comparative advantage.
Civilisation, domestic trade, and international Of course, full specialisation is possible only if the market is large enough. So it
makes sense for people to live close to each other in large cities. This often triggers a
virtuous circle of agglomeration, innovation, sophistication (and population growth).
trade What have we demonstrated? Increased division of labour and trade are at the
core of civilisation. We do not notice it but think about it: how would you live
without the rest of society?

Full specialisation means that you only produce one good/service,
that you then sell to other specialised producers to obtain your
food/clothes/tools... Obviously, you need to sell a significant amount
of production (i.e. have access to a large market) in order to have
enough purchasing power.
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Are the effects of international trade different from

those of domestic trade?
1. NO, because the logic is the same: by trading across borders, additional gains
from specialisation can be made and larger markets can be accessed.
2. NO, ultimately, a domestic merchant or a foreign merchant sells/exports more
because her product is cheaper (in money terms) than that of the domestic or
foreign competition.
These two points can be found in the writings of Adam Smith and David Ricardo.
1. BUT, borders must be crossed and large distances must be travelled.

2. BUT ‘content’ differs.
3. BUT, international trade creates conflicts of interest within countries...often
leading to conflicts of interest between countries.
4. BUT, although international trade not the most important source of shocks
(think technology or shifts in domestic consumption patterns), often dominates
political debates (‘us’ against ‘them’).
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Are the effects of international trade different from
The shifting nature of globalisation throughout those of domestic trade?

1. NO, because the logic is the same: by trading across borders, additional gains
from specialisation can be made and larger markets can be accessed.
History
2. NO, ultimately, a domestic merchant or a foreign merchant sells/exports more
because her product is cheaper (in money terms) than that of the domestic or
foreign competition.
These two points can be found in the writings of Adam Smith and David Ricardo.
Civilisation, domestic trade, and international 1. BUT, borders must be crossed and large distances must be travelled.
2. BUT ‘content’ differs.
3. BUT, international trade creates conflicts of interest within countries...often
trade
leading to conflicts of interest between countries.
4. BUT, although international trade not the most important source of shocks
(think technology or shifts in domestic consumption patterns), often dominates
political debates (‘us’ against ‘them’).
Are the effects of international trade different

This is a from
crucial point:
those in many regards,
of domestic trade? domestic trade and interna-
tional trade obey the same logic. However, economic and political
spheres do not always overlap.
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The jagged process of trade

globalisation
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Long-run trend in trade globalisation
The intensity of international trade has fluctuated over time.

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Long-run trend in trade globalisation
The shifting nature of globalisation throughout

History
Long-run trend in trade globalisation The intensity of international trade has fluctuated over time.
We talk here about trade intensity because we use the ratio of exports
to production.
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What do we see? What should we think?
I International trade (relative to domestic production) was low before

1820.
I There are three waves of globalisation: 1840-1914 (I), 1950-1990 (II),
1990-present (III).
I Deglobalisation can happen: 1914-1945.
How do we explain these trends? We will focus on the key drivers of

Globalisation I and II. We will discuss Globalisation III in the next section.
Key insight: international trade is about arbitrage. Foreign goods become

interesting to buy if their price is lower than the price of domestic goods.
Anything which reduces the price of imports should lead to more trade.
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Globalisation driven by technology and policy

Real costs of ocean shipping. Average worldwide tariffs.
Source: OECD (2013). Source: Feenstra and Taylor (2014).

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The contribution of each factor

Overall trade cost index (summarise all Shifting drivers over time.
obstacles to international trade).
Source: Fouquin and Hugot (2016).
Source: Lindert (2001).

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The contribution of each factor

Overall trade cost index (summarise all Shifting drivers over time.
obstacles to international trade).
History
The contribution of each factor Source: Fouquin and Hugot (2016).
Source: Lindert (2001).
The two last slides make clear that price convergence is the outcome
of two forces: transport costs and trade policies. These two forces had
different influences during the various phases of Globalisation.
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Remembering History: dealing with a global crisis
I The 2009 Great Recession has often been compared to the 1929
Great Depression.
I G20 (2009): ‘We will not repeat the historic mistakes of protectionism of
previous eras.’
I Which mistakes were avoided? Protectionist policies in the 30s used
to provide a macroeconomic stimulus reduced international trade and
exacerbated the Great Depression as everyone tried to do so or were
impacted.
I It is believed that the fall in trade may have contributed to a fall in 1-2%
in world output (about 10% of the total fall).
I During the Great Recession, governments were much more
pro-active: expansionary monetary and fiscal stimulus, instead of
using trade policies as substitute policy instruments.
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Ignoring History: a global trade war

I The United States have engaged in
very comprehensive protectionist
policies.
I Partner countries have retaliated
(does this look familiar ?!)
I What would be the direct

consequences of a global trade war
where tariffs get as high as 60
percentage points (outside EU)?
I The GDP losses of the three major
trading powers (the United States,
China and the European Union) are
roughly equivalent, around 3-4% .
I The losses are even larger for very

Source: Jean, Martin, and Sapir (2018). open countries. Very conservative
estimates.
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Ignoring History: a global trade war
The shifting nature of globalisation throughout I The United States have engaged in
very comprehensive protectionist
policies.
I Partner countries have retaliated
History
(does this look familiar ?!)
I What would be the direct

consequences of a global trade war

where tariffs get as high as 60
percentage points (outside EU)?
I The GDP losses of the three major
trading powers (the United States,
China and the European Union) are
roughly equivalent, around 3-4% .
Ignoring History: a global trade war Source: Jean, Martin, and Sapir (2018).
I The losses are even larger for very
open countries. Very conservative
estimates.
History and current geopolitical events show that using protectionist

trade policies to boost domestic activity can have global negative con-
sequences.
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Globalisation 3.0: the integration

of world production
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Globalisation 3.0: more trade, more participants

Globalisation 3.0 now exceeds Developing countries are much more
Globalisations I and II. involved.
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How do we explain this? Lower costs, more integration

Trade and ICT costs are now low The iPhone is produced using a global
enough to ‘fragment’ production. supply chain, involving rich and
developing countries.
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How do we explain this? Lower costs, more integration

Trade and ICT costs are now low The iPhone is produced using a global
enough to ‘fragment’ production. supply chain, involving rich and
History
Globalisation 3.0: the integration of world produc-
tion
How do we explain this? Lower costs, more
We are now in the second unbundling phase: transport costs and com-
integration
munication are low enough so that we can locate wherever in the world
each part of the production process where production is the cheapest.
The production of the Iphone epitomises this phenomenon. R&D is

located in the USA, Germany/Japan/South Korea provides key inputs,
assembly is done in China, the Iphones are then exported everywhere.
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Globalisation 3.0: trade in value added
I B exports to C a good G worth 110 (and C

has a trade deficit of 110 with B).
I A exports nothing to C.
I However, most of the value of G (100) comes
from the intermediates exported from A to B.
I B only contributes 10 to the overall value.
I With global supply chains, gross exports
involve 1) double counting and 2) does not
identify where value added has been
ultimately created.
I Trade in value added (TiVA) indicates the
amount of value added from a given source
country that is consumed in each destination.
Source: OECD (2013). I How does TiVA change our perspective?
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The shifting nature of globalisation throughout I B exports to C a good G worth 110 (and C
has a trade deficit of 110 with B).
History
I A exports nothing to C.
I However, most of the value of G (100) comes
from the intermediates exported from A to B.
I B only contributes 10 to the overall value.
I With global supply chains, gross exports
Globalisation 3.0: the integration of world produc-

involve 1) double counting and 2) does not
identify where value added has been
ultimately created.
I Trade in value added (TiVA) indicates the
tion
amount of value added from a given source
country that is consumed in each destination.
Source: OECD (2013). I How does TiVA change our perspective?

Keep in mind that what is exported by a country is often not 100%
produced by this country.
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Changing trade policy analysis
‘Beneficial’ protectionist trade policies become more complicated to design

because exports embody foreign value added and imports embody
domestic value added.
I The presence of foreign value-added in exports ought to give rise to

lobbying by exporters of final goods to liberalise imports of
intermediates.
I Exporters of intermediate goods that are then embodied in imported
final goods should favour lower tariffs on those final goods imports.
Bilateral trade policies can harm third-countries, e.g. trade forbidden

between B and C would harm A.
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Tracking the true exposure to foreign shocks

I Imagine a negative shock to foreign
demand. The TiVA story is different
from the gross exports story.
I Countries are less ‘exposed’ when
using value added to GDP ratio.
I A fall of one dollar of exports does
not imply a fall of one dollar of US
GDP.
Source: Johnson (2014).
I The domestic shock also depends on

the ultimate source of the foreign
shock.
I Taiwan seems more exposed to what
happens to China (trade) but in fact it
is more exposed to changes in U.S.
demand.
Source: Lewis (2013).

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Changing trade imbalances analysis

I Bilateral trade balances look very different
when calculated on a value added basis.
I These adjustments to bilateral balances

suggest that the burden of adjustment
associated with closing the US trade balance
would be redistributed away from China
and towards Japan and Malaysia.
I Why? Because the VA deficit is much larger

than the conventional trade deficit for these
two countries.
Source: Johnson (2014).

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Outline


The future of trade
Conclusion
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Trade, protectionism, and

economic growth
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Open economy accounting

The total value of gross national expenditure (GNE) on final goods and services
(domestic and foreign) is:
GNE = C+I+G
The total value of gross national income (GNI) derived from domestic production is
GNI = C+I+G+X M
where X M is the trade balance (NX for net exports): we correct for foreign demand
for home production (X ) and domestic demand for foreign production (M).
Additional resources to cover GNE can be obtained by the net sale (exports) of
assets to foreigners (an equity, a bond, a loan, real estate):
XA MA = NXA
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The meaning of a trade deficit

An open economy which spends more than it earns will have a trade deficit:
GNI GNE = (C + I + G + NX ) (C + I + G)
GNI GNE = NX
Such imbalances are possible because the country obtains additional resources
from abroad:
GNI + NXA = GNE

NX = NXA
A trade deficit can also be seen as national investment (I) exceeding national
saving (S):
GNI = C+I+G+X M
(GNI C G) I = X M
S I = X M
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What does this mean for trade policy?
S I = X M
I The overall trade deficit reflects macroeconomic conditions and can change
only to the extent that these macroeconomic conditions change.
I Sectoral policies, such as tariffs and quotas, can have important effects on the
trade balances of particular industries or with particular trading partners.
I However, these policies can reduce the overall trade deficit only to the extent
that they affect macroeconomic conditions (i.e. % S or & I) in the ‘right’
direction.
I It is unclear how that would work (although stories can be made) and whether it
would be good for economic growth.
I And therefore tariffs are unlikely to influence the overall trade deficit and
boost overall production/employment.
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Fewer foreign WM, better-off domestic economy?

I U.S.A. have tried to reduce bilateral
trade imbalances in...
washing-machines (WM).
I Ex: restricting Korean imports led
to 1) higher imports from other
countries; 2) Relocation of South
Korean producers in these countries.
I In 2018, ‘multilateral’ trade tariff
led to lower imports.
I Lower imports mean more WM
domestic production BUT higher
prices for U.S. consumers.
I Cost of a WM job: about $US 1M
per job.
I Jobs destroyed in other sectors as
disposable income falls.
Source: Flaaen et al. (2019).
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The impact of a 4 p.p. increase in tariffs

I Researchers have investigated the
dynamic effects of an increase in
tariffs.
I Look at the bottom of the figure first.
There is NO impact on the trade
balance (possibly because lower M
leads to a real appreciation).
I However, you can see a negative
impact on output, productivity,
employment, or equality.
I Bottom line: Imports are not BAD

and restricting them does not
necessarily yield GOOD outcomes.
Source: Furceri et al. (2019).

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The growth experience of three countries

South Korea India
China
I The vertical line is a move towards more

market-oriented policies, including trade
liberalisation.
I The grey line is predicted income based on
pre-(trade) liberalisation experience.
I Notice the gap between observed and predicted
income.
Source: Irving (2015). I How could trade liberalisation have played a part in
this outcome?
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Understanding economic growth

I To produce more, you can use more tools, i.e.
accumulate more capital per worker by
investing [I]: B ! A.
I However, at A, adding one more machine
does not help anymore (how many hands do
you have!?)
I The only way to sustain economic growth is to
get better at producing output (more
machines, better allocation of resources)
(roughly) B ! C, i.e. raise output for a given
level of capital per worker.
I The trajectory of the U.S. shows this: ‘more’
and ‘better’ machines.
I Hence, trade can raise output by having an

influence on capital accumulation and
total factor productivity.
Source: CORE (2019).
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The ‘classical’ gains from trade

I Remember that (international) trade is about (international) exchange
and specialisation.
I By opening up, 1) a country gets a better price for the good that it now
exports; 2) pays a lower price for the goods that it now imports.
I The country can now get more output for the same amount of inputs
(capital and workers) by specialising and trading.
I Hence moving from autarky to international trade can be interpreted as

a technological shock [B ! C].
I When Japan was forced to open up in 1858, trade and specialisation

occurred, leading to a 9% increase in GNI.
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Additional gains from trade

At this point, you should say: ‘9%’ increase, this is peanuts for a country’s economic
development. Agreed!
Then, we need to think about additional gains from trade influencing capital
accumulation (K ) or total factor productivity (TFP):
I More resources: income due to trade liberalisation allows higher I.

I Better inputs: cheaper and better intermediate and capital goods (embodying
foreign advanced technology) can be imported.
I Pro-competitive forces: foreign competition forces domestic firms to become
more efficient and more innovative.
I Economies of scale: expansion of market size allows production of goods with
high fixed costs (including those involving high R&D costs) because average
costs fall with output.
These additional gains can be much larger than the classical gains and explain why
international trade can sustain economic growth through ‘more’ and ‘better’
inputs/processes.
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Estimating the overall effects of trade on economic

growth
I 1) Income can increase trade (reverse
causality) and 2) the effects of trade can take
time to occur (static vs. dynamic gains).
I Researchers have looked at changes over a
long period of time (1960-1995) and used
changes in trade NOT driven by changes
in income.
I Ex: fall in air freight has benefited more
countries separated by a long sea distance
but a short air distance. The positive trade
shock is driven by technology.
I Researchers find that doubling trade

volumes increase income by about 42%.
Differences in predicted trade growth can
explain roughly 17% of the variation in
cross country income growth between
Source: Feyrer (2018). 1960 and 1995.
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Estimating the overall effects of trade on economic
Trade, protectionism, and economic growth growth

I 1) Income can increase trade (reverse
causality) and 2) the effects of trade can take
time to occur (static vs. dynamic gains).

I Researchers have looked at changes over a
long period of time (1960-1995) and used
changes in trade NOT driven by changes
in income.
I Ex: fall in air freight has benefited more
Estimating the overall effects of trade on

countries separated by a long sea distance
but a short air distance. The positive trade
shock is driven by technology.
I Researchers find that doubling trade
economic growth
volumes increase income by about 42%.
Differences in predicted trade growth can
explain roughly 17% of the variation in
cross country income growth between
Source: Feyrer (2018). 1960 and 1995.
This slide can be seen as a brief introduction to causal analysis: we

want to ensure that we capture the long-run impact of trade on income
rather than the other way around (the impact of income on trade).
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Trade and the Great

Convergence
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Great convergence (1990-): any role for trade?
Source: Baldwin (2019).
Developing countries grew faster than G7 countries between 1990 and now.
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Global supply chains facilitate industrialisation

I Before the development of global
supply chains (GSCs), a country had
to be competitive in all stages of
the production process.
I This made industrialisation, and

exporting, difficult.
I By participating in GSCs, a country

can be competitive in one single
stage, only.
I This makes industrialisation easier

and faster.
Source: Baldwin (2016).

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A smaller share of a larger cake

I Of course, some developing
countries only contribute a small
share to the value of exports.
I Nevertheless, by actively
participating, they can get a small
share of a large value of exports.
I And higher domestic value added

(and, indirectly, higher foreign value
added) fosters economic growth.
Source: Baldwin (2016) and Altomonte et al. (2016).

