Select Committee on Treasury Written Evidence

Memorandum submitted by GLA Economics


  Globalisation has been usefully defined in the economic context as "the integration of economies through markets across frontiers" and has resulted in unprecedented levels of interaction and interdependence between economies. It has generally been associated with global economic growth and reductions in poverty. The globalisation process itself is not new, though the most important factor in the recent phase has been the rise of large emerging economies, particularly India and China.

  Globalisation has brought with it a number of challenges as well as opportunities for London and the UK. The primary challenge has been increased competitive pressures in traditional manufacturing sectors, and more recently in more knowledge-intensive and service-based sectors. In terms of opportunities, globalisation enables countries like the UK to tap into the growing markets of the emerging economies, through exports and by attracting inward investment.

  This challenge means that innovation and investment will be important to the continued success of London and the UK and its ability to exploit comparative advantage. The demand for unskilled labour is likely to continue to decline. Aside from these effects, globalisation has brought with it large financial flows and the potential for more macroeconomic shocks as well as implications for the environment.

  London and the UK are well placed to benefit from the opportunities produced by globalisation and will do so as long as policy is aimed in the right direction. For businesses, this means an increased focus on the "non-cost" factors that make London and the UK a good place to locate, as well as providing the physical and social infrastructure, which will enable the activities where London and the UK have a competitive edge. This will ensure that jobs lost as a result of trends in globalisation are replaced with others, although this requires policy to be aimed at enabling the skills-base of the London/UK workforce to develop appropriately.

  It is important to ensure that, whilst the benefits of globalisation can be realised, its effects on resources and the environment are accounted for. To tackle resource depletion and climate change effects, policy should be aimed at encouraging the transfer of energy-efficient and less polluting technology to emerging economies. Moreover, the UK needs to push for more widespread expansion of emissions trading and Kyoto protocol directives, and should also encourage trade in goods that use environment-friendly and sustainable production methods.


1.  The nature of globalisation and its overall impact on the UK economy

1.1  The meaning of globalisation

  Globalisation has been usefully defined in the economic context as "the integration of economies through markets across frontiers".[67] This integration has been characterised by an increasing global movement of capital, goods, services, and labour, and has resulted in unprecedented levels of interaction and interdependence between economies. In general, periods of globalisation have been associated with periods of strong economic growth.

  The driving forces behind globalisation have primarily been:

    —  advancements in production technology and in the international organisation of production and business;

    —  the reduction in transport and communications costs; and

    —  economic liberalisation—countries opening up markets to capital flows and international trade.

  The growing importance of capital flows trade can be seen from Figure 1 below.

Figure 1


  The channels through which globalisation occurs centre around major world cities such as London. World cities act as "control centres" housing corporate headquarters, corporate orientated financial services, and supporting business services. Together this bundle of activities allows business establishments within world cities to co-ordinate economic activity and flows of capital across the world. In effect cities are now centres of "management and co-ordination" of the global economy.[68] As a result, the nature and impact of globalisation is particularly important for London.[69] This is illustrated by the fact that London, along with New York, is the world's leading financial centre. In 2000, both cities had close to $2.5 trillion of assets under management.[70]

1.2  The extent to which the recent phase of globalisation is a new phenomenon for the world economy

  The globalisation process itself is not new—although in the early 21st century there are some new elements such as global branding, and both a more global division of production within companies and a global distribution of plants. In the 19th and 20th centuries the countries, continents and regions of the world also went through periods of increasing openness and trade, as well as periods of greater protectionism and isolation.

  However, the current period is one in which the pace of globalisation has once again picked up and the scale and scope of change is affecting ever more people and products across the world. This current phase of globalisation is characterised especially by the emergence of the major Asian economies onto the world stage and a resultant shift in the balance of economic power. The geographic shift in the balance of economic power in the world is manifest in the rise of countries such as China, India and Russia, which are predicted to play an increasingly important part in the world economy over the coming decades.

  It is possible that this present phase of globalisation will also be characterised by a changing approach to fossil fuels. Previous phases of global growth were fuelled by coal in the 19th and early 20th centuries, and then oil in the mid 20th. Both environmental and supply issues mean that further fossil fuel based expansion is under pressure. However, it is too early to say how severe this pressure will be. China is buying into Russian-based reserves and has its own potential supplies. Expansion of coal supplies is also possible, as is a renewed interest in nuclear power. Limitations of energy supply is one force which could bring global expansion to a halt and result in rising prices, competition for scarce fuels and renewed "beggar my neighbour" policies. The difficulties in completing the current Doha round of tariff talks are evidence of these emerging pressures.

