Study Guide for Exam #1
The test will consist of about 40 multiple choice and true/false questions. Please bring #2 pencils, erasers,
and a calculator (mobile phones cannot be used for calculations).
For every topic, you should be familiar with the contents of the PowerPoint handout and the relevant all
class discussion-based notes. When you review the material for the exam, for each topic first review the
PowerPoint handout and class notes (including examples discussed in class), followed by the
readings/examples for that topic. There will be questions from the readings and examples from the pdf
files. One efficient way to review the readings in the pdf files is to answer the questions in the study guide
as you go through each reading.
Globalization
1. PowerPoint presentation
Readings
2. “One World?”
a. What is globalization?
The integration of national economies that direct cross-border flow of goods,
services and currency to stimulate all parties involved.
b. What are the pros and cons of globalization?
Pro – Potential to boost productivity and living standards everywhere. Better
division of labor (specialization), Firms exploit economies of scale. Capital can be
freely shifted.
Con – Destroy jobs and push down wages in big economies, “race to the bottom,”
pressure to compete erodes government control of economic policies, and
increased power of financial market to cause economic havoc.
c. How did globalization work in the 20 century (i.e., 1901 – 2000)?
th
Quantified by a reduction of trade barriers and falls in transportation costs. World
Wars ended globalization. By the 30’s, protectionism, tariffs increased (led to
Depression effects) Capital controls maintained after WW II, exchange rates
became fixed. GATT was implemented. Trade flourished.
d. What were the major forces driving globalization in the 20 century?
th
GATT and WTO were the major organizations. Quickly realized that reducing trade
barriers was vital to economic recovery. “Bretton Woods System” – “Floating”
currencies against each other. The major forces were technology (cost of
communication dropping rapidly) and liberalization.
e. What are the metrics used to quantify the progress of globalization?
Ratio of trade to output. Price convergence across countries.
f. With respect to these metrics how does the article assess the progress of globalization at
the end of the 20 century?
th
g. Product markets are nowhere near as integrated across borders as they are within
nations. Financial markets are not integrated either. Labor markets are also not
integrated. New technology will help integration.
3. “Worldbeater, Inc”
2
a. What role do multinationals play in integrating the world’s economies?
They are the main conduits to which globalization takes place. They also greatly
impact global investment. (PPE). They are the main force behind the worldwide
flow of capital, goods and services. (Shell / Royal Dutch is #1)
b. What are the benefits that multinationals bring to the countries they operate in?
Jobs, foreign direct investment, infrastructures, awareness.
c. What important point(s) is (are) illustrated by the examples of Boeing, Airbus, and Coca
Cola?
Economies of scale are the biggest explanation for multinational growth. Boeing
assembles aircrafts in the US, even though it subcontracts parts from all over.
Airbus has 4 separate firms in different European countries and manufactures
specifically in that country. This is proof that economies of scale do not force
companies to become multinationals. With Coke, there isn’t a huge effect in terms
of scale advantage in terms of water, CO2, and syrup (factory level production), but
the brand itself and marketing, and trade secrets conveyed to independent bottlers
drove Coke to a highly multinational company.