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Trade, protectionism, and economic growth I Of course, some developing

countries only contribute a small
share to the value of exports.

I Nevertheless, by actively
participating, they can get a small
share of a large value of exports.
I And higher domestic value added

(and, indirectly, higher foreign value
added) fosters economic growth.
Source: Baldwin (2016) and Altomonte et al. (2016).
A developing country A by being an exporter of final goods may gener-

ate 100% value added (VA) of 100 exports. Another developing coun-
try B by being an exporter of intermediate goods may generate 50%
VA of 500 exports. The VA content of B’s exports is lower (50% vs
100%) but the absolute generated VA is larger (250 vs 100).
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Outline


The future of trade
Conclusion
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Trade, economic development, and pollution
Trade boosts production and changes the composition of output produced.
I Size/scale effect: higher production means more pollution, holding constant

production techniques and the mix of goods produced.
I Income/technique effect: richer people may demand a better environment
(through stricter environmental regulations and cleaner production techniques).
They want to ‘consume’ more of it.
I Composition/trade intensity effect: holding scale and income effects constant,

the economy may specialise in relatively less or more polluting industries.
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Does trade increase local pollution?

The overall effect of higher trade on
pollution is the sum of the combined
size-income effect and the composition
effect.
I The direct composition effect can

be positive or negative depending on
what countries export and import.
I There is often, but not always an
inverse U-shaped impact of the
combined size-income effect.
I The overall effect is often negative
but depends on income levels.
I Higher growth ultimately leads to

lower local pollutants.
Source: Kellenberg (2008); RI: relative income (relative to average world income per
capita)
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Concerns about trade The overall effect of higher trade on

pollution is the sum of the combined
size-income effect and the composition
effect.
Trade and the environment I The direct composition effect can

be positive or negative depending on
what countries export and import.
I There is often, but not always an

inverse U-shaped impact of the
combined size-income effect.
I The overall effect is often negative
but depends on income levels.
I Higher growth ultimately leads to

lower local pollutants.
Source: Kellenberg (2008); RI: relative income (relative to average world income per
capita)
The table decomposes the overall effect of trade on the emissions

of various pollutants (SO2, NOX, CO, VOC): scale, technique, trade
effects. It also shows how these effects vary according to a country’s
development stage; RI stands for relative income (country’s income
relative to average income). We can see that local pollution tends to
fall with growth-induced trade but this benign outcome depends on a
country’s development stage and the pollutant type.
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Could trade policies help with climate change?

I Ideally, we should try to reduce carbon emissions by taxing them worldwide
since they have global negative externalities.
I However, countries could unilaterally adopt a domestic tax AND a carbon

tariff of the same amount on carbon emissions produced by foreign production.
I The domestic tax would reduce domestic emissions (and carbon-intensive

production).
I The carbon tariff would prevent ‘production leakage’ to ‘pollution havens’ and
imported emissions (from countries with lower prices due to no domestic carbon
tax).
I The carbon tariff may give an incentive to foreign producers to adopt cleaner
technologies.
I This would benefit the environment and avoid any race to the bottom!
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Should we buy local?

I There is a growing ‘locavore’
movement: they want to buy locally
grown food for various reasons,
including reducing CO2 related to
international transport.
I However, production is made of
various stages and each stage has a
CO2 impact.
I 80% of emissions come from
production, not transportation.
I Some countries can produce at a
very low environmental cost food
(e.g. tomatoes in Spain or flowers in
Kenya do not require heated
greenhouses).
I Hence, it can make environmental

sense to import food from distant
countries to reduce global
emissions.
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Can trade mitigate climate change?

I Climate change means that
inter-country agricultural
capabilities will change (different
crops, different yields).
I International trade can reduce the

impact on food consumption
through international trade of food
production.
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Trade, inequality, poverty, and

jobs
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Economic growth, poverty, and trade

I There is a tight link between fall in
absolute poverty and higher
income.
I There is a tight link between rise in

average income and the rise of the
incomes in the bottom 40% of
households within each country.
I With economic growth, prosperity

is shared and inequality does not
systematically increase!
I We know that trade boosts income.
I Therefore trade tends to reduce

poverty and contributes to shared
prosperity.
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Trade, poverty, and child labour

I A symptom of poverty is child
labour.
I Poor (rich) households do (not) need
to make their children work.
I The trade-induced rise in income
tends to reduce child labour.
I Vietnam provides a powerful

example.
I By opening to trade (1993),
Vietnam experienced a rise in rice
price, making rural communes
richer (1993-1998).
I The stronger the rise in rice price,
the larger the decline in child labour.
I Trade may explain two-thirds of the

overall decline (12 p.p., 60 to 48%)
in child poverty in rural communes!
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The Chinese shock in the United States

I Much has been written on the
negative impact of rising Chinese
imports on U.S. manufacturing jobs.
I However, trade with China and other

countries create export
opportunities.
I Once we take into account both

negative and positive effects, the net
effect is neutral or positive.
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The future of trade
The future of trade

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The future of trade
The Fourth Revolution and GVCs

I We have seen that technology has facilitated
Global Supply Chains.
I However, the ‘Fourth Revolution’ may
considerably reduce trade in goods.
I GSCs may be no more required if robots are

cheaper than workers (including in poorest
developing countries).
I This would have a considerably negative
impact on countries hoping to grow through
international trade, e.g. African countries.
I 3D printing (additive manufacturing) could

reduce international trade if everything can
be printed in one single stage (could help
developing countries with low
capabilities).
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The future of trade
The Fourth Revolution and service offshoring

I We have mainly focused on trade in
goods. However, there is also trade
in services.
I The ‘Fourth Revolution’ may also

considerably reduce the need to
offshore services, e.g. customer
centres (replace workers with
artificial intelligence).
I However, a radical fall in the costs of

ICTs and robots may allow for
‘remote intelligence’: a Kenyan
worker remotely controlling a nursing
robot. Speculative, so far!
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The future of trade
Import shocks and economic nationalism

I Adjustments to trade shocks can
be difficult.
I In Western regions exposed to a

Chinese import shock (causing
economic insecurity) between
1988-2007: an increase in support
for nationalist parties, a general
shift to the right in the electorate,
and an increase in support for
radical right parties.
I A good example is the Brexit vote!
I In fact, populism rises when

economic insecurity rises,
Source: Colantone and Stanig (2016; 2018)
whatever its origin.
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The future of trade
Trade, technology, and sharing gains

Trade and technology:
I We have not talked much about technological progress on its own.

I This is because technological progress and trade are essential
indistinguishable.
I Both create overall but unevenly distributed gains.
Adjustment in both cases requires:
I Active macroeconomic policies.

I Investment in public goods: education, infrastructure, R&D.
I Active labour market policies providing income support, facilitating job search,
training, geographical movement.
I Redistributive policies.
Made in World
Conclusion
Conclusion
Made in World
Conclusion
Trade as a welfare-enhancing technology
Source: Klein and Bauman (2012).

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1. The precise definition of financial globalisation.
2. The important role played by national policies in shaping financial
globalisation.
3. Why financial globalisation often disappoints despite its promised
benefits.
4. The international roots of the Global Financial Crisis and the
European Sovereign Crisis.
5. Why countries often wish to attract the foreign direct investment
(FDI) of multinational enterprises (MNEs).
6. Answers to key concerns around the activities of MNEs.
7. The new economic and political challenges raised by the current
financial globalisation.
8. The fact that the State can remain in control of its destiny.
Financed in World
2019-11-12
1. The precise definition of financial globalisation.
2. The important role played by national policies in shaping financial
globalisation.
3. Why financial globalisation often disappoints despite its promised
benefits.
4. The international roots of the Global Financial Crisis and the

European Sovereign Crisis.
5. Why countries often wish to attract the foreign direct investment
(FDI) of multinational enterprises (MNEs).
6. Answers to key concerns around the activities of MNEs.
7. The new economic and political challenges raised by the current
financial globalisation.
8. The fact that the State can remain in control of its destiny.
Keep these learning outcomes in mind during the lecture.

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Outline
Causes and effects of financial globalisation
How policies shape financial globalisation
The potential benefits and costs of financial globalisation
The Global Financial Crisis and the European Sovereign Crisis
What to expect from multinational enterprises

Distinguishing between different capital flows
Some potential benefits from MNEs
Controversial development issues around MNEs
New challenges of financial globalisation

The relevance of monetary policy
The relevance of national regulatory and fiscal policies
Dealing with new global players
Conclusion
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Causes and effects of financial

globalisation
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How policies shape financial

globalisation
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How do we measure financial globalisation?
An open economy which spends more [less] than it earns will have a trade deficit
[surplus]: GNI GNE = NX .
Such imbalances are possible because the country obtains [provides] additional
resources from [to] abroad through the net sale [purchase] (exports [imports]) of
assets to [from] foreigners: NX = NXA = (XA MA ).
P P
If you add all foreign assets (A = MA ) and all external liabilities (L = XA ), you get
a measure of financial openness, i.e. international trade in assets (not in goods,
here!):
A+L
FINOP =
GDP
Financed in World
2019-11-12
Causes and effects of financial globalisation An open economy which spends more [less] than it earns will have a trade deficit
[surplus]: GNI GNE = NX .

Such imbalances are possible because the country obtains [provides] additional
resources from [to] abroad through the net sale [purchase] (exports [imports]) of
assets to [from] foreigners: NX = NXA = (XA MA ).
P P
If you add all foreign assets (A = MA ) and all external liabilities (L = XA ), you get
a measure of financial openness, i.e. international trade in assets (not in goods,

here!):
A+L
FINOP =
GDP
We have already seen this open economy accounting identity in the

first lecture.
Open economy accounting is about tracking the international eco-

nomic interactions of a country with the ROW. Here we focus on the
international sales and purchases of domestic and foreign financial
assets.
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Financial globalisation throughout History
Source: BIS (2017).
Financial globalisation, like trade globalisation, has experienced several waves

pre-WW1, inter-war, 1945-1971, 1971=1995, 1995-). To explain this, we need to
understand how policies have shaped financial globalisation.
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Financial globalisation throughout History

Financial globalisation throughout History Source: BIS (2017).
Financial globalisation, like trade globalisation, has experienced several waves

pre-WW1, inter-war, 1945-1971, 1971=1995, 1995-). To explain this, we need to
understand how policies have shaped financial globalisation.
The waves of financial globalisation overlap those of ‘goods’ globali-

sation.
Given the intangible nature of capital flows, transport costs matter

much less. This is why we focus on policies.
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International arbitrage in returns and capital flows

Ultimately, capital flows occurs when there are inter-country return differentials, i.e.
i 6= i ⇤ .
Consider a U.S. investor with two alternative investment strategies: a one-year

investment in a U.S. dollar account (i$ ) OR a one-year investment in an euro account
(ieuro ).
With E the current exchange rate (amount of home currency required to buy one
unit of foreign currency) and E e the expected exchange rate in one year, an investor
will be indifferent between either option when the exchange-rate adjusted returns are
the same:
This is the uncovered interest parity condition (UIP), where the foreign return
depends on the foreign interest rate AND the expected depreciation of the
exchange rate (you will have to convert your money when you bring it back home in
one year time!).
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International arbitrage in returns and capital flows

Ultimately, capital flows occurs when there are inter-country return differentials, i.e.
i 6= i ⇤ .
Consider a U.S. investor with two alternative investment strategies: a one-year

investment in a U.S. dollar account (i$ ) OR a one-year investment in an euro account

(ieuro ).
With E the current exchange rate (amount of home currency required to buy one
unit of foreign currency) and E e the expected exchange rate in one year, an investor
will be indifferent between either option when the exchange-rate adjusted returns are
the same:
International arbitrage in returns and capital

flows This is the uncovered interest parity condition (UIP), where the foreign return
depends on the foreign interest rate AND the expected depreciation of the
exchange rate (you will have to convert your money when you bring it back home in
one year time!).
Keep in mind that the foreign return depends both on the foreign inter-
est rate and the expected change in the exchange rate.
Imagine that you invest 1 dollar at home and earn an interest rate of
10% per year. At the end of the year, you will get 1.10 dollars.
Now you can invest 1 dollar on the European market and earn a Euro
interest rate of 5% per year. The exchange rate is currently 1 euro for
1 US dollar but you expect a 5% depreciation of the exchange rate in
one year time, i.e. 1.05 US dollar will be required to buy one Euro. In
that case, at the end of the year, you will get 1.05*1.05 ' 1.10 dollars.
Hence we have UIP: 0.10 ' 0.05 + 0.05.

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The exchange rate and capital flows

UIP can be used to determine E (using ⇤ for foreign):
Ee E
= i i⇤
E
Ee
E =
1 + (i i ⇤ )
Assume that E e is constant, and right now i = i ⇤ so that E = E e . The above equation
tells you that
1. The current exchange rate is determined by (i i ⇤ ).
2. Why? If i > i ⇤ , domestic and foreign investors invest more at home and less in
the foreign country, causing high demand for home currency, leading to an
appreciation of the home currency (E #).
3. UIP: this process stops when the expected depreciation offsets the interest rate
differential.
1. A fixed exchange rate is not compatible with an active monetary policy.

2. Why? it is only when i = i ⇤ that capital flows do not take place and E does not
move.
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UIP can be used to determine E (using ⇤ for foreign):
Ee E
= i i⇤
E
Ee

E =
1 + (i i ⇤ )
Assume that E e is constant, and right now i = i ⇤ so that E = E e . The above equation
tells you that
1. The current exchange rate is determined by (i i ⇤ ).

2. Why? If i > i ⇤ , domestic and foreign investors invest more at home and less in
the foreign country, causing high demand for home currency, leading to an
appreciation of the home currency (E #).
3. UIP: this process stops when the expected depreciation offsets the interest rate
differential.
1. A fixed exchange rate is not compatible with an active monetary policy.

2. Why? it is only when i = i ⇤ that capital flows do not take place and E does not
move.
Intuitively, home and foreign investors try to take advantage of any

interest rate differentials, leading to changes in the supply and demand
of currencies on the foreign exchange market.
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The trilemma choice: exchange rate policy, active

monetary policy, capital mobility BUT...not all of them
I Trilemma: A fixed
exchange rate is
not compatible with
autonomous
monetary policy if
there is capital
mobility.
I Hence, capital
mobility is likely
to be higher if 1)
fixed exchange rate
and no
autonomous
monetary policy
(AMP) or 2) flexible
exchange rate and
Source: Feenstra and Taylor (2014). AMP.
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The trilemma choice: exchange rate policy, active
Causes and effects of financial globalisation monetary policy, capital mobility BUT...not all of them
I Trilemma: A fixed
exchange rate is
not compatible with

autonomous
monetary policy if
there is capital
mobility.
The trilemma choice: exchange rate policy,

I Hence, capital
mobility is likely
to be higher if 1)
fixed exchange rate
and no
active monetary policy, capital mobility

autonomous
monetary policy
(AMP) or 2) flexible
exchange rate and
AMP.
BUT...not all of them

Source: Feenstra and Taylor (2014).
We have seen that capital flows are driven by international differences

in returns.
We have also seen that capital flows influence the value of the ex-
change rate.
Lastly, we have seen that an active monetary policy is not compatible

with a fixed exchange rate.
In the end, if you want capital mobility, if you want to allow for financial
globalisation, you cannot have 1) capital controls (obviously) and/or
fixed exchange rates and active monetary policy.
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Using the Trilemma to explain historical trends in

financial globalisation 1.0 and 2.0
Degree of financial globalisation
I Gold standard
(1880-1914): fixed E, capital
mobility, no AMP.
I Inter-war period
(1914-1945): fixed/flexible
E, capital controls, some
AMP.
I Bretton Woods
(1945-1971): fixed E, capital
controls, AMP.
I Float (1971-now): flexible
E, capital mobility, AMP.
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Financial globalisation 3.0: beyond exchange rate

policy
Degree of financial globalisation
I Starting in 1990, financial
4
GDP−weighted (A+L)/GDP (EWN revised)
globalisation has
accelerated.
3
I Technological change
(lower ICT costs and new
financial instruments) have
2
certainly helped.
I Higher international trade,
1
and its associated

cross-border financing, have
also promoted more capital
flows.
0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Year I However, we can show that
DVPING DVPED policies have played a
crucial role.
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A more general version of the UIP: TC and risk

A more general version of the UIP, expressed in terms of return (r ) on a given asset:
r = r ⇤ + dE TC risk ⇤
I The original UIP (r = r ⇤ + dE), with dE for expected change of the exchange
rate E.
I TC, transaction costs: capital controls (e.g. tax on capital inflows or outflows)
or market transaction costs (e.g. broker fees and role of ITCs).
I risk⇤ : a risk premium to compensate for the risk of investing abroad (e.g., risks
of regulatory changes, tax changes, expropriation, and other political risks).
So a world more financially globalised is a world, with untapped high foreign

returns AND where it is easier (cheaper and safer) to invest abroad such as
r < r ⇤.
Hence the latest wave of financial globalisation should be characterised by 1) lower

capital controls; 2) access to more and safer countries; 3) more investment
opportunities in (reforming) fast-growing countries.
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A more open and safer world for capital flows

Capital controls Growth differentials DVPING-DVPED
.8
.04
Difference median growth rates DVPING vs. DVPED (PWT9.1)
Capital controls (Chinn−Ito index)
.6
.02
.4
0
.2
−.02
0
−.04
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
year
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
DVPING DVPED Year
Property rights
8
I It is easier and safer to invest now (as before 1914!).