1.3  The roles of India and China in the globalisation process

  Over recent years, China, India and other major emerging economies have been playing an increasingly important role in the global economy. Figures from the IMF show that over the period of 1990-2005, India's share of world output has grown by 40% while China's share has grown by over 2.5 times. In 2005, China and India's respective shares of world output reached 15.4% and 6% in PPP[71] terms. Over the period 2001-05, China and India accounted for 33% of global economic growth (in PPP terms), compared with a 30% contribution by the G7 countries over the same period.[72]

  The rapid growth over the last few decades of emerging countries such as China and India means that the ranking of the world's biggest economies could be substantially different in 10-20 years time compared with today. A study by Goldman Sachs projects GDP for various countries to 2050, under the key assumption that these countries maintain and develop policies/institutions that are supportive of economic growth.[73] China is projected to become the second biggest economy by around 2020 and will overtake the US to become the world's biggest economy by 2050. By 2050 India will be the third biggest economy after China and the US, and Russia and Brazil will be around the same size as Japan. A study by PwC gives similar results.[74]

  Until recently, the primary role of emerging economies in the globalisation process has been to offer low-cost locations for multinational businesses in relatively labour-intensive and low value-added stages of the production process. China and India, given their rapidly increasing position in the world economy, have begun to move beyond this role. As noted by HM Treasury,[75] both China and India have been investing heavily in improving the skills-base and skills-level of their workforce. In addition, China has been investing heavily in technology and R&D, while India continues to increase its presence in the international outsourcing and business services industries. Brazil and Russia have been growing slightly less rapidly but are still likely to prove important for both London and the UK in terms of securing markets and fuel supplies. All this has resulted in increased competitive pressure for advanced economies, not only in traditional areas such as manufacturing but also in the more knowledge-intensive and service-based industries.

  Given the growth forecasts for these emerging economies, these competitive pressures will almost certainly increase. This is not the only effect they will have in the globalisation process. As they grow, they will increasingly become important markets for other countries to tap into, both in terms of exports to these emerging economies as well as foreign direct investment from them. The effect of these developments on the UK economy is discussed further in section 1.5.[76]

1.4  The impact of globalisation on UK and global macroeconomic stability

  One of the benefits of globalisation has been that the growth in low-cost production in emerging economies as well as the spread of innovation has led to a drop in end-user prices. This trend has until now reduced global inflationary pressures and eased pressure on monetary authorities worldwide, allowing interest rates to be lower than they would otherwise be. This has been coupled in particular with financial ease in Japan as it has grappled with asset deflation and banking problems.

  Financial globalisation has facilitated increased integration in global capital markets. Two arguments have been put forward as to how this has increased macroeconomic stability. Firstly, as international capital flows become more important for national economic development, assuming they respond negatively to bad monetary and fiscal policies, governments are encouraged to conduct macroeconomic policies[77] providing greater economic stability. However, Tytell and Wei's (2004) empirical studies suggest that this "discipline-effect" is not that strong, finding only some modest evidence that financial globalisation has induced countries to pursue low-inflation monetary policies.

  Secondly, financial globalisation has enabled the US to sustain a large current account deficit ($805 billion/6.4% of GDP in the US) by attracting capital inflows from economies with large and rising current account surpluses, whilst at the same time world long-term real interest rates have been low. This has been made possible due to the emergence of a so-called "global saving glut" in emerging economies such as China and other East Asian economies (who have built up reserves to promote export led growth policies and to act as buffers against future financial crises) as well as in oil-exporting countries.[78] Without globalisation in financial markets, this global private sector balancing-effect would not be possible; moreover, some have argued further saying that the same forces that underpin this balancing effect will enable a "benign" transition towards lower external imbalances.[79]

  As noted by the IMF,[80] others have argued that, whilst globalisation makes it easier to finance external imbalances, it does not mean that the imbalances are sustainable. Instead, a major depreciation of the dollar will be needed to correct for these imbalances, which could bring with it significant effects on global output.[81] It could therefore be argued that globalised financial markets, by facilitating these financial flows and by allowing these imbalances to perpetuate, poses a risk to global macroeconomic stability. However, as mentioned above, it can also be argued that financial markets have made possible the economic development of previously unintegrated economies and that financial imbalances are one temporary consequence that in time can be corrected.

  Increased interdependence between countries also means that UK macroeconomic stability is more exposed to international shocks. When US interest rates rise, or there is a cutback in oil production, or there has been a natural disaster somewhere else across the world the UK economy is affected. These effects are even more pronounced in London. Given that London is a financial centre with links across the world, and that the London economy has a high proportion of financial and business services, events like these increase exposure and hence have significant repercussions on the level of economic activity. For example, the 11 September attacks and the world slowdown that followed—this helped produce a recession in London in 2002, a feature that did not occur in the rest of the UK economy.

