Question

1. Since the financial crisis of 2008, the world economy has grown steadily until March of this year. I began this semester by noting that we were in an era of unprecedented prosperity, even though we faced serious problems of economic inequality and global warming. We are now in what I would call a policy-induced global depression causing negative growth and rising unemployment. The ten years of growth were also associated with increased globalization which began to reverse before this crisis with the election of Donald Trump and the United Kingdom’s decision to leave the European Union.

1. In one paragraph, explain why do many economists associate globalization with increased economic growth, especially in poorer countries?

2. Has the global pandemic permanently hurt globalization (global trade, investment, and the movement of people across national borders)? Explain your answer in one paragraph.

3. Use economic concepts (such as comparative advantage, rates of investment, and technological change) to explain whether or not you think economic growth will rebound after this crisis has passed. One paragraph only.

Answer 1

Q. In one paragraph, explain why do many economists associate globalization with increased economic growth, especially in poorer countries?

Globalization is associated with economic growth, because it enhances the production and trade capabilities of countries. Every country is blessed with certain endowments of resources. Some have more than others. Through globalization, mutually beneficial exchange can take place. Each country can focus on its own strengths. Transfer of technology can also take place. All such activities are associated with a higher rate of growth.

With poorer countries, the growth prospects are higher. This is because they are in a phase of development where they witness increasing returns for every input. With globalization, their factors of production, like labor, natural resources and capital, are put to much better utilization.

Q. Has the global pandemic permanently hurt globalization (global trade, investment, and the movement of people across national borders)? Explain your answer in one paragraph.

No, the global pandemic has not permanently hurt globalization. However, a major temporary disruption has taken place. This temporary disruption may last months, or even years. But it is definitely not permanent.

Of the three variables, global trade will revive the fastest. It doesn't involve movement of people. In fact, even during the pandemic, many countries were still trading.

With confidence levels restoring, investment flows will also slowly be restored. A general level of fear may still prevail. But investments are mainly driven by interest rates.

Movement of people across national borders will remain restricted for a long time. It will involve a lot more restrictions and will be associated with a lot of precaution. Every country will fear further spread of the disease due to international travel.

Q. Use economic concepts (such as comparative advantage, rates of investment, and technological change) to explain whether or not you think economic growth will rebound after this crisis has passed. One paragraph only.

Economic growth will surely rebound after this crisis has passed. The rebound will not be instant, but will be more of a gradual recovery. At a national level, it will involve consumption and investment rates rising. At an international level, it will involve mutual trade due to comparative advantage. For instance, India will still be a low cost producer. Japan may still lead in technological innovation. Investments to countries with good rates of return have already started picking up. The process of technological change is continuous, and now most businesses have adapted to the changes caused by the pandemic. This pandemic will also force further changes, perhaps for the betterment of human civilization.