Property righrs protection (EFW index)
7
I Investment opportunities have expanded, with

6
increasing access to fast-growing developing

5
countries.
4
I Developed countries tend to remain the most

‘financially globalised’: richer and larger, more open
3
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Year
DVPING DVPED and safer, more sophisticated financial institutions and

markets.
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Causes and effects of financial globalisation Capital controls Growth differentials DVPING-DVPED
.8
.04
Difference median growth rates DVPING vs. DVPED (PWT9.1)
Capital controls (Chinn−Ito index)
.6
.02
.4
0
.2
−.02
0
−.04
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
year
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
DVPING DVPED Year

Property rights
8
I It is easier and safer to invest now (as before 1914!).
Property righrs protection (EFW index)

7
I Investment opportunities have expanded, with
6
increasing access to fast-growing developing
5
countries.
4
I Developed countries tend to remain the most
‘financially globalised’: richer and larger, more open
3
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Year
DVPING DVPED and safer, more sophisticated financial institutions and

markets.
You may wonder whether the same analysis could explain the large
degree of financial globalisation before 1914. Yes! Western European
powers faced little risks and costs in investing in the promising coun-
tries of ‘New Europe’ (e.g. United States) or Latin America.
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The potential benefits of financial

globalisation
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A disappointing empirical relationship
Note: period 1960-2005.
There is no clear cross-country relationship between economic growth and financial

globalisation. How can we explain this?
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Financial globalisation makes more resources

available
When national spending exceeds national income, this is equivalent to saying that
national investment (I) exceeds national saving (S): GNE GNI = I S.
This deficit in ‘national financing’ is possible because the country obtains additional
resources from abroad: I S = NXA .
These additional resources can sustain higher Investment, higher Government

spending or higher Consumption.
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Financial globalisation makes more resources
Causes and effects of financial globalisation available
The potential benefits and costs of financial glob-

When national spending exceeds national income, this is equivalent to saying that
national investment (I) exceeds national saving (S): GNE GNI = I S.
This deficit in ‘national financing’ is possible because the country obtains additional
alisation
resources from abroad: I S = NXA .
These additional resources can sustain higher Investment, higher Government

spending or higher Consumption.
Financial globalisation makes more

resources available
Once again, we use the open economy accounting identity.
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Implications of how these resources are used

These ‘borrowed’ foreign resources have to be paid back (with interest) AND a
sustained higher output depends on 1) higher capital stock 2) higher total factor
productivity.
I If borrowed funds by the private sector are channelled into productive domestic
opportunities (more I), additional future revenues should be available to pay
these funds back.
I If borrowed funds by the public sector are used to improve health, education,
or public infrastructure (more G and lower S), additional future revenues
should also be available as the economy becomes more productive.
I If the borrowed funds are used for private or public consumption (more C or G
and lower S), no additional revenues will be generated and sooner or later, a
larger share of income will have to be used to pay these funds back (I, C or G
will have to decrease).
Hence, foreign resources can lead to economic growth only if they have
supply-side effects.
Note that a current account surplus can also be problematic if not I or G happens
at home.
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Implications of how these resources are used

These ‘borrowed’ foreign resources have to be paid back (with interest) AND a
sustained higher output depends on 1) higher capital stock 2) higher total factor
productivity.
I If borrowed funds by the private sector are channelled into productive domestic

opportunities (more I), additional future revenues should be available to pay
these funds back.
I If borrowed funds by the public sector are used to improve health, education,
or public infrastructure (more G and lower S), additional future revenues
should also be available as the economy becomes more productive.
alisation
I If the borrowed funds are used for private or public consumption (more C or G
and lower S), no additional revenues will be generated and sooner or later, a
larger share of income will have to be used to pay these funds back (I, C or G
will have to decrease).
Implications of how these resources are used Hence, foreign resources can lead to economic growth only if they have
supply-side effects.
Note that a current account surplus can also be problematic if not I or G happens
at home.
The key point is that borrowed funds need to be paid back. It is much
easier to pay back a debt if the borrowed funds have been used to
generate new streams of income, i.e. have generated productive ac-
tivities.
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Various trade (CA) deficit/surplus experiences

Norway: financing oil extraction Thailand: more investment...until1997
40
40
35
35
30
30
25
25
20
1975 1980 1985 1990 1980 1985 1990 1995 2000 2005 2010 2015
Year Year
I/GDP S/GDP I/GDP S/GDP
Greece: financing consumption, not investment

25
I Norway: generation of oil revenues.

20
I Greece: more (government)

consumption.
15
I Thailand: capital accumulation (not

10
2000 2002 2004

Year
2006 2008 always productive).
I/GDP S/GDP
I Note that for Thailand, in 1997,

suddenly, S I > 0. What
happened?
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Finance for development: the difficulties to attract

capital flows
I It could be expected that developing
10
Share DVPING in total capital inflows (%)
countries (DVPING) are full of untapped

8
investment opportunities, because they are

poor, and therefore attract lots of capital
6
inflows.
4
I However, this is not the case, rich countries

2
(DVPED) attract more than 90% capital

inflows.
0
1991−1995 1996−2000 2001−2005 2006−2010 2011−2015
I DVPING do not systematically offer an

8.00
USA
NZL
CAN
average higher return on investment than

EST GBR
AUS
ARM GEO IRL
DNK LUX
JPN
QAT
FIN
DEU
Average governce quality (EFW)
BHR
LTUSYC AUT
LVA
DVPED, and the quality of the business

NLD
TWNBHS ARE
GMB PAN MUS SVK BEL
NOR
MNG MNE ISL
7.00
MLT
BTN LBN CHL KAZ ESP
CRI CYPFRA
CZE SWE BRN
GTM URY
SLV
HNDJOR OMNPRT
MYS KOR
climate is much better in DVPED, with

JAMMKD
BWAKGZ ITA
ALB FJI HUN SVN
KWT
SWZ
MDA GRC
RWA
BIH
CPV TJK
SUR
PHL NAMBLZ ROUSRB
BGR
THA POL HRVSAUISR
NICPER TTO
therefore better risk-adjusted returns.

KEN PRYDOM MEX BRB
UGA HTI
YEM LKA ZAF
VNMLSO AZE
BOL IDN TUN RUS
6.00
ZMB CHN COL TUR

NPLIND
BFATZA GHA
MOZ MRT
MWIMDG EGY GIN MAR ECU
MLI BEN CIV
PAK
BGD SEN
TGO CMR GAB
UKR
ETH BRA
SLE IRN
I HOWEVER, improving institutional quality

NGA ARG
NER
SYR
5.00
BDI AGO
CAF GNB
TCD
6 8 10
ln(income per capita in 1990)
12
in DVPING would unleash all the untapped
investment opportunities.
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The potential costs of financial

globalisation
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Capital mobility and crises

I More capital mobility is
associated with more
financial (banking) crises.
I Different crises often

happen together: 1) banking
crisis (banks do not lend
anymore); 2) exchange rate
crisis (sharp depreciation);
3) sudden stop (large
reversal of capital inflows,
e.g. Thailand ).
I How do we explain these

facts and what are the
consequences?
Source: Reinhart and Rogoff (2008).
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Capital inflows in emerging countries
I Capital inflows (KI) can be large AND

volatile.
I A boom (surge) in KI potentially
leads to macroeconomic
overheating and domestic credit
booms (with potential
misallocation of funds).
I The surge is often followed by a
Source: Ghosh et al. (2017.
currency crisis, a banking crisis, or
both.
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Loss of confidence and currency mismatch

Keep in mind that external wealth W = E ⇤ (A L). More borrowing (more L) makes
a country initially poorer (and DVPING often net debtor, i.e. L > A).
1. When an emerging country borrows from abroad, it is often short-term
borrowing in a foreign currency (L ").
2. If, for whatever reasons, (foreign and domestic) investors lose confidence in
the economy, they will stop lending/investing, ask for their money back, sell their
domestic assets, and flee the country.
3. A large depreciation is likely to occur (E ").
4. Banks, firms, and households must now pay back, quickly, loans whose value
has increased in domestic currency (EL "), making the country poorer.
5. Banks do not lend anymore, firms do not invest anymore, households do not
consume much anymore, governments may struggle with their own debts, asset
prices fall.
6. Output strongly declines.
There are clear interactions between 1) investor confidence about the economy,
2) the exchange rate, and the 3) health of the domestic financial system. Note
that 1) ad 3) can be linked.
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Keep in mind that external wealth W = E ⇤ (A L). More borrowing (more L) makes
a country initially poorer (and DVPING often net debtor, i.e. L > A).
1. When an emerging country borrows from abroad, it is often short-term
borrowing in a foreign currency (L ").

2. If, for whatever reasons, (foreign and domestic) investors lose confidence in
the economy, they will stop lending/investing, ask for their money back, sell their
domestic assets, and flee the country.
3. A large depreciation is likely to occur (E ").
4. Banks, firms, and households must now pay back, quickly, loans whose value
alisation
has increased in domestic currency (EL "), making the country poorer.
5. Banks do not lend anymore, firms do not invest anymore, households do not
consume much anymore, governments may struggle with their own debts, asset
prices fall.

6. Output strongly declines.
There are clear interactions between 1) investor confidence about the economy,
2) the exchange rate, and the 3) health of the domestic financial system. Note
that 1) ad 3) can be linked.
Remember A is for external assets, L is for external liabilities.

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Understanding currency and maturity mismatches
I A bank starts with W = 1000 800 = 200.

I It borrows short-term US$100 using E = 5, allowing it
to lend 500 W = 1500 800 5 ⇤ 100 = 200.
I The banks suffers from a currency mismatch and a
maturity mismatch.
I There is a loss of confidence, E = 10 now,
W = 1500 800 10 ⇤ 100 = 300.
Source: DeLong (2001). I The bank is now insolvent and the financial system is
threatened!
I Same story for firms and households.
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Foreign currency debt and the costs of crises
Source: Feenstra and Taylor (2012). Currency crises.
Foreign borrowing can be very dangerous ( W = E ⇤ [A L]), especially if it

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The costs of banking crises

I A currency crisis on its own leads
to fewer output losses (cumulated
output gap between trend output and
observed output) when it does not
lead to a banking crisis.
I This is a crucial point: banking
crises are extremely harmful for
an economy.
I Hence KI surges which lead to a
banking crisis, even if a currency
crisis does not happen, can have
extremely large negative and
persistent impacts on an
economy.
I Look at Thailand: a drop in output
and lower economic growth (the
output losses accumulate)!
Source: Abiad et al. (2009).
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Causes and effects of financial globalisation I A currency crisis on its own leads
to fewer output losses (cumulated
output gap between trend output and
observed output) when it does not

lead to a banking crisis.
I This is a crucial point: banking
crises are extremely harmful for
an economy.
alisation
I Hence KI surges which lead to a
banking crisis, even if a currency
crisis does not happen, can have
extremely large negative and
persistent impacts on an

economy.
I Look at Thailand: a drop in output
and lower economic growth (the
output losses accumulate)!
Source: Abiad et al. (2009).
The key point is that surges of capital inflows (KI) which lead to a
banking crisis can have long-lasting damaging economic effects. A
currency crisis can trigger or aggravate a banking crisis but is not re-
quired for a banking crisis to happen.
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The Global Financial Crisis and

the European Sovereign Crisis
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The official story: Global imbalances and foreign

reserves
I Global imbalances refer to the fact
that DVPING invested in DVPED,
mainly in the USA!
I It has been argued that the financial

crisis in the USA (at first) was the
consequence of these global
imbalances as these large capital
inflows from Emerging countries,
looking for safe assets (for their
foreign reserves), led to excessively
‘cheap money’.
I However, the story is more

complicated.
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The private story: global banks and financial linkages

I In fact, European banks
were borrowing short term
in the U.S.A. to invest long
term in the U.S.A.
I They also significantly
increased their lending to
other parts of the world.
I When the U.S. housing
crisis happened, the value
of many asset-backed
securities became
uncertain, causing a strong
deterioration of the health
U.S. and foreign banks.
I Banks all over the world
stopped lending, at home
or abroad.
Source: Advjief et al. (2016).
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The European story: the sovereign debt crisis

Banks: too big to fail and to save
I European banks became massive.
I The housing crisis in the U.S.A., the collapse
of housing markets in Europe, lower
economic growth led to huge European
bank losses (and a credit crunch).
I In the case of Ireland, bailing out banks led to
a sharp increase in public debt.
I Starting with Greece, markets became
Spreads and default risk incredibly reluctant to lend money to
Greece, Ireland, or Portugal; higher interest
rates and fiscal tightening worsened the crisis.
I Core countries (and their banks) were also
perceived to be incredibly risky (note that
banks hold sovereign debt).
I This ‘doom loop’ stopped with the
intervention of the ECB, ready to buy all
sovereign debt.
Source: Baldwin and Giavazzi (2015).
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Outline


Conclusion
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What to expect from

multinational enterprises
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Distinguishing between different

capital flows
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Types of capital flows
Private capital flows include:
I Foreign Direct Investment (FDI): investment that establishes at least a

10% stake in a foreign entity. It is the foreign investment of Multinational
Enterprises (MNEs).
I Portfolio equity: any equity or share purchased by an investor in

another country that gives the investor less than a 10% stake.
I Portfolio debt: any tradable debt security that is purchased by a
foreign investor.
I Lending and other investment: any other assets not classified in the
three categories above such as bank loans.
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The new dynamics of financial globalisation
I The global financial crisis

led to a fall in bank lending
by European and US banks.
I Other capital flows fell.
I BUT financial
globalisation is not in
retreat and FDI is the most
dynamic component.
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What to expect from multinational enterprises I The global financial crisis

led to a fall in bank lending
by European and US banks.
Distinguishing between different capital flows I Other capital flows fell.
I BUT financial

globalisation is not in
retreat and FDI is the most
dynamic component.
It is hard to argue that financial globalisation is in retreat when the

stock of foreign liabilities increases over time and the foreign liabilities
to GDP ratio is stable.
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A slower but more stable financial globalisation
I The fall in cross-border bank

lending (CBBL) is not necessarily
a bad thing.
I CBBL is very volatile and their
retrenchment can induce (financial)
crises.
I FDI is a much more stable flow

(MNEs invest for the long-term).
I FDI has also become THE major
stable source of financing for
I Important not to ignore the
contributions of 1) remittances and 2)
foreign aid.
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The importance of MNEs in the world economy
I MNEs, at home and

abroad, are the KEY
actors of financial
globalisation.
I Their activities drive global
output, trade, and
employment.
I Should we encourage
more FDI, especially in
developing countries?
Source: OECD (2018).

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Some potential benefits from

MNEs
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How can MNEs benefit their host countries?