  While the rest of the economy benefited from the expansion of the public sector, and overall growth was maintained, this sector is relatively small in London and the private sector moved more sharply into a downturn.

1.5  The opportunities and challenges which globalisation presents for the UK Funding

  The provision of funding services and managing the movement of capital are areas of specialisation for the UK and London economy. Matching the supply and demand for investment funds across the world and providing the right contractual basis for such funds, as well as rates that reflect appropriately the riskiness of ventures, has been a function of the City of London over several centuries. The range of skills and businesses involved in such activity should not be underestimated and nor should the importance of allowing London's continued success in new and emerging markets in order to maintain and enhance its existing position as the world's leading financial centre—see Figure 2 overleaf.

Figure 2


  However, there are two other aspects that are relevant, which reflect the ability to supply funds for domestic investment as well as the international supply of funds. At present, the international flows of funds are dominated by the funding of the US deficit and the generation of funds as Figure 3 shows. Disruption of these flows would affect both the cost of funds and the activities of the global firms that arrange these transfers. Movements in exchange rates, which also result, can destabilise markets and margins, leading to financial pressure on banks and assets. Market stabilisation efforts must be a priority in these circumstances and should not be neglected.

Figure 3


  The supply of funds for domestic investment, or perhaps the willingness to invest, is also important for the UK economy to take advantage of new opportunities. It is something of a puzzle that the economic stability, which has been apparent over the last 10 years, has not resulted in the investment boom that was initially expected. In part, this may due to pressure on companies to support pension fund deficits and the resultant drain on funds. It may also reflect doubt about the ability to benefit from such opportunities.

Goods and services

  The rise of the service sector and the relative decline of the manufacturing sector in developed economies over the last few decades has been a primary feature of the growing integration of markets regionally and globally. Increased competitive pressure coming from emerging economies such as India and China has resulted in manufacturing and associated activities moving from advanced economies such as the UK to these emerging economies. In particular in mass-produced manufacturing, where the cost-base drives profitability, lower cost regions and countries are playing a growing role.

  As mentioned above, emerging economies are also beginning to compete in more knowledge-based areas of the manufacturing sectors. Technological advance has led to lower costs in transport and communications, making trade in services more feasible, enabling standardised forms of service activities to be competed away from advanced economies to lower cost regions (commonly referred to as "off-shoring"[82]). These two growth areas (high-skilled manufacturing and standardised service sectors) are adding to the competitive pressures that already exist between advanced economies in these areas.

  Therefore a major challenge for the UK brought about by the globalisation process is the emergence of these competitive forces. However, whilst its effect is a re-location of industry to lower-cost alternatives, globalisation enables the UK—as other parts of the world—to focus on areas in which it has a comparative advantage (see section 2).[83]

  The rise of the emerging economies provides a major growth opportunity for the UK. As these countries grow and become richer they are also becoming huge markets for goods and increasingly services. Chinese, Indian and other consumers will purchase more insurance of various types as their incomes increase, and as businesses grow they will demand more of the professional services—legal, accountancy, advertising and consulting. London (and more generally the UK) can continue to capitalise on this by using its comparative advantage in these "specialist services", largely based on its knowledge base and expertise, to satisfy this expanding demand. London has a particular role to play in this regard. As shown in Figure 4 below, London is much more orientated towards the export of services rather than goods relative to the UK as a whole. Indeed GLA Economics estimate that London accounts for around a third of total UK service exports.

Figure 4


  As well as increasing trade, as emerging economies grow richer, they will also provide valuable investment into the London and UK economies. Studies by GLA Economics into Foreign Direct Investment (FDI) from China and India[84] suggest that London accounted for around 13% of the number of Chinese FDI projects into Europe in 1997-2004, and the UK as a whole accounted for around 46%. Indian FDI projects into Europe also seem strongly concentrated in London, with London accounting for 46% of projects between 1997 and 2004 and the UK as a whole accounting for around 59%. Given that the Asian outbound travel market is growing at a faster rate than any other part of the world,[85] business and leisure travel from these countries is also an important source of inward investment into London and the UK.

  Investors from China, India and other parts of the world are attracted to London by a range of factors. Research undertaken for Think London, the official inward investment agency for London, highlighted the following as being the main rationale for overseas business locating in London[86]

    —  London's status as a global business city and the access to markets afforded.

    —  Proximity to client base.

