lecture notes 1 introduction 15-16-1
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Firms and Markets in Global Economies
Lecture 1: Notes
2015-2016
Introduction
A bird’s eye view of globalization:
Globalization: a large share of the population can access goods
made available by long distance trade.
The Roman peasants living in the Po river plane ate off tableware
from aples!!
The "all of the Roman #mpire: the end of trade$ #ast% &est and
'slam
The Age of discoveries:
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)ource: *elpman #lhanan. +,(,. Understanding Global Trade -p.
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0ut a hundred years earlier:
0etween (1,23(12,% 4hina’s trade routes lin5 the "ar #ast to6alindi and the Red )ea
+,787(1(1!!The first giraffe in town!!
A typical 9heng *ue’s epeditions: 2;, ships and 2,.,,, men.
The aim: new mar5ets for the 4hinese manufactured goods.
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The Golden Age of Globalization
)ource: *elpman #lhanan. +,(,. Understanding Global Trade -p.
;/.
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+,,;: the financial crisis hits
The order of magnitude:
0altic >ry 'nde -0>'/ falls by 8,? btw @une and ctober +,,
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*ow we eplain the surge in trade in the ’8,$
6ind: the forces at wor5 then are at wor5 also nowdays.
(/ The widespread adoption of '4T:• "rom + millions in (881 to + billions internet users in +,(,B
• The fall in download time
• 4onseHuences: improves in mar5et efficiencyB
+/ Iiberalization of trade and fall in transport costs:
• A"TA -(881/
• 6ercosur -(88(3(881/
• 4hina and the &T -+,,(/
• #uropean #nlargement.
2/ The fall of the )oviet Jnion and the opening up of #ast and "ar
#ast mar5etsB pro3competitive government coalitions in the &est-shift to the right/
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The main conseHuence:
the disintegration of production processes across borders
't shows up in statistics:
'n +,,,:
• ,? of J) imports were intra3firm trade
• 22? of J) eports were toward affiliates
The labour statistics tell the same story -eg% diagnostic imagining/
&ho are the 9ue *ang of our time$
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"or the sa5e of brevity% consider #urope
6ayer% T. and ttaviano% G. -+,,
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Production is contract-intensive
0ut contracts are notoriously difficult to write and to enforce:
a/ )tate contingency: not of this worldK
b/ 4hoice of law -the court may reLect!/
c/ Are local courts fair to foreigners$
d/ The enforcement of remedies
Tentative solutions:
• Jnited ations 4onvention on 4ontracts for the 'nternational
)ale of Goods: not all countries have signed it.
• 'nternational Arbitration: competent but not cheapK
• *eterogeneity: how long does it ta5e to clear a bounced
chec5$ 28 days in etherlandsB 1 days in 'taly.
• Reputation$
See: Greif, A. (1993). Contract enforceability andeconomic institutions in early trade: Themahribi traders! coalition. American EconomicReview, 83: "#"$"%&.
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*ow do firms deal with contract incompleteness$
4ontracts incompletess shapes organizational and locationchoices:
• utsourcing vs. Mertical 'ntegration
• ff3shoring vs. >omestic Production
&e will study how firms behave on international mar5ets under
the assumption of contract incompleteness:
• we will consider eporting and investing firms
• we will discuss the implications of imperfections on capital
mar5ets
• we will study policy implications
ur road map
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Readin material !to be u"dated#:
Antras% P. -+,(/ Global Prod!ction" #irms$ %ontracts$ and Trade
&tr!ct!re. Princeton Jnivsersity Press.
*elpmann% #. -+,((/ Understanding Global Trade. *arvard
Jniversity Press
*elpman% #. -+,,/. ETrade% ">'B and the rganization of "irms.F
@ournal of the #conomic Iiterature:
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