MNEs will benefit their host countries if they support, directly or indirectly,
economic activity and productivity gains:
I MNEs can directly generate economic activity by creating new firms or
developing existing ones.
I Their presence can also influence the development and behaviour of local firms.
Important to note that FDI, unlike other capital flows, is often perceived as a channel
of knowledge transfer across international borders: the development of superior
technology is what allows them to compete effectively in foreign markets.
To get a better idea of the potential benefits, we can examine whether:
1. Foreign firms acquired by foreign firms become ‘better’ firms.

2. Domestic firms, e.g. suppliers, benefit from foreign presence.
3. Foreign firms contribute to the development of new sectors.
4. Consumers benefit from foreign presence.
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How can MNEs benefit their host countries?

MNEs will benefit their host countries if they support, directly or indirectly,
economic activity and productivity gains:
I MNEs can directly generate economic activity by creating new firms or
developing existing ones.

I Their presence can also influence the development and behaviour of local firms.
Important to note that FDI, unlike other capital flows, is often perceived as a channel
of knowledge transfer across international borders: the development of superior
technology is what allows them to compete effectively in foreign markets.
How can MNEs benefit their host countries? To get a better idea of the potential benefits, we can examine whether:
1. Foreign firms acquired by foreign firms become ‘better’ firms.

2. Domestic firms, e.g. suppliers, benefit from foreign presence.
3. Foreign firms contribute to the development of new sectors.
4. Consumers benefit from foreign presence.
The following slides can be seen as an introduction to the use of aca-

demic empirical (and hopefully) causal studies to investigate various
claims.
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Foreign ownership: evidence from Indonesia

This study looks at 2 identical
groups of Indonesian firms but
one of them [in blue] becomes
acquired by foreign firms. Do
the outcomes for this group (blue
vs. red lines) differ over time ?
Yes! More productive, significant

restructuring, more globally
integrated.
Foreign firms support economic

activity by being bigger and
more productive than local
firms.
Source: Arnold and Javorcik (2009).

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Impact of entry of foreign retailers on Romanian firms

[We know, hard to read the labels!] Not suppliers vs.
suppliers; market share/product diversity/frequency of This study looks at whether
innovation/quality of packaging. Romanian firms supplying
foreign supermarket chains
differ from other suppliers.
They gained market share,

became more innovative and
attentive to quality.
Overall, evidence that becoming

suppliers of foreign firms
improved their performance.
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FDI-led new comp. advantage: Malaysia and Morocco
This study looks at developing countries

which managed to transform their
revealed comparative advantage (RCA)
[capacity to export a given product]
very quickly.
I Managed to attract key foreign

firms (and their first-tier suppliers).
I Thanks to foreign firms (and here not
domestic entrepreneurs), the export
profile of these countries changed
very quickly.
FDI can be leveraged to upgrade and

diversify production and export base.
Source: Freund and Moran (2017).
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FDI-led new comp. advantage: Malaysia and Morocco
What to expect from multinational enterprises This study looks at developing countries
which managed to transform their
revealed comparative advantage (RCA)

[capacity to export a given product]
very quickly.
I Managed to attract key foreign

firms (and their first-tier suppliers).
FDI-led new comp. advantage: Malaysia and

I Thanks to foreign firms (and here not
domestic entrepreneurs), the export
profile of these countries changed
very quickly.
Morocco Source: Freund and Moran (2017).

FDI can be leveraged to upgrade and
diversify production and export base.
Thanks to the entry of foreign firms, these two developing countries

were able to become quickly significant exporters in sectors in which
they had previously NO comparative advantage!
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Retail globalisation and household welfare: retail FDI

in Mexico
This study looks at the impact of entry of foreign
firms in the retail sector on domestic retailers
and prices.
I More competition led domestic retailers to

reduce their prices by about 4%.
I Foreign retailers charged less for the same
product (-12%) and provided more variety,
leading consumers to shop there.
I Penalised some domestic retailers but
benefited all consumers.
A fall in the consumer price index thanks to

foreign competition is a real gain for consumers.
Source: Atkin et al. (2015).
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Controversial development
issues around MNEs
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Do MNEs harm their home countries?

It is often argued that firms
investing abroad do so at the
expense of their domestic
activities.
I By any measure, rising FDI
by a US firm is associated
with an increase in domestic
US activities by that same
firm.
I This also applies to the
‘offshoring’ of R&D!
I Reasons: synergies and
complementarities.
Domestic MNEs expanding

Source: Hufbauer et al. (2013). U.S. MNEs. abroad does not, necessarily,
substitute foreign activity for
domestic activity.
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Do MNEs exploit foreign workers?

The baseline is pure domestic
firms.
I (Foreign) MNEs are more
productive, they can afford
to pay higher wages (40%
more sometimes).
I They are larger, employ
more workers.
I Seem to provide better
working conditions (lower
turnover, more training,
union membership).
MNEs do not exploit their

workers and by raising overall
demand, may increase overall,
national, wages.
Source: OECD (2008).
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Do MNEs look for pollution havens?

The Pollution Haven hypothesis (PHH): firms will
seek to avoid the cost of stringent environmental
regulations (SER) by locating production in
countries where environmental norms are laxer.
The study looks at what happens to the foreign over

total assets ratio of listed firms of OECD countries
when the cost of energy (due to SER) is higher in
one country.
I For the most energy intensive sectors:
some statistical positive evidence of PHH.
I BUT, when looking at the economic impacts
of the imposition of various carbon taxes,
very small effects.
Source: OECD (2017). Higher taxation of carbon is possible without

domestic MNEs moving to PH!
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What to expect from multinational enterprises The Pollution Haven hypothesis (PHH): firms will
seek to avoid the cost of stringent environmental
regulations (SER) by locating production in
countries where environmental norms are laxer.
Controversial development issues around MNEs The study looks at what happens to the foreign over
total assets ratio of listed firms of OECD countries
when the cost of energy (due to SER) is higher in
one country.
I For the most energy intensive sectors:
some statistical positive evidence of PHH.
I BUT, when looking at the economic impacts

of the imposition of various carbon taxes,
very small effects.
Source: OECD (2017). Higher taxation of carbon is possible without

domestic MNEs moving to PH!
It is important not to confuse ‘statistically significant’ effects with

‘meaningful economic’ effects. In this study, we observe that energy-
intensive sectors are influenced by high SER in a statistically signifi-
cant way BUT not in a meaningful economic way.
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Outline


Conclusion
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New challenges of financial

globalisation
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From monetary trilemma to dilemma to financial

trilemma
I We talked about the monetary trilemma;
an independent monetary policy with
full capital mobility is possible with a
flexible exchange rate.
I However, financial integration may now
eliminate this independence.
I Borrowers, for example, may be able to
substitute between domestic and external
financing sources; this would limit the
impact of changes in domestic interest
rates.
I In that case, a monetary dilemma exists

which leads to a financial trilemma.
I The financial trilemma implies that
financial integration and financial
stability cannot be achieved through
national financial policies.
I The concern is even greater if capital

flows are driven by ‘global’ and not
Sources: Feenstra and Taylor (2014); Schoenmaker (2011). ‘domestic’ factors: lack of connection.
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Monetary policy can still be relevant

I Changes in global risk aversion
tend to influence global capital
flows.
I These capital flows have strong
impacts on financial conditions,
asset prices, and economic activity.
I However, the exchange rate still
matters: impacts are often lower
with a flexible exchange rate (which
allows AMP).
I This suggests that the monetary

trilemma may still operate.
I Other tools may be required
besides changing the domestic
interest rate: 1) macro-prudential
policies to curb credit growth or 2)
capital controls.
Sources: Forbes (2014) and Obstfeld et al. 2017).
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New challenges of financial globalisation I Changes in global risk aversion

tend to influence global capital
flows.
I These capital flows have strong

impacts on financial conditions,
asset prices, and economic activity.
I However, the exchange rate still
matters: impacts are often lower
with a flexible exchange rate (which

allows AMP).
I This suggests that the monetary

trilemma may still operate.
I Other tools may be required
besides changing the domestic
interest rate: 1) macro-prudential
policies to curb credit growth or 2)
capital controls.
Sources: Forbes (2014) and Obstfeld et al. 2017).
Note that the scale of the volatility index has been inverted, i.e. a
higher number means less volatility.
Think about the volatility index as the confidence that global investors
have in the global economy, without paying particular attention to
country-specific conditions.
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The relevance of national

regulatory and fiscal policies
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The international investment regime

I Countries have signed bilateral
investment treaties (BITs) to attract FDI.
I The number of BITs is now extremely
large.
I These BITs promote and protect FDI..
I BITs have real... bite!

I Foreign investors have access to
Investor-State Dispute Settlement
(ISDS).
I They can directly sue the governments
of countries in which they invest for
violating their property rights.
I International tribunals (often under the

auspices of the ICSID (International
Center for the Settlement of Investment
Disputes) decide whether or not the
investor is owed compensation, and no
appeals system is in place.
Source: UNCTAD (2018).
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Regulatory chill is not unavoidable

I The number of cases has been growing
over the years.
I The investor does not always win...but the
State can lose or settle.
I The State may have to pay a large
financial compensation and may decide to
withdraw the troublesome
policy/regulation.
I Opponents are worried that BITs give

too much power to foreign investors by
strongly limiting the regulatory space
of governments.
I Veolia vs. Egypt or when Australia
introduced plain packaging for all tobacco
products in 2011, Philip Morris sued
Australia before an arbitral tribunal (PM
lost).
Source: UNCTAD (2018).
I Countries are now terminating,

renegotiating, or changing the terms of
BITs.
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Base erosion and profit shifting
I Corporate tax revenues help to finance

public spending.
I However, MNEs have become experts in
paying little income on profits generated in
a given country (base erosion) and
shifting them abroad (profit shifting).
I Globalisation and the rise of the
‘intangible’ economy (IT products)
facilitate the use of arrangements such as
the Double Irish-Dutch Sandwich.
Sources: Clausing (2016); UNCTAD (2015).
I It is estimated that 40% of multinational
profits are shifted to tax havens each
year globally!
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The relevance of national regulatory and fiscal I Corporate tax revenues help to finance
policies
public spending.
I However, MNEs have become experts in
paying little income on profits generated in
a given country (base erosion) and
shifting them abroad (profit shifting).
I Globalisation and the rise of the

‘intangible’ economy (IT products)
facilitate the use of arrangements such as
the Double Irish-Dutch Sandwich.
Sources: Clausing (2016); UNCTAD (2015).
I It is estimated that 40% of multinational
profits are shifted to tax havens each
year globally!
It is remarkable that most of the foreign activities of U.S. MNEs occur in

large and rich countries BUT most of their incomes are booked in small
‘tax havens’ countries. There is clearly a disconnection between the
location of real activities and the recorded location of their incomes.
The Double Irish-Dutch sandwich is a way of avoiding any taxes by

sending revenues to an Irish company which sends the revenues to an-
other Irish company through another entity (a ‘conduit’) in the Nether-
lands to avoid paying taxes. The second Irish company is held by
another company located in Bermuda in which revenues will not be
taxed. The story is certainly more complicated!
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Multinationals could still be taxed

I It is estimated that BEPS reduce corporate
tax revenues (CTR) by 8-20%.
I DVPED experience higher losses because
more open countries with often high
corporate tax rates.
I However, keep in mind that CTR represent a
larger share of total tax revenues in DVPING.
I What can be done?

I 1) Greater tax transparency; 2) More robust
tax laws; 3) Revisions of bilateral tax treaties.
I Apportioning the global, consolidated
profits of firms proportionally to where
they make their sales.
I Ex: if Apple generates 20% of its sales in the
United States, 20% of Apple’s global profits
are taxable in the United States.
Source: Torslov et al. (2018) .

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The rise of Chinese outward FDI

I China has become a global source
of outward FDI (OFDI).
I Main destination: the Big 3 of
Europe.
I These flows have been declining for
two reasons.
I Domestic factors: ‘Beijing’ is

worried that Chinese firms
over-expand themselves and make
bad investments.
I Abroad: political and regulatory

backlash against Chinese OFDI.
Why?
Source: Rhodium-MERICS (2019)

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FDI can be screened

I Developed countries are wary of allowing
Chinese firms, often state-owned, to
control critical infrastructure,
technologies, inputs, information,
media.
I Some emerging countries question the
benefits of the Belt and Road Initiative.
I The EU has adopted a new (non-binding)

investment screening framework.
I Several countries, e.g. France, have
toughened up their national level
mechanisms.
I Chinese OFDI is clearly targeted: 83%
of all projects fall into either 1) state
ownership; 2) sensitive sectors; 3) policy
backed (18% in all three).
I There is a global movement towards

less ‘naivety’ with respect to financial
globalisation.
Source: Rhodium-MERICS (2019)
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Conclusion
Conclusion
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Conclusion
Is there a political trilemma?
I Rodrik argues that democracy, national

sovereignty and global economic
integration are incompatible.
I Global economic integration means that
the nation state serves the economy, at
the expense of democracy.
I Democracy and global economic
integration requires global rules.
I However, there are plenty of grey areas.

I Countries can renegotiate BITs, agree on
anti-BEPs measures, take unilateral fiscal
policies, or screen FDI.
Sources: Rodrik (2011) and Malloy (2017) . I Financial integration is a
welfare-enhancing tool, not the
ultimate outcome!
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Conclusion
I Rodrik argues that democracy, national
sovereignty and global economic
integration are incompatible.
I Global economic integration means that

the nation state serves the economy, at
the expense of democracy.
I Democracy and global economic
integration requires global rules.
I However, there are plenty of grey areas.

I Countries can renegotiate BITs, agree on
anti-BEPs measures, take unilateral fiscal
policies, or screen FDI.
Sources: Rodrik (2011) and Malloy (2017) . I Financial integration is a
welfare-enhancing tool, not the
ultimate outcome!
As we have seen many times, States can shape globalisation through

national policies and international agreements.
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1. The role played by migration in building the modern world.
2. The nature and importance of global migration flows.
3. Why global inequality drives international migration.
4. The concept of location premium.
5. The fundamental causes of economic development.
6. The effects of international migration on destination and origin
countries.
7. The global gains from global mobility.
8. Why foreign aid cannot be a substitute to international migration.
9. The challenges raised by global demographic and climatic changes.
10. The trends and drivers of attitudes towards immigration.
11. A pragmatic approach for more immigration.
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Outline
Causes of international migration
Facts about international migration
Global inequality as fundamental cause
Explaining location inequality
Effects of international migration

Impact on destination countries
Impact on origin countries
Global gains from global mobility
Challenges and responses

Aid as a substitute for migration
The interactions of demographic and climatic changes
The politics of immigration
Conclusion
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Causes of international
migration
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Facts about international

migration
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Humanisation of the globe

I We are all African
immigrants!
I A warmer climate
(e.g. more food)
facilitated the
spread of humans.
I There is indeed a
strong link
between climate
and population
density.
Source: Morris (2010; Baldwin (2016).

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International migration throughout recent History
Source: Citi (2018).
International migration, like trade or financial globalisation, has experienced several

waves pre-WW1, inter-war, 1945-1973, 1973-.
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International migration throughout recent History

International migration throughout recent Source: Citi (2018).
History International migration, like trade or financial globalisation, has experienced several
waves pre-WW1, inter-war, 1945-1973, 1973-.
There is a clear difference between the globalisation of ‘people’ and

the globalisation of ‘goods’ and ‘finance’: the current intensity (inflows
of migrants as a share of global population) tends to be lower than that
prevailing in 1910!
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Migration to the Americas: North-North or North-South
I First modern wave:

migration to Americas.
I 1850s-1914: Europeans
migrated to Americas
(notably U.S.A.) because
economic prospects were
better.
I Sigma convergence:
means that flows of people
narrowed income gaps
between origin (Europe) and
destination (e.g. U.S.A.)
countries.
Sources: Ferrie and Hatton (2015); Citi (2018).