    —  Ease of international travel.

    —  Prominence of the English language.

    —  Access to skilled labour.

  In addition, London is particularly attractive for overseas investors due to the diverse communities within it and the networks they provide, plus a cosmopolitan city culture that is generally welcoming to people of all nations.

  To encourage inward investment and strengthen economic and other relationships between London and China, the Mayor has opened representative offices in Beijing and Shanghai. Programmes of work relating to India and Russia are also being developed and implemented.


  The preceding discussion has inevitable repercussions on the labour market. The emergence of countries such as China and India has boosted the global supply of labour. India is one of a handful of economies forecast to have a growing working-age population over the next 40 years.[87] Globalisation has enabled jobs that are relatively low-productivity and require relatively low levels of training to relocate to lower cost areas where they can produce as much but more cheaply. Globalisation also allows emerging economies to compete for the more highly skilled jobs in manufacturing and services.

  This reduced demand for labour in these sectors is not a problem for the UK if these jobs are replaced with others and workers and employers are prepared to invest in new opportunities and skills. A supportive skills investment regime is also required to help workers adjust to changing industry requirements.


2.  Businesses

  The major effect of globalisation on businesses is increased competitive pressure. As a result, policy must be aimed at making the UK an attractive place for business despite the rise of the low-cost alternatives. As well as cost, the decision to locate is based on a variety of factors. Rather than just competing on cost, policies must also be aimed at:

    1.  Strengthening those "non-cost" factors that give the UK a competitive edge in the location-choice for business of all kinds.

    2.  Maintaining and encouraging innovation and development in those factors likely to improve the UK's comparative advantage.

2.1  "Non-cost" or Qualitative factors

  Macroeconomic stability—A stable macroeconomic environment minimises distortion in firms' and individuals' decisions, facilitating more effective long-term planning and ultimately economic growth. The UK economy has been remarkably stable over the past decade, with low inflation, low unemployment and sustained growth. Ensuring that the UK economy remains stable is vital in an era of increasing exposure to external shocks. This means a continued commitment to the current monetary framework, and also a prudent fiscal policy.

  However, it may also be necessary to consider the balance between private sector and public sector stability. Private sector investment has not responded to stability in the way envisaged and indeed the private sector has not experienced stability either, moving into recession in 2001.

  Competitive environment—The UK has long been committed to open and competitive markets. In the face of increased competitive pressures, the UK should continue to promote a liberal trade policy within the EU and counter those tempted to fall back on protectionist measures. It must remain committed to creating an open and competitive environment to ensure continued FDI.

  Innovation, Research and development—Although the UK has a strong record in R&D investment, it lags behind major advanced economies[88] and also needs to be able to compete with emerging economies that are beginning to invest heavily in more high-value areas. To this end, the UK needs to encourage private sector investment in R&D for example, through tax incentives as well as encouraging stronger links between industry and academia.

  Flexible product, capital and labour markets—With the fast pace of globalisation, businesses are attracted to locations where they are able to respond quickly to changing market conditions. In product and capital markets, despite it being at the forefront of liberalised and competitive markets, the UK needs to do more to promote an enterprise society by improving the regulatory environment for business and helping firms, particularly smaller firms, to access finance. For discussion on the labour market, see section 3.1.

  Highly skilled workforce—This is crucial if the UK is to progress in the more high-value end industries, especially so given the increased supply of high-skilled labour from countries such as India. Therefore, the UK needs to ensure that the skills-base of the labour force continues to meet business needs (see section 3.1). This is a particular issue in London where there is increasing demand for more highly qualified workers.

  Highly Quality Infrastructure—Modern economies, particularly complex modern cities such as London require a range of supporting infrastructure, including transport, social, cultural, health and education facilities in order to make them attractive places for both business location and for people to live in. Again this is a particular priority for London where projects like Crossrail will be essential to maintaining its success in the key sectors highlighted above.

  Good "institutions"—This gives the UK a competitive edge. Therefore, their continued promotion is needed to ensure the UK remains attractive to business. Such institutions include a well-developed legal system (supporting property rights and contract-enforcement), relatively light-handed regulation and the existence of established markets, financial infrastructure and government framework.

  Effective Promotion—It is important that the above non-cost or qualitative factors are effectively communicated to business. This requires effective promotional activities. In London, such activities are undertaken by Think London, responsible for attracting inward investment to the capital. Nationally, the Chancellor of the Exchequer announced in the 2006 Budget that Government would join forces with the financial services industry to support a single strategy to strengthen London's position as the world's number one financial services centre.