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Migration to the Americas: North-North or North-South
Causes of international migration I First modern wave:

migration to Americas.
Facts about international migration I 1850s-1914: Europeans

migrated to Americas
(notably U.S.A.) because
economic prospects were
better.
Migration to the Americas: North-North or I Sigma convergence:

means that flows of people
narrowed income gaps
North-South
between origin (Europe) and
destination (e.g. U.S.A.)
countries.
Sources: Ferrie and Hatton (2015); Citi (2018).
As we have seen in previous lectures, differences in 1) prices, 2) re-

turns, 3) incomes have a powerful effect on flows on 1) goods, 2) cap-
ital, 3) people.
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Today: voluntary South-North migration
I Flows of refugees often dominate

the news.
I However, most DVPING (South)
migrants move voluntarily to
DVPED (North).
I They are often low or medium
educated.
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Today: voluntary South-North migration

Today: voluntary South-North migration I Flows of refugees often dominate
the news.
I However, most DVPING (South)
migrants move voluntarily to
DVPED (North).
I They are often low or medium
educated.
Note that the largest ‘migration corridor’ is between or within develop-

ing regions. Large populations, proximity and, income differences can
explain this outcome.
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Internationalisation, not globalisation

I We cannot talk about a
globalisation of people.
I The stock of migrants as a

share of total population is
very low.
I A large fraction of migration

appears to be from DVPING
to DVPED.
I How can we explain these

facts?
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Global inequality as fundamental

cause
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Location inequality dominates global inequality
I Global inequality is a measure of differences

in income between world citizens.
Sources: Milanovic (2016); Hammar and Waldenstrom (2017). I It is made of two components: 1) location
(where you live); 2) class (your relative
position within a country).
I The location component clearly
dominates.
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Location inequality dominates global inequality

Location inequality dominates global I Global inequality is a measure of differences
in income between world citizens.
inequality
Sources: Milanovic (2016); Hammar and Waldenstrom (2017). I It is made of two components: 1) location
(where you live); 2) class (your relative
position within a country).
I The location component clearly
dominates.
When you think about global inequality, it may be useful to imagine

that you the world is one BIG country.
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The richest poor are the poorest rich

I Horizontal axis is national
population ranked according
to income (20 groups or
ventiles): 1 (5% poorest) to
20 (5% richest) in a given
country.
I Vertical axis: global
percentile position of each
national ventile.
I The poorest Danish 5%
have an income which
places them at the 80th
global percentile: they are
better off than 80% of
global population.
I The poorest Ugandan (or
Indian) 5%: 1st global
Source: Milanovic (various), circa 2005.
percentile and the richest
Ugandan (Indian) 5%: 75th.
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Causes of international migration I Horizontal axis is national

population ranked according
to income (20 groups or
ventiles): 1 (5% poorest) to

20 (5% richest) in a given
country.
I Vertical axis: global
percentile position of each
national ventile.

I The poorest Danish 5%
have an income which
places them at the 80th
global percentile: they are
better off than 80% of
global population.
I The poorest Ugandan (or
Indian) 5%: 1st global
Source: Milanovic (various), circa 2005.
percentile and the richest
Ugandan (Indian) 5%: 75th.
This graph is tricky because the horizontal axis reflects the distribu-
tion of income within a country whereas the vertical axis reflects the
distribution of income within the world.
Imagine that you earn 95 in country A with a median income of 50

(50% of the people earn less than 50). You are doing really well in
country A. However, in country B, the median income is 1000. In coun-
try B, you belong to the poorest segment of the population.
The key point is that the richest in a poor country are often poorer
than the poorest in a rich country, simply because the inter-country
difference in incomes is extremely large.
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Earnings differentials as key migration determinant

I Global inequality implies
large earning differentials.
I Migrant workers are

obviously attracted by the
opportunity to earn much
more. How much more?
I We can calculate a
location/place premium:
how much more the SAME
worker would earn by simply
moving to the United
States?
Source: Clemens et al. (2008).

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Earnings differentials as key migration determinant
Causes of international migration I Global inequality implies

large earning differentials.
Global inequality as fundamental cause I Migrant workers are

obviously attracted by the
opportunity to earn much
more. How much more?
Earnings differentials as key migration I We can calculate a

location/place premium:
how much more the SAME
worker would earn by simply
determinant
moving to the United
States?
The thought experiment is the following: pick up a worker in

Bangladesh and move it to the United States to do exactly the same
job. How much more will this worker earn, simply by moving to a richer
country?
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The location premium is huge

I ‘Median’ DVPING workers
could multiply their earnings
by a factor of five.
I The median estimated wage

gap is PPPUS$ 15000 per
year.
I The location premium is

HUGE.
I Do DVPED countries
share it by allowing free
movement of people?

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Large policy barriers to migration

I Migrants are often
welcomed by border
controls/patrols, walls,
and minefields.
I What do we fear? Is it
ethical?
Source: Milanovic (2016).

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The ethical case for sharing the location premium

I Income is mostly determined by luck of birth, not by effort or episodic
luck.
I This implies global inequality of opportunity (your income is mostly
NOT a function of your effort).
I Not acceptable at the nation-state level but acceptable at the global
level?
1. Within countries: we try to limit advantages accruing to people born in

rich families (taxation and equality of access to health/education) AND
discrimination.
2. The global world is made of people born in ‘rich’ countries [national
families] or ‘poor’ countries [national families]: fine not to do anything
about this?
Potential answer that we will explore later: allow more migration.

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Are we willing to tolerate huge wage gaps?

I We are shocked,
within our borders,
by wage gaps of
1.3-1.6 between
men/women or
black/whites or
rural/urban.
I What about a
wage gap of 8.4
outside our
borders?
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Economic activity is spatially concentrated
I Output per worker: y = Ak ↵ h1 ↵ :

a function of total factor productivity
(A), capital per worker (k), human
capital (h).
I Wage per worker tends to be
proportional to output per worker.
Hence differences in wages must
be driven by A, k, or h.
Sources: see above; Acemoglu et al. (2018).
I And these differences are
themselves driven by the
fundamental causes of prosperity.
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The importance of geography

Economic activity to be explained
I Researchers have tried to explain
differences in economic activity
using solely geographic variables,
related to agriculture, transport
costs, or disease.
I The fit is pretty good: these

variables can explain 47% of
worldwide variation and 35% of
Economic activity explained by geography
within-country variation in lights.
I What about the rest of the variation?

What would happen if we vary
economic institutions (the
business environment), holding other
factors constant?
Source: Henderson et al. (2017).

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A homogeneous country divided in two: the Koreas
Source: Acemoglu et al. (2018).
The two Korean regions were highly similar before their separation in 1947.
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A homogeneous country divided in two: the Koreas

A homogeneous country divided in two: the
Koreas Source: Acemoglu et al. (2018).
The two Korean regions were highly similar before their separation in 1947.
It is important to keep in mind that Korea was a homogeneous coun-

try with no significant differences (same geography, income, culture)
between the North and South regions before the split.
Ask yourself: what happened to explain the subsequent diverging eco-

nomic outcomes?
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A homogeneous region divided in two: Eastern

Europe
ı
Source: Acemoglu et al. (2018).
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The institutional hypothesis

In contrast to North Korea, South Korea (or Austria) has a dynamic business
environment which
1. encourages investment, education, innovation, management excellence,
international openness.
2. discourages unproductive investment, theft, expropriation, rent-seeking.
In other words, South Korean economic institutions (the rules of the game)
encourage production and discourage predation or diversion.
In North Korea, economic institutions are extractive as they are only concerned with
extracting resources from the rest of society in favour of the leader.
Extractive economic institutions is often the outcome of leaders refusing the

process of political creative destruction generated by economic growth, which
can destabilises existing regimes and reduces the political power of rulers.
Born in World
Institutions as key determinants of prosperity
I There is a tight link between the proximate sources

of economic development and institutional quality
(social infrastructure)!
I What about culture? Hard to define and to devise a

causality test. However, richer countries are more
trusting, possibly thanks to good institutions.
Source: Jones and Vollrath (2013).
Born in World
Outline


Conclusion
Born in World
Effects of international
migration
Born in World

Born in World
Attitudes towards immigration

I Most top
destination
countries are
reluctant to
welcome more
immigration.
I Why? Migrants
are perceived as a
threat for social
cohesion, jobs,
public finances,
safety.
I Are these views

supported by
Sources: IOM (2015; ESS (2016).
empirical
evidence?
Born in World
A look at ‘historical’ experiments

1980: 60000 cubans arrived in Miami.
I This study compares cities
in the same country,
differing only (after
econometric adjustment) in
their level of immigration.
I The impact of immigration

on the wages of low-skilled
natives appears to
1994-2008: surge of refugees to Denmark from Bosnia, Somalia,
Afghanistan and Iraq (in turn). be...positive!
I Why? Migrants are

consumers and allow
firms to expand by
complementing other
factors (capital and skilled
factors). These effects
increase labour demand
and keep wages stable.
Peri (2016).
Born in World
Medium-run effects
I This study
evaluates the
economic and
fiscal effects of
inflows of asylum
seekers and
economic
migrants into
Western Europe
from 1985 to 2015.
I The impact of
immigration shocks
tends to be
positive across
indicators, e.g.
middle row, GDP
per capita.
Born in World
Long-run effects
I This study evaluates the
long-run impact of
migration in receiving
advanced economies,
controlling for reverse
causality.
I Higher share of migrants

boosts income per capita,
labour productivity, and
the income of the vast
majority of the population.
I Immigration is clearly not

harmful, on average, for
Jaumotte et al. (2016).
destination countries.
Born in World

Born in World
Smaller labour force and higher remittances

I Mechanically, emigration
reduces the labour force,
lowering the
unemployment rate and
increasing wages.
I In addition, migrants share

the location premium
through remittances.
I Global volume is now

higher than FDI flows and
for Haiti: 30% of GDP!
I Should we conclude that

emigration is good for origin
countries?
Born in World
A brain drain is possible

I Some countries see (ALL)
their ‘brightest’ leave.
I This could result in a ‘brain

drain’ where the most
productive workers leave,
reducing the long-term
development prospects of
origin countries.
I However, other scenarios

are possible (and note that
these high skilled workers
may have been unemployed
at home).
World Bank (2018).

Born in World
2019-11-21
A brain drain is possible
Effects of international migration I Some countries see (ALL)

their ‘brightest’ leave.

I This could result in a ‘brain
drain’ where the most
productive workers leave,
reducing the long-term
development prospects of
origin countries.
A brain drain is possible I However, other scenarios

are possible (and note that
these high skilled workers
may have been unemployed
at home).
World Bank (2018).
Note that migrants tend to be much more educated than the overall
labour force of their origin countries, especially if these countries are
non-OECD.
Born in World
High-skill emigration can be beneficial

I No externalities (dashed): a small loss in
income per capita as ‘high-earners’ leave;
no other effects.
I Brain drain (red); starting scenario:
aggregate productivity depends on share
of high-skilled workers in the labour force.
A maximum loss of 6%.
I AND Remittances (orange): provide
some benefits.
I OR AND Brain gain (grey): example of
the departure of high-skilled migrants
increases incentives to invest in education
to imitate them (potentially).
I OR AND Diaspora externalities (blue):
skilled emigration influences trade and FDI
by creating networks and improving
information. These flows boost
productivity.
I Outcome depends on these channels

and is very country-specific.
World Bank (2018).
Born in World

Born in World
Migration-equivalent trade and capital liberalisation

It is (generously) estimated that the world economy could be 1% larger
with either full trade liberalisation or capital liberalisation.
World economy is about US$ 80 trillions, so a potential gain of US$ 0.8

trillion.
How much more additional migration would we need to obtain the same
gains, with an average location premium of US$ 15000: 53 millions of
people, i.e. a rise in the migrant stock to population ratio of 0.7 p.p.!
The global gains from increasing global mobility, even a tiny bit, are
HUGE!
We often talk about the ‘great’ gains from trade or capital liberalisation but the
potential gains from (even marginally greater) labour mobility are much
higher.
Born in World
Comparison with other types of intervention

I We often talk about the
‘great’ impact of various
interventions in DVPING.
I However, the lifetime gains

from these interventions are
ridiculously small relative to
what can be earned in
weeks in DVPED by a
migrant.
I Development is about
‘people’, not ‘places’.
Pritchett (2010).
Born in World
Outline


Conclusion
Born in World

Born in World

Born in World
The size of foreign aid flows

I DVPED countries want to
deter migration by
addressing the ‘root causes’
in DVPING.
I Their key tool is often

foreign aid.
I The flows are relatively

small.
Source: Broookings (2018).

Born in World
Foreign aid and economic growth

I Most recent study: 1 p.p. of
foreign aid to GDP
increases income per
capita growth by 0.3 p.p,
on average. Positive but not
very large effect.
I Even if economic growth

can be accelerated through
foreign aid, it will take a
century for poor countries
to become middle-income
countries.
I And in the meantime?
Source: Clemens and Postel (2018). 5

Born in World
Economic development encourages emigration

I Common thinking: greater
opportunities at home reduce
emigration.
I However, economic development,
up to the middle-income level, tends
to encourage emigration.
I Such a relationship can be seen at a
point of time or over time.
I Why? Economic development

increases the returns to migration
(investment in education),
international connections, and the
ability to cover migration costs.
I There is a mobility transition:
emigration accelerates and falls only
Source: Clemens and Postel (2018). when income per capita is relatively
high.
Born in World
The interactions of demographic

and climatic changes
Born in World
There will be pressures for more migration

Born in World
Demographic challenges
I DVPED and DVPING (notably Africa)
have diverging demographic
trajectories: shrinkage vs.
expansion workforce.
I DVPED need workers to sustain the

size and vitality of their overall
economy AND their welfare state,
e.g. most public pensions have a
pay-as-you-go structure (that is, they
use revenue from current
contributions to make payments).
I DVPING need jobs for their growing

workforce.
Sources: McKinsey (2016).

Born in World
Climatic challenges
I DVPING population is predicted to
expand fast (notably in Africa).
I This is also where the negative
impact of climate change will be
the highest.
I The index of vulnerability to food

insecurity due to climate change is
very high in Africa.
I Can we expect affected people not

to attempt to move to a ‘better’
(foreign) place?
Born in World

Born in World
Less restrictive migration policies over time

I Contrary to common wisdom:
since 1945, migration policies have
become overall less restrictive.
I Post-1990s: decelerating
liberalisation.
I Migrant workers are increasingly

welcome.
I Migration policies are becoming

tougher for other types of migrants.
Source: de Haas et al. (2016).

Born in World
(Anti-)Migration is a salient political issue

I Parties respond to voter preferences,
and the party system shapes these:
a growing political focus on
migration.
I Whatever the party, migration has

become a huge issue.
I One reason: voters are

increasingly attracted to ‘fringe
parties’ and mainstream parties try
not to lose their supporters.

Born in World
The public is not well informed

I There is a large gap between
perceptions and reality.
I Attitudes can change if perceptions

change.
I Various interventions can also

support successful integration of
new and recent migrants (including
second-generation): e.g. language
skills training, mentorship, education
opportunities...

Born in World
A pragmatic approach for sharing the location

premium
A possibility for sharing the location premium is to allow more temporary migrant
workers:
I Use of systems that rely on having quotas for occupational classifications (and
labour market areas) with labour market shortages.
I Quotas could be allocated to the poorest countries.
I Temporary migrants may not have access to all public services.
I Temporary migrants may be asked to pay a ‘contribution’ in destination
countries and see part of their income mandatorily saved in escrow.
I A fraction of these contributions would be paid back to origin countries and
forced savings would be made available to migrants only if temporary migrants
return to their home countries.
Of course, this proposal hurts our ethical feelings BUT... is it better not to give ANY
migration opportunities to poor people?
Born in World
Conclusion
Conclusion
Born in World
Conclusion
The XXI century trilemma

I Milanovic’s trilemma can be
interpreted as suggesting that a
globally connected world cannot
sustain inter-country inequality.
I Poor people will want to migrate to
richer places.
I Rich people may expand their ethical

‘geographic boundaries’ and share
more broadly their location premium.
I Alternatively, attempts may be made

to suppress migrant flows.
I However, such a blunt policy is not
desirable and, potentially, feasible.
Source: Milanovic (2012).
Made in World
Made in World
Bringing all pieces together:
The global impact of the Covid-19 pandemic

Made in World
Trade is bouncing back

Bonus
Clear differences
between GFC and
pandemic crises:
lockdown vs
financial factors.
Source
Made in World
Trade is bouncing back

Bonus
Recent nowcasting
indicators confirm
this trend.
Source
Made in World
Less activity, fewer CO2 emissions

Bonus
The sharpest drop

in History!
Source
Made in World
A drop in the carbon bucket

Bonus
BUT... We would need a

pandemic every year to limit
climate change (+1.5°C)
Source and Source

Made in World
Bonus
Trade is imported emissions
The rationale of a
carbon trade tax:
Environmental
performance is
much less
impressive when
we take into
account that
consumption is
partly C02-
emitting foreign
Source production.
Made in World
Bonus
Less economic activity, more poverty
The pandemic hit

trade-supported
economic
activities:
Fewer exports of
goods and
services, more
expensive imports
of goods and
Source: Forbes website. services.
Source
Made in World
Bonus Restricted international access to
essential supplies
The pandemic hit

trade-supported
economic
activities:
Fewer exports of
goods and
services, more
expensive imports
of goods and
Source: Forbes website. services.
Source Source
Made in World
Bonus
COVID-19: an accelerator
The pandemic is likely

to hasten the “future
of trade” given:
1. New
technologies.
2. Supply chains
vulnerabilities.
3. National policies.

4. Sustainability
goals.
Source
Made in World
Bonus Supply chains vulnerabilities
Some sectors
combine, e.g.
automotive:
1. Fragmentation:
lots of cross-
border trade.
2. Concentration:
one country
heavily contributes
to the production.
Source
and
Hence supply chains
Source can be very fragile.
Made in World
Bonus Alll firms are deeply interconnected,
the example of Dell
Source
Made in World
Bonus
More interventionist national policies
Source
Made in World
Bonus
Impact on supply chains
(policies)
Source
Made in World
Bonus
More sustainable policies
Source
Made in World
Bonus
Impact on supply chains
(sustainability)
Source
Made in World
Bonus
The future: known unknows
Source
INTRODUCTION
TECH GIANTS
MONOPOLISTIC
POSITIONS REDIFINITION
ATTRACTION BY
OF THE IDEA
STATES
OF BORDERS
= IMPOSSIBILITY TO ADOPT A COMMON TAX POLICY
AGAINST THESE GIANTS
ARTICLES
CAN FISCAL POLICIES, BE
THEY DOMESTIC OR
COORDINATED, TACKLE
BASE
I . THIS SITUATION EROSION
DEPRIVES ? FROM A
STATES
GREAT SOURCE OF REVENUES…
II. … AND EPITOMIZES THE PARADOX OF THE
FINANCIAL GLOBALISATION
III. WILL THIS CASE CONTRIBUTE TO SHAPE AN
INTERNATIONAL TAX POLICY ?
PART. I
I . THIS SITUATION DEPRIVES STATES
FROM A GREAT SOURCE OF
REVENUES…
QUICK
REMINDER
PART. I
REVENUES…
EUROPEAN SIDE
MARGRETHE VESTAGER, THE EU'S

COMPETITION CHIEF
PART. I
REVENUES…
AUSTRALIAN SIDE
GROSS REVENUES TAXES PAID IN

AMASSED IN AUSTRALIA LAST
AUSTRALIA BY YEAR BY GOOGLE
GOOGLE (2019) (2019)
$4.8 BILLION $58.7 MILLION
"TAX RATE" 12,5%

EFFECTIVE
30%
AUSTRALIAN TAX RATE
PART. II
II. … AND EPITOMIZES THE PARADOX OF THE FINANCIAL
GLOBALISATION
CONTROL PRACTICED BY
THE STATES THROUGH
THEIR TAX POLICIES
THE POLICY TRILEMMA

PART. II
GLOBALISATION
UNNAMED “OFFICIAL”
STRATEGY
THE DOUBLE IRISH

SANDWICH SCHEME
PART. II
GLOBALISATION
PART. III
DOMESTIC SCALE
AUSTRALIA
PART. III
REGIONAL SCALE
EUROPEAN UNION
PART. III
INTERNATIONAL SCALE
OECD
PART. III
INTERNATIONAL SCALE
OECD
Source : OCDE
CONCLUSION
« Ah ! Je ris de me voir si belle en ce miroir ! »
Margueuite’s aria from Faust by Gounod
Les Aventures de Tintin, Les Bijoux de la Castafiore, Hergé, 1962, Source : Google Image
From Capital, Nicolas Gallant, October 6th 2020
Is gold a safety asset, especially during the current
crisis?
I-The Bretton Wood Agreement (1944-1973)
GOLD STANDARD :The gold standard is a monetary system in which the monetary unit is defined by reference to a fixed
weight of gold and each national currency is freely convertible into gold. To ensure this convertibility, the amount of
currency issued by the central bank is strictly limited by its gold reserves. Settlements between countries are made in gold.
As each national currency is fixed in terms of gold weight, the exchange rate between two currencies is fixed and equal to
the ratio between the respective gold weights.
From 1944 to 1973- ends with NIXON
Value of the exchange: 1 ounce of gold ó $35 ó 31,1035g of gold
Sources of the graphs : GEI Lecture 2 slide 17

II/ Gold fluctuations over time
Summer 2020:
2000$/ounce
August 2011:
1782$/ounce
1978-1981:
610$/ounce
Graphic of gold fluctuations ($/ounce) (1973-2020), or.fr

III-The rise in the price of gold during the pandemic
The New York Times, Ruchir Sharma, 8th August 2020

III-The rise in the price of gold during the pandemic
• There is an inflation and more people are investing in gold ETF = exchange traded funds
• During the pandemic: is a way to be covered in term of financial resources
• Gold prices in 2020
https://www.etf.com/etfanalytics/etf-fund-flows-tool
https://www.boursorama.com/bourse/matieres-premieres/cours/_GC/ https://www.cpordevises.com/or/cours
IV/ Gold deposits and the future
30% of ressources left

54,000 tons
Map of gold production, Wikipedia, March 2012

C O N C L U S I O N
« It’s now or never » Elvis Presley
Sources
- « Vers un effondrement du dollar… et une explosion de l’or ? », Nicolas Gallant, Capital.fr, 06/10/2020
- « Why is everyone buying gold ? », Ruchir Sharma, The New York Times, 08/08/2020
- Cours de l’or en direct et Graphique Historique du cours de l’or, Or.fr

- Comprendre comment est fixé quotidiennement le prix de l’or et de l’argent, or.fr
- L’évolution du cours de l’or en dollars depuis l’an 2000 : explication du graphique, Cours Or, 26/07/2017
- Map of gold production, Wikipedia, Mars 2012
- « Combien d’or disponible reste-il de par le monde ? », or-argent.eu, 25/05/2018
- Americas Gold and Silver annouces significant increase to Galena Complex Resource, newswire.ca, 14/09/2020
EXECUTIVE SUMMARY
I – The financial aftermath of Brexit and

COVID-19 in the UK
II – The UK's state of play and response to

this situation
III- What is the current position of the UK in

the world financial and economic sphere ?
Ajouter un pied de page 1

I- THE FINANCIAL AFTERMATH
OF BREXIT AND COVID-19 IN
THE UK

A- CONTENT OF THE
ARTICLE
The fear of the UK to fail to strike a trade deal with the EU before the end of its
Brexit transition period in December grew stronger as coronavirus cases rise.
B – THE DUAL THREAT OF THE NO-DEAL BREXIT AND
b
COVID-19
Companies are massively and brutally enforcing dividend cuts. This led to the decrease of the number of
deals. Therefore, the course of Q1 2020 has the lowest figure since 2014.
" T H E B L EA K P I C T U R E P RO M P T E D R E TA I L
I N V ESTO RS TO P U L L £ 1 2 . 7 B N F RO M U K
EQ U I T Y F U N D S B E T W E E N JA N UA RY 2 0 1 6
A N D J U N E 2 0 2 0 , AC C O R D I N G TO T H E I A . "

CONSEQUENCES
Cyclical Stocks are affected
The number of deals complited

will plummet
The amount of funding invested

will decline

II- THE UK'S STATE OF PLAY
AND RESPONSE TO THIS
SITUATION

A – A worrying observation
"THERE WILL NOT BE GENERAL OPEN-ENDED ONGOING

E Q U I VA L E N C E I N F I N A N C I A L S E R V I C E S , N O R O V E R M A N A G E M E N T
OR FINANCIAL AGREEMENT WITH THE UNITED KINGDOM"
BARNIER
The financial sector in the UK employs more than one million people
and contributes for 127bn pounds to the economy of Britain

B – A DISCUSSION AROUND
b A TRADING
AGREEMENT
"Both the EU and the UK

would fare much better if
they could get a "yes" on a
trade deal. Decision-makers
on both sides of the Channel
are welle aware of that"
Cornelia Meyer (economist,

independent energy analyst)
III- WHAT'S THE CURRENT
POSITION OF THE UK IN THE
WORLD FINANCIAL AND
ECONOMIC SPHERE?

A- THE UK/EU FUTURE RELATIONSHIP
b
IN FINANCE

B- THE UK IN COMPARISON
b
TO THE
WORLD

As UK GDP fell 20.4%, the country economy plunged into recession after the
Covid-19 outbreak spread in March which was the worst of any G7
nation during the first months of the crisis.
14
Monthly figures for the
MERCI economy indicate that
an economic recovery
from the pandemic
strengthened in June as
lockdown measures
were gradually relaxed.
15
CONCLUSION
A world without leader ?
The UK remains second-largest portfolio management

center
Investors' behaviour is changing

THANK YOU FOR
d
LISTENING
17
First article
Sean Stein Smith – City University

of New York
Second article
Rachel McIntosh, blockchain specialist

Key concepts
Micro finance Blockchain
Micro credit=loan
Can they
match?
I Micro credit: genesis, spread and need
for improvements (article 1)
To what extent may
blockchain accelerate the II Blockchain enhances micro credit and
spread of micro credit and addresses global issues (articles 1 + 2 )
its financial impact on
emerging countries? III Limits of blockchain applied to micro
credit (article 2)
Micro credit: origins and principles
• 1,7 billion unbanked
people
• Banks are not adapted to
small loans
• 1976 : Muhammed Yunus
Micro loan:
- 6-12 months
- 100-500$
- 25-40% interest rate vs 100-
200%
Economic impact and disenchantment
Study : Microfinance and

Poverty: Evidence Using
Panel Data from Bangladesh,
Shahidur R. Khandker.
Micro credit:
• Reduces overall poverty
• Helps the local economy
Micro credit has not grown as expected over the last decades
Lack of efficiency.. How
blockchain can solve it?
Pain points that affect Blockchain-based
microfinance : microlending platform:
• High operating costs • Increased trust and
• Slow transaction resolution transparency
• Lack of transparency and • Digital-first financing
standardization • Banking the unbanked
• Potential for corruption
New horizons for economic issues
• Lending across the world

without fees
• Emerging countries
attracting cash flows
• Reducing national debt

Limits of blockchain applied to micro
credit
◦ Difficulties to handle many

small payments
◦ Centralization and security

risks
Conclusion
◦ Pro-business versus tech-oriented

point of view
◦ Need for transparency
◦ Other tech can improve micro
credit
Going out of poverty…
Thanks!
All sources
◦ https://fintechranking.com/2020/02/11/what-is-the-blockchain-doing-in-microfinance/
◦ https://news.bitcoin.com/how-crypto-based-microfinance-benefits-small-businesses/
◦ https://www.youtube.com/watch?v=YuxEGDG4UhM&t=2139s&ab_channel=CoinSche
duleTV
◦ https://www.youtube.com/watch?v=gbKPnDDnH_c&t=5s&ab_channel=TEDxTalks
IS CORONAVIRUS ABOUT TO CAUSE THE
NEXT GLOBAL FINANCIAL CRISIS?
P RES S REV IEW
Emma Deprez & Jeanne Monnier

Gillian Tett for The Financial Times, september 24 2020
01
Shannon Schumacher & Mara Mordecai for World Economic Forum,
02
september18 2020
I. IF
CORONAVIRUS
HAS SIGNIFICANT
IMPACTS ON THE
GLOBAL
Excerpts from the World
Economic Forum article
ECONOMY...
03
04 A SLOWING GLOBAL ECONOMY
Companies Households Banks Investors

CO MPA N IE S HO US EHOLD S
- Reduced hiring - Reduced income, spending and saving
- Reduced temporary staff - Significant decline in demand in the
- Laid off or furloughed staff tourism, oil and automobile industries
IN V E S TO R S
BA N K S
Panic in financial markets ->
Missed loan payments -> Credit
Massive sale of financial stocks by
crunch coming soon ?
investors -> Stock market crash
05
II. ... COVID19 IS
UNLIKELY TO
TRIGGER THE
NEW GLOBAL
Excerpts from The Financial
Times article
FINANCIAL
CRISIS.
06
O PT IMIS T IC S T A N D PO IN T O N T HE CR IS IS
- From a health crisis to an economic crisis :

Hope of an economic recovery once a vaccine
will be available
- Banks are much better capitalised than in

2008 : "The risk of insolvency and a capital
crisis for the US financial system appears to be
much lower this time", Randal Quarles (senior
Fed official)
07
CORONAVIRUS : LIVING WITH UNCERTAINTY
08
Excerpts from The Financial Times article
Press Review
How has trade survived COVID-19 ?
Danguy Félix – Anérot Lucas

Thinkforward
1
INTRODUCTION
Sept 12th 2020
About the article….

Thinkforward
2
INTRODUCTION
Sept 12th 2020
In a context of
§ COVID-19 crisis (sanitary)
§ Globalized world (3.0)
§ Fear

Thinkforward
3
INTRODUCTION
Sept 12th 2020
In such a complex and globalized world, how has trade survived the new
sanitary crisis ?

Thinkforward
4
Comparison with the 2009
1 financial crisis
A/ An unexpected
recovery
V-SHAPED
RECOVERY?
A +10% recovery in a
few months
6
How's that possible ?
§ In 2009, collapse of the consumption of
durable goods
§ In 2020, collapse of the consumption of
services (Lockdown)
7
+ 24,000,000,000 $
Amount added to Amazon Owner Jeff Bezos' fortune since
the beginnning of Covid-19
(BBC News)
8
B/ But...
Dealing with trade is not dealing with the whole

Global Economy
Global GDP could fall by 5%
9
2 A quick reaction
A/ One way, together
Danguy Félix – Anérot Lucas Thinkforward
11
One way, together
Protectionism doesn’t work
A tacit agreement (common) and then official
Helping each other in order to avoid supply chains to clog (=bouchonner)
New trade consumption (computing equipment)
12
x3
America’s imports of protective equipment tripled between
March and July
(PANJIVA, Trade Data Compagny)
13
B/ A fast reaction from the
institutions
14
A fast reaction from
the institutions
• Successful way to deal with crisis (tools used faster and bigger)
• Institutions ’actions (Central Bank liquidity)
• Reunion (ERDF: European Regional Development Funds)
15
1,400,000,000 €
Money accorded by the EU cohesion policy funds for Greece
16
3 But the crisis is not over yet
A/ Crisis isn't over yet
The recovery is still uncertain
18
B/ An overly irregular sector
Evolution of Global Trade

(Constant US$)
(World Trade Monitor)
19
CONCLUSION
q The COVID 19 crisis is different
q A multilateral decision taking
q Learning from the past (tools)
q But it’s not over yet
20
CONCLUSION
Technological Artificial Less Reduction of

Crisis
solution intelligence outsourcing global trade
21
Thank
you!
Danguy Félix – Anérot Lucas Thinkforward

22
INTRODUCTION
OUR PROBLEMATIC
Following recent economic and international developments, to what extend can the
global economic model be reinvented and still fight poverty ?
OUR PLAN
I/ Deglobalization as the new economic trend ?
II/ How can countries deal with Deglobalization and its impacts ?
III/ Are those issues really eminent ?
OUR ARTICLE
I/ DEGLOBALIZATION AS THE NEW
ECONOMIC TREND ?
A. A MOVEMENT INITIATED SINCE A WHILE
B. A MOVEMENT TO WHICH THE COVID-19 HAS DEALT A

FATAL BLOW
I/ DEGLOBALIZATION AS THE
NEW ECONOMIC TREND ?
A. A MOVEMENT INITIATED SINCE A WHILE
"The population living in extreme poverty had declined from 36% in 1990 to 10%
in 2015.“
Nevertheless, the current trend is the following:
• Restriction of trade
• Undermining of multilateralism
• The closure of borders to immigrants
I/ DEGLOBALIZATION AS THE
NEW ECONOMIC TREND ?
B. A MOVEMENT TO WHICH THE COVID-19 HAS DEALT A
FATAL BLOW
II/ How can countries deal with
deglobalization and its impacts ?
A. THE FORMATION OF ALLIANCE BETWEEN BORDER

COUNTRIES
B. THE DEVELOPMENT OF INTERNAL market
C. BUT SOME ISSUES PERSIST… : THE LEFTOVERS

II/ HOW CAN COUNTRIES DEAL
WITH DEGLOBALIZATION AND
ITS IMPACTS
A. ALLIANCE BETWEEN?BORDER COUNTRIES
The promotion of regional trade The creation of the European Economic Community
ITS IMPACTS
B. DEVELOPING ?
ITS INTERNAL MARKET
Example of India
• Offset lost international demand

• No rely anymore on adverse trade and inequal
remuneration
• Stimulate economic growth
ITS
C. BUTIMPACTS ?
SOME ISSUES PERSIST… : THE LEFTOVERS
“A change in mindset is required”

What about smaller countries ?
ARTICLE “CORONAVIRUS WON'T KILL GLOBALIZATION.
BUT IT WILL LOOK DIFFERENT AFTER THE PANDEMIC ».
THE TIME, IN MAY 2020
III/ But are those issues really eminent ?
A. A TOTAL DEGLOBALIZATION IS NOT FOR TODAY
B. A CHANGE IN THE ECONOMIC MODEL THAT MAY

REINVENT THE FIGHT AGAINST POVERTY
Our second Article
III/ BUT ARE THOSE ISSUES REALLY
EMINENT?
A. A TOTAL DEGLOBALIZATION IS NOT FOR TODAY
• No countries have taken real actions

• The power of the state-nation is limited
• Interdependence of economies
• International coopération
III/ BUT ARE THOSE ISSUES REALLY
EMINENT?
B. A CHANGE IN THE ECONOMIC MODEL THAT MAY REINVENT THE FIGHT
AGAINST POVERTY
• Interdependence
• “Self-centrement”
• Conscious Awareness
CONCLUSION
Introduction I.1)
UNCTAD (1964) :
A part of the United
Nation secretariat that
helps and assists
countries to integrate
into the world economy
The Guardian
22 Sept 2020
I. Context of the article I.1)
• More than 90 million people in extreme

poverty
• Decrease in 14% of the global trade
• Raise in debt in developing countries
• Restriction on export of goods
• High unemployment
II. Why trade is a key solution? II.2)
● Trade leads to economic

growth
● Sharing a global
macroeconomic policy and
avoiding protectionism is the
key (Ex: Turkey)
II.1)
● Global treaties can be beneficial for everyone only if the

entire region is involved
● The free-rider phenomenon

III. The importance of trade for climate III.1)
change
● Current awareness of citizens
● Importance of governments and companies : they can create and

accelerate world change
● But, for now, agreements are not efficient enough

III.1)
World Economic forum

Sarah Thorn, Janet Whittaker
22 Sept. 2020
III.1)
To sum up :
● International coherent
trade rules are needed in
order to be efficient
● Governments have a key

role
● Global trade has

accelerated innovation
and this is an opportunity
III.1)
• Companies and governments should boost circular economy :

“A circular economy is an industrial system that is restorative or regenerative by intention and
design. It replaces the end-of-life concept with restoration, shifts towards the use of renewable
energy, eliminates the use of toxic chemicals and aims for the elimination of waste through the
superior design of materials, products, systems and business models.” (World Economic Forum)
● Carbon tariffs and carbon adjustments
● Business models need to be sustainable (ex : Walmart and the New

Plastics Economy)
Conclusion
The alarming need of international treaties to achieve

economic growth and global goals.
Governments and companies have to promote consistently a

more sustainable way of production, services & products
the economist, sept 19th 2020
“ARM will no longer be a “neutral” supplier, instead becoming an instrument of Uncle Sam’s expanding sanctions regime.” the economist, sept 19th 2020
To what extent are companies a
major stake, at the core of the nowaday
globalization’s fourth revolution?
I ) A more and more shifting world.

II ) Global company, local management.
Pascal Boniface : «Despite everything, multinational companies are

companies with one capital and one nationality. »
III ) Future of trade, a global uncertainty?
World Trade Organization: How an African Head
could make a diffence
Link for the article:
Think Forward – World Trade

Omer Créon Paul Chatellier
BBC – 8 September
Presentation of WTO
1995
The WTO presidence
The role of a president

§ Attends G7 and G20 meetings
§ help with disputes between world leaders
An African president, now ? Link for the article:

§ African leaders position relative to world trade
§ AfCFTA
§ A big gap to compensate
A new player in the US/China relationship
A new player in the US/China relationship
• Africa to be taken more seriously
- International credibility
- Inclusion among world leaders
• An alternative to protectionism ?
- USA : « America First »
- China : « Trade only if win are benefiting from it »
Limits to China’s imperialism.
Conclusion
Think Forward – World Trade
Omer Créon Paul Chatellier
BBC – 8 September
Link for the article:

Press Review: The prejudices
and hypocrisy
about migrants
in the European Union
INTRODUCTION
Based on The Guardian’s article :
Europe's migration 'crisis' isn't about

numbers. It's about prejudice
By Shada Islam
I/ The division within the
European Union regarding the
migrant ”crisis”
A/ The European commission’s

plan
• Faster pre-entry screening and quick

returns of those who fail to qualify
for asylum.
• End deliberately slow and inhumane
border management procedures
and
• Reduce the number of migrants
crammed in refugees’ camps.
B/ Europe’s anti-migration
hardliners
• Hungary, Poland, Slovakia and the

Czech Republic want to create camps
or “hotspots” outside of EU territory
while asylum claims are processed
C/ Europe’s progressives
• Fear that the Commission proposals lean

to the far right
• NGOs and human rights advocators say

that it could decrease the protection of
already vulnerable people
II/ The true origin of the problem lies in
pride and prejudice not in numbers
A/ The EU ‘s biases on race, religion & ethnicity
B/ What are the European values and
identity ?
C/ The urgency of rebooting relation with African
states and emerging countries in general
« After years of neglecting relations

with Africa, there’s finally a much-
needed EU focus on building a
“partnership of equals” with the
continent, although details are still
being worked out. »
III/ The need for a clear leadership
A/ Absence of a moral leadership

Ursula Von Der Leyen and her anti-
racist stance, does not appear as a real
leader as she faces the strong
opposition of Viktor Orban and his
allies in favour of a “white Christian
club”.
B/ The hypocrisy of
the European Union
regarding migrants
The European countries

acknowledge the importance of
migrants for essential functions
and are willing to grant them
work permits without wanting
to include them as full citizens.
C/ In absence of actions from the politicians, European citizens take
matter into their own hands : “Local communities are responding at
the grassroots level”
• Example of Germany where various towns

have offered to welcome more asylum
seekers..
Conclusion
Of the press review
PRESS REVIEW
How has COVID-19 affected

migrants and migrations ?
T H I N K F O RWA RD
I N T RO D U CT I O N
In a context of : Covid-19 Singapore: A ‘pandemic of

inequality’ exposed
COVID-19 crisis (sanitary)

Sept 17th 2020
Globalized world
Uncertainty
The testimony of Zakir Hossain
The situation in Singapore
• Singapore was greeted for its management of this • "Gold standard of near perfect
unprecedented sanitary crisis detection"
• Nevertheless, COVID-related mortality rates • Immigrants are more vulnerable

for immigrants exceed that of local habitants because of employment conditions
The covid-19 has been the reinforcement and the unveiling of inequalities
An unequivocal contrast
“The government has released two distinct daily

figures - the cases amongst the local community
and the cases in the dormitories”
The covid-19 has been the reinforcement and the unveiling of inequalities
Awareness of migrant's situation
Singapore’s people realized the seriousness of the

situation
New organization
"The sudden attention,
Dorms replaced coupled with new hygiene
measures, saw a surge of
charitable collections, and
many dorm operators
Will to improve their living working to improve
conditions conditions.”
The harsh reality of migrants working in Singapore
Their lives during the pandemic
"We can't send money

because we can't go
outside," said Zakir, who
adds that some others have
"I see some people from my
dormitory, they call their
not been paid their usual
family and say they cannot salary.
take the situation," said
Zakir, who himself runs a
charity for migrant workers.
The harsh reality of migrants working in Singapore
Living conditions which have always been difficult
No real change in The risk is still Silence of migrants because they

reality present are afraid of losing their job
Consequences of the pandemic
The situation had an impact in their mental health
The pandemic created "They cry and say they want

uncertainty to go home."
Most of them send a

remittance every month to
their families who live abroad
Now they cannot do to it as

they cannot go outside
Consequences of the pandemic
But new measures are taken, and new promises are made
Less people per dormitory

Easier access to healthcare
Better access to facilities
"In the fog of war, it is not

possible always to make the
perfect decisions." - Prime
Minister Lee Hsien Loong
CONCLUSION
COVID-19 crisis has impacted not only migrants and their economic life, but
also funds' migrations, and migrants' mental state. It has highlighted their
difficult living conditions throughout the years, but also the status of migrants
who work in Singapore.
So... Are real measures going to be taken ? What will happen to them in case of a second
wave ? Will they get a new status ?
Capitalism After the Pandemic | Foreign Affairs https://www.foreignaffairs.com/articles/united-states/2020-10-02/c...
Capitalism After the Pandemic

Getting the Recovery Right
By Mariana Mazzucato November/December 2020
Bankers in Seoul, South Korea, September 2020

Kim Hong-ji / Reuters
A
fter the 2008 !nancial crisis, governments across the world injected over $3
trillion into the !nancial system. "e goal was to unfreeze credit markets and
get the global economy working again. But instead of supporting the real
economy—the part that involves the production of actual goods and services—the bulk
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of the aid ended up in the !nancial sector. Governments bailed out the big investment
banks that had directly contributed to the crisis, and when the economy got going
again, it was those companies that reaped the rewards of the recovery. Taxpayers, for
their part, were left with a global economy that was just as broken, unequal, and
carbon-intensive as before. “Never let a good crisis go to waste,” goes a popular
policymaking maxim. But that is exactly what happened.
Now, as countries are reeling from the COVID-19 pandemic and the resulting
lockdowns, they must avoid making the same mistake. In the months after the virus
!rst surfaced, governments stepped in to address the concomitant economic and health
crises, rolling out stimulus packages to protect jobs, issuing rules to slow the spread of
the disease, and investing in the research and development of treatments and vaccines.
"ese rescue e#orts are necessary. But it is not enough for governments to simply
intervene as the spender of last resort when markets fail or crises occur. "ey should
actively shape markets so that they deliver the kind of long-term outcomes that bene!t
everyone.
"e world missed the opportunity to do that back in 2008, but fate has handed it
another chance. As countries climb out of the current crisis, they can do more than
spur economic growth; they can steer the direction of that growth to build a better
economy. Instead of handing out no-strings-attached assistance to corporations, they
can condition their bailouts on policies that protect the public interest and tackle
societal problems. "ey can require COVID-19 vaccines receiving public support to be
made universally accessible. "ey can refuse to bail out companies that won’t curb their
carbon emissions or won’t stop hiding their pro!ts in tax havens.
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For too long, governments have socialized risks but privatized rewards: the public has
paid the price for cleaning up messes, but the bene!ts of those cleanups have accrued
2 sur 16 12/11/2020 à 17:00

largely to companies and their investors. In times of need, many businesses are quick to
ask for government help, yet in good times, they demand that the government step
away. "e COVID-19 crisis presents an opportunity to right this imbalance through a
new style of dealmaking that forces bailed-out companies to act more in the public
interest and allows taxpayers to share in the bene!ts of successes traditionally credited
to the private sector alone. But if governments instead focus only on ending the
immediate pain, without rewriting the rules of the game, then the economic growth
that follows the crisis will be neither inclusive nor sustainable. Nor will it serve
businesses interested in long-term growth opportunities. "e intervention will have
been a waste, and the missed opportunity will merely fuel a new crisis.
THE ROT IN THE SYSTEM
Advanced economies had been su#ering from major structural $aws well before
COVID-19 hit. For one thing, !nance is !nancing itself, thus eroding the foundation
of long-term growth. Most of the !nancial sector’s pro!ts are reinvested back into
!nance—banks, insurance companies, and real estate—rather than put toward
productive uses such as infrastructure or innovation. Only ten percent of all British
bank lending, for example, supports non!nancial !rms, with the rest going to real
estate and !nancial assets. In advanced economies, real estate lending constituted about
35 percent of all bank lending in 1970; by 2007, it had risen to about 60 percent. "e
current structure of !nance thus fuels a debt-driven system and speculative bubbles,
which, when they burst, bring banks and others begging for government bailouts.
Another problem is that many large businesses neglect long-term investments in favor
of short-term gains. Obsessed with quarterly returns and stock prices, CEOs and
corporate boards have rewarded shareholders by buying back stocks, increasing the
value of the remaining shares and hence of the stock options that form part of most
executive pay packages. In the last decade, Fortune 500 companies have repurchased
more than $3 trillion worth of their own shares. "ese buybacks come at the expense of
investment in wages, worker training, and research and development.
"en there is the hollowing out of government capacity. Only after an explicit market
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failure do governments usually step in, and the policies they put forward are too little,
too late. When the state is viewed not as a partner in creating value but as just a !xer,
publicly funded resources are starved. Social programs, education, and health care all go
underfunded.
The relationship between the public and the private sector is broken.
"ese failures have added up to mega-crises, both economic and planetary. "e
!nancial crisis was to a large extent caused by excessive credit $owing into the real
estate and !nancial sectors, in$ating asset bubbles and household debt rather than
supporting the real economy and generating sustainable growth. Meanwhile, the lack
of long-term investments in green energy has hastened global warming, to the point
where the UN Intergovernmental Panel on Climate Change has warned that the world
has just ten years left to avoid its irreversible e#ects. And yet the U.S. government
subsidizes fossil fuel companies to the tune of some $20 billion a year, largely through
preferential tax exemptions. "e EU’s subsidies total around $65 billion per year. At
best, policymakers trying to deal with climate change are considering incentives, such
as carbon taxes and o%cial lists of which investments count as green. "ey have
stopped short of issuing the type of mandatory regulations that are required to avert
disaster by 2030.
"e COVID-19 crisis has only worsened all these problems. For the moment, the
world’s attention is focused on surviving the immediate health crisis, not on preventing
the coming climate crisis or the next !nancial crisis. "e lockdowns have devastated
people who work in the perilous gig economy. Many of them lack both the savings and
the employer bene!ts—namely, health care and sick leave—needed to ride out the
storm. Corporate debt, a key cause of the previous !nancial crisis, is only climbing
higher as companies take on hefty new loans to weather the collapse in demand. And
many companies’ obsession with pleasing the short-term interests of their shareholders
has left them with no long-term strategy to see them through the crisis.
"e pandemic has also revealed how imbalanced the relationship between the public
and the private sector has become. In the United States, the National Institutes of
4 sur 16 12/11/2020 à 17:00

Health (NIH) invests some $40 billion a year on medical research and has been a key
funder of the research and development of COVID-19 treatments and vaccines. But
pharmaceutical companies are under no obligation to make the !nal products
a#ordable to Americans, whose tax money is subsidizing them in the !rst place. "e
California-based company Gilead developed its COVID-19 drug, remdesivir, with
$70.5 million in support from the federal government. In June, the company
announced the price it would charge Americans for a treatment course: $3,120.
It was a typical move for Big Pharma. One study looked at the 210 drugs approved by
the U.S. Food and Drug Administration from 2010 to 2016 and found that “NIH
funding contributed to every one.” Even so, U.S. drug prices are the highest in the
world. Pharmaceutical companies also act against the public interest by abusing the
patent process. To ward o# competition, they !le patents that are very broad and hard
to license. Some of them are too upstream in the development process, allowing
companies to privatize not only the fruits of research but also the very tools for
conducting it.
For too long, governments have socialized risks but privatized rewards.
Equally bad deals have been made with Big Tech. In many ways, Silicon Valley is a
product of the U.S. government’s investments in the development of high-risk
technologies. "e National Science Foundation funded the research behind the search
algorithm that made Google famous. "e U.S. Navy did the same for the GPS
technology that Uber depends on. And the Defense Advanced Research Projects
Agency, part of the Pentagon, backed the development of the Internet, touchscreen
technology, Siri, and every other key component in the iPhone. Taxpayers took risks
when they invested in these technologies, yet most of the technology companies that
have bene!ted fail to pay their fair share of taxes. "en they have the audacity to !ght
against regulations that would protect the privacy rights of the public. And although
many have pointed to the power of arti!cial intelligence and other technologies being
developed in Silicon Valley, a closer look shows that in these cases, too, it was high-risk
public investments that laid the foundations. Without government action, the gains
from those investments could once again $ow largely to private hands. Publicly funded
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technology needs to be better governed by the state—and in some cases owned by the
state—in order to ensure that the public bene!ts from its own investments. As the mass
closure of schools during the pandemic has made clear, only some students have access
to the technology needed for at-home schooling, a disparity that only furthers
inequality. Access to the Internet should be a right, not a privilege.
RETHINKING VALUE
All of this suggests that the relationship between the public and the private sector is
broken. Fixing it requires !rst addressing an underlying problem in economics: the
!eld has gotten the concept of value wrong. Modern economists understand value as
interchangeable with price. "is view would be anathema to earlier theorists such as
François Quesnay, Adam Smith, and Karl Marx, who saw products as having intrinsic
value related to the dynamics of production, value that wasn’t necessarily related to their
price.
"e contemporary concept of value has enormous implications for the way economies
are structured. It a#ects how organizations are run, how activities are accounted for,
how sectors are prioritized, how the government is viewed, and how national wealth is
measured. "e value of public education, for example, does not !gure into a country’s
GDP because it is free—but the cost of teachers’ salaries does. It is only natural, then,
that so many people talk about public “spending” rather than public “investment.” "is
logic also explains why Goldman Sachs’s then CEO, Lloyd Blankfein, could claim in
2009, just a year after his company received a $10 billion bailout, that its workers were
“among the most productive in the world.” After all, if value is price, and if Goldman
Sachs’s income per employee is among the highest in the world, then of course its
workers must be among the most productive in the world.
Changing the status quo requires coming up with a new answer to the question, What
is value? Here, it is essential to recognize the investments and creativity provided by a
vast array of actors across the economy—not only businesses but also workers and
public institutions. For too long, people have acted as if the private sector were the
primary driver of innovation and value creation and therefore were entitled to the
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resulting pro!ts. But this is simply not true. Pharmaceutical drugs, the Internet,
nanotechnology, nuclear power, renewable energy—all were developed with an
enormous amount of government investment and risk taking, on the backs of countless
workers, and thanks to public infrastructure and institutions. Appreciating the
contribution of this collective e#ort would make it easier to ensure that all e#orts were
properly remunerated and that the economic rewards of innovation were distributed
more equitably. "e road to a more symbiotic partnership between public and private
institutions begins with the recognition that value is created collectively.
BAD BAILOUTS
Beyond rethinking value, societies need to prioritize the long-term interests of

stakeholders rather than the short-term interests of shareholders. In the current crisis,
that should mean developing a “people’s vaccine” for COVID-19, one that is accessible
to everyone on the planet. "e drug-innovation process should be governed in a way
that fosters collaboration and solidarity among countries, both during the research-
and-development phase and when it comes time to distribute the vaccine. Patents
should be pooled among universities, government labs, and private companies, allowing
knowledge, data, and technology to $ow freely around the world. Without these steps,
a COVID-19 vaccine risks becoming an expensive product sold by a monopoly, a
luxury good that only the richest countries and citizens can a#ord.
More generally, countries must also structure public investments less like handouts and
more like attempts to shape the market to the public’s bene!t, which means attaching
strings to government assistance. During the pandemic, those conditions should
promote three particular objectives: First, maintain employment to protect the
productivity of businesses and the income security of households. Second, improve
working conditions by providing adequate safety, decent wages, su%cient levels of sick
pay, and a greater say in decision-making. "ird, advance long-term missions such as
reducing carbon emissions and applying the bene!ts of digitization to public services,
from transport to health.
"e United States’ main response to COVID-19—the CARES (Coronavirus Aid,
7 sur 16 12/11/2020 à 17:00

Relief, and Economic Security) Act, passed by Congress in March—illustrates these

points in reverse. Rather than put in place e#ective payroll supports, as most other
advanced countries did, the United States o#ered enhanced temporary unemployment
bene!ts. "is choice led to over 30 million workers being laid o#, causing the United
States to have one of the highest rates of pandemic-related unemployment in the
developed world. Because the government o#ered trillions of dollars in both direct and
indirect support to large corporations without meaningful conditions, many companies
were free to take actions that could spread the virus, such as denying paid sick days to
their employees and operating unsafe workplaces.
"e CARES Act also established the Paycheck Protection Program, under which
businesses received loans that would be forgiven if employees were kept on the payroll.
But the PPP ended up serving more as a massive cash grant to corporate treasuries
than as an e#ective method of saving jobs. Any small business, not just those in need,
could receive a loan, and Congress quickly loosened the rules regarding how much a
!rm needed to spend on payroll to have the loan forgiven. As a result, the program put
a pitifully small dent in unemployment. An MIT team concluded that the PPP handed
out $500 billion in loans yet saved only 2.3 million jobs over roughly six months.
Assuming that most of the loans are ultimately forgiven, the annualized cost of the
program comes out to roughly $500,000 per job. Over the summer, both the PPP and
the expanded unemployment bene!ts ran out, and the U.S. unemployment rate still
exceeded ten percent.
When rescuing businesses, the government should impose conditions.
Congress has so far authorized over $3 trillion in spending in response to the

pandemic, and the Federal Reserve injected an additional $4 trillion or so into the
economy—together totaling more than 30 percent of U.S. GDP. Yet these vast
expenditures have achieved nothing in terms of addressing urgent, long-term issues,
from climate change to inequality. When Senator Elizabeth Warren, Democrat of
Massachusetts, proposed attaching conditions to the bailouts—to ensure higher wages
and greater decision-making power for workers and to restrict dividends, stock
buybacks, and executive bonuses—she could not get the votes.
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"e point of the government’s intervention was to prevent the collapse of the labor
market and to maintain !rms as productive organizations—essentially, to act as a
catastrophic risk insurer. But this approach cannot be allowed to impoverish
government, nor should the funds be permitted to bankroll destructive business
strategies. In the case of insolvencies, the government might consider demanding
equity positions in the companies it is rescuing, as happened in 2008 when the U.S.
Treasury took ownership stakes in General Motors and other troubled !rms. And
when rescuing businesses, the government should impose conditions that prohibit all
sorts of bad behavior: handing out untimely CEO bonuses, issuing excessive dividends,
conducting share buybacks, taking on unnecessary debt, diverting pro!ts to tax havens,
engaging in problematic political lobbying. "ey should also stop !rms from price
gouging, especially in the case of COVID-19 treatments and vaccines.
Other countries show what a proper response to the crisis looks like. When Denmark
o#ered to pay 75 percent of !rms’ payroll costs at the start of the pandemic, it did so on
the condition that !rms could not make layo#s for economic reasons. "e Danish
government also refused to bail out companies that were registered in tax havens and
barred the use of relief funds for dividends and share buybacks. In Austria and France,
airlines were saved on the condition that they reduce their carbon footprint.
"e British government, by contrast, gave easyJet access to more than $750 million in
liquidity in April, even though the airline had paid out nearly $230 million in
dividends to shareholders a month earlier. "e United Kingdom declined to attach
conditions to its bailout of easyJet and other troubled !rms in the name of market
neutrality, the idea that it is not the government’s job to tell private companies how to
spend their money. But a bailout can never be neutral: by de!nition, a bailout involves
the government choosing to spare one company, and not another, from disaster.
Without conditions, government assistance runs the risk of subsidizing bad business
practices, from environmentally unsustainable business models to the use of tax havens.
"e United Kingdom’s furlough scheme, whereby the government paid up to 80
percent of furloughed employees’ wages, should have in the very least been conditioned
on workers not being !red as soon as the program ended. But it wasn’t.
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THE VENTURE CAPITALIST MENTALITY
"e state cannot just invest; it must strike the right deal. To do so, it needs to start
thinking like what I have called an “entrepreneurial state”—making sure that as it
invests, it is not just derisking the downside but also getting a share of the upside. One
way to do that is to take an equity stake in the deals it makes.
Consider the solar company Solyndra, which received a $535 million guaranteed loan
from the U.S. Department of Energy before going bust in 2011 and becoming a
conservative byword for the government’s inability to pick winners. Around the same
time, the Department of Energy gave a $465 million guaranteed loan to Tesla, which
went on to experience explosive growth. Taxpayers paid for the failure of Solyndra, but
they were never rewarded for the success of Tesla. No self-respecting venture capitalist
would structure investments like that. Worse, the Department of Energy structured
Tesla’s loan so that it would get three million shares in the company if Tesla was unable
to repay the loan, an arrangement designed to not leave taxpayers empty-handed. But
why would the government want a stake in a failing company? A smarter strategy
would have been to do the opposite and ask Tesla to pay three million shares if it was
able to repay the loan. Had the government done that, it would have earned tens of
billions of dollars as Tesla’s share price grew over the course of the loan—money that
could have covered the cost of the Solyndra failure with plenty left over for the next
round of investments.
But the point is to worry not just about the monetary reward of public investments.
"e government should also attach strong conditions to its deals to ensure they serve
the public interest. Medicines developed with government help should be priced to
take that investment into account. "e patents that the government issues should be
narrow and easily licensable, so as to foster innovation, promote entrepreneurship, and
discourage rent seeking.
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Lining up for free groceries in Chelsea, Massachusetts, April 2020

Brian Snyder / Reuters
Governments also need to consider how to use the returns on their investments to
promote a more equitable distribution of income. "is is not about socialism; it is about
understanding the source of capitalistic pro!ts. "e current crisis has led to renewed
discussions about a universal basic income, whereby all citizens receive an equal regular
payment from the government, regardless of whether they work. "e idea behind this
policy is a good one, but the narrative would be problematic. Since a universal basic
income is seen as a handout, it perpetuates the false notion that the private sector is the
sole creator, not a co-creator, of wealth in the economy and that the public sector is
merely a toll collector, siphoning o# pro!ts and distributing them as charity.
A better alternative is a citizen’s dividend. Under this policy, the government takes a
percentage of the wealth created with government investments, puts that money in a
fund, and then shares the proceeds with the people. "e idea is to directly reward
citizens with a share of the wealth they have created. Alaska, for example, has
distributed oil revenues to residents through an annual dividend from its Permanent
Fund since 1982. Norway does something similar with its Government Pension Fund.
California, which hosts some of the richest companies in the world, might consider
11 sur 16 12/11/2020 à 17:00

doing something similar. When Apple, headquartered in Cupertino, California, set up

a subsidiary in Reno, Nevada, to take advantage of that state’s zero percent corporate
tax rate, California lost an enormous amount of tax revenue. Not only should such tax
gimmicks be blocked, but California should also !ght back by creating a state wealth
fund, which would o#er a way besides taxation to directly capture a share of the value
created by the technology and companies it fostered.
A citizen’s dividend allows the proceeds of co-created wealth to be shared with the
larger community—whether that wealth comes from natural resources that are part of
the common good or from a process, such as public investments in medicines or digital
technologies, that has involved a collective e#ort. Such a policy should not serve as a
substitute for getting the tax system to work right. Nor should the state use the lack of
such funds as an excuse to not !nance key public goods. But a public fund can change
the narrative by explicitly recognizing the public contribution to wealth creation—key
in the political power play between forces.
FEATURED TOPIC
Coronavirus
SEE FULL COVERAGE
THE PURPOSE-DRIVEN ECONOMY
When the public and private sectors come together in pursuit of a common mission,
they can do extraordinary things. "is is how the United States got to the moon and
back in 1969. For eight years, NASA and private companies in sectors as varied as
aerospace, textiles, and electronics collaborated on the Apollo program, investing and
innovating together. "rough boldness and experimentation, they achieved what
President John F. Kennedy called “the most hazardous and dangerous and greatest
adventure on which man has ever embarked.” "e point was not to commercialize
certain technologies or even to boost economic growth; it was to get something done
12 sur 16 12/11/2020 à 17:00

together.
More than 50 years later, in the midst of a global pandemic, the world has a chance to
attempt an even more ambitious moonshot: the creation of a better economy. "is
economy would be more inclusive and sustainable. It would emit less carbon, generate
less inequality, build modern public transport, provide digital access for all, and o#er
universal health care. More immediately, it would make a COVID-19 vaccine available
to everyone. Creating this type of economy will require a type of public-private
collaboration that hasn’t been seen in decades.
Some who talk about recovering from the pandemic cite an appealing goal: a return to
normalcy. But that is the wrong target; normal is broken. Rather, the goal should be, as
many have put it, to “build back better.” Twelve years ago, the !nancial crisis o#ered a
rare opportunity to change capitalism, but it was squandered. Now, another crisis has
presented another chance for renewal. "is time, the world cannot a#ord to let it go to
waste.
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"e Global Economy Will Never Be the Same

Carmen Reinhart and Vincent Reinhart
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Sebastian Mallaby
14 sur 16 12/11/2020 à 17:00

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Made in World

Rodolphe Desbordes and Frederic Munier

What will you learn?

1. Why trade is at the core of the civilisation process.

1. Why trade is at the core of the civilisation process.

What will you learn?

Keep these learning outcomes in mind during the lecture.

Trade, protectionism, and economic growth

Concerns about trade

The shifting nature of

Civilisation, domestic trade, and

Why are we civilised?

I the process by which a place reaches an advanced stage of social and

The history of urbanisation

Source: Forbes website.

What all of this has to do with trade?

Think about civilisation as having people specialised into a large number of

Of course, full specialisation is possible only if the market is large enough. So it

The shifting nature of globalisation throughout How was civilisation possible?

Think about civilisation as having people specialised into a large number of

What all of this has to do with trade?

Are the effects of international trade different from

1. BUT, borders must be crossed and large distances must be travelled.

The shifting nature of globalisation throughout those of domestic trade?

Are the effects of international trade different

The jagged process of trade

Long-run trend in trade globalisation

The intensity of international trade has fluctuated over time.

The shifting nature of globalisation throughout

What do we see? What should we think?

I International trade (relative to domestic production) was low before

How do we explain these trends? We will focus on the key drivers of

Key insight: international trade is about arbitrage. Foreign goods become

Globalisation driven by technology and policy

Source: OECD (2013). Source: Feenstra and Taylor (2014).

The contribution of each factor

Source: Fouquin and Hugot (2016).

Source: Lindert (2001).

The shifting nature of globalisation throughout

Source: Lindert (2001).

Remembering History: dealing with a global crisis

Ignoring History: a global trade war

I What would be the direct

I The losses are even larger for very

I What would be the direct

The jagged process of trade globalisation

History and current geopolitical events show that using protectionist

Globalisation 3.0: the integration

Globalisation 3.0: more trade, more participants

How do we explain this? Lower costs, more integration

The shifting nature of globalisation throughout

The production of the Iphone epitomises this phenomenon. R&D is

Globalisation 3.0: trade in value added

I B exports to C a good G worth 110 (and C

Globalisation 3.0: the integration of world produc-

Globalisation 3.0: trade in value added

Changing trade policy analysis

‘Beneficial’ protectionist trade policies become more complicated to design

I The presence of foreign value-added in exports ought to give rise to

Bilateral trade policies can harm third-countries, e.g. trade forbidden

Tracking the true exposure to foreign shocks

I The domestic shock also depends on

Source: Lewis (2013).

Changing trade imbalances analysis