2.2  Comparative advantage

  The UK has a competitive edge in many expanding activities. These include financial services, business and computer services, creative industries, legal, insurance and other professional services, high-value manufacturing, pharmaceuticals and leisure. Policy aimed at improving the non-cost factors as outlined above will help to ensure these remain growing industries in the UK.

  One of the natural consequences of this specialisation is a clustering of industry ("agglomeration"). This is particularly relevant for London.[89] Research by GLA Economics and others shows how the extent of agglomeration in London closely mirrors its strengths and performance of its sectoral specialisations and is one reason why London is more productive, when compared to rest of the UK.[90]

  In order to continue to capitalise on available agglomeration economies, and to enable business to respond quickly to market developments, bottlenecks arising in the transport infrastructure and in housing need to be tackled. The GLA has outlined a number of policy measures for London, including pushing forward transport development projects such as Crossrail and reform of the house-building industry.[91]

3.  Households

3.1  Labour market and employment

  As discussed above, globalisation has brought with it a decline in demand for low-skilled labour in the UK, both in the service sector and more so in the manufacturing sector. At the same time, the demand for high-skilled, particularly service-based labour has increased. For instance, jobs in London's financial and business services sector doubled as a proportion of all London jobs between 1971 and 2003, from around 16% to around 32%,[92] while manufacturing jobs fell from around 27% of jobs to around 6%.[93]

  Policy must therefore be aimed at aligning the skills-base of those who have lost their jobs with the requirements of the growing industries, such as providing re-training facilities, particularly for those in long-term unemployment. However, the effectiveness of such policies has been questioned.[94] A more effective policy could be to provide tax and other incentives to encourage firms to retrain workers themselves, as well as incentivising individuals to take such opportunities. In the longer term, a more holistic approach to skill-formation is required—from pre-school to university education.[95] This would mean more investment at all levels of education. The skills needed to take advantage of new opportunities will themselves be developing: a positive attitude to change and to learning may be as important as the acquisition of specific skills. Some more research into the skills-profile required as globalisation trends continue may be helpful.

  These policies will also ensure a highly skilled workforce, acting as a pull for those looking for a location to set up their business, as would ensuring continued flexibility in the labour market.

  Such policies also encourage participation in the labour market. This is particularly important for London, where the incidence of worklessness is higher than the UK as a whole.[96] In addition to the above policies, GLA Economics has outlined a number of other policies aimed at tackling this discrepancy, including "soft-skills"[97] training, improving child-care accessibility and more focus on less-represented groups such as ethnic minorities.[98]

3.2  Training and the acquisition of skills
  (See 3.1)

3.3  The provision of support for those disadvantaged by globalisation

  Section 3.1 has already discussed policies aimed at re-aligning the skills-base of low-skilled workers who have lost jobs as a result of globalisation. In conjunction, policy must be aimed at boosting income for these disadvantaged groups and encouraging them back to work. By first identifying these groups, policy must be aimed at ensuring that:

    —  These groups benefit from current welfare measures such as the Working Tax Credit.

    —  The National Minimum Wage remains effective.


  The forecast growth profile of emerging economies means increased demand for the world's energy and natural resources. This is already evident in the oil, gas, base metals and agriculture product markets where rising global demand, combined with the inability by the main producer nations to meet this increased demand, has led to high (in many cases peak) prices in these markets.[99]

  The effect of these price rises on advanced economies has been somewhat muted by globalisation. Globalisation has enabled the export of manufacturing industries to low cost destinations. This has had two important consequences for advanced countries; (a) lower energy consumption per unit of output, (b) reduced end-user prices.

  However, the shift of manufacturing and its associated activities to low-cost regions has meant that production has been exported to countries with relatively high energy/resource intensive and polluting production methods. Environmental regulation and standards are typically lower in developing countries than developed countries. This uneven playing field has added to the already existing problems of resource depletion and climate change attributed to rising emissions. This phenomenon will not help to mitigate climate change if certain manufacturing activity and thus its associated emissions is simply exported elsewhere. However, this is not true for some sectors such as speciality chemicals as they have strict universal health and environmental standards.

  By taking advantage of the opportunities globalisation provides, policy can be aimed at:

    —  Encouraging research and transfer of energy-efficient and less polluting technology to emerging economies.

    —  Encouraging research and take-up of renewable energy sources and cost effective energy efficiency measures in all sectors.

    —  Building on current WTO and EU regulations that encourage trade in those goods whose production methods are environmentally sustainable.

    —  Extending the EU Emissions Trading Scheme on a global level and removing barriers and transaction costs associated with the Kyoto mechanisms. London, being a world financial centre, can play a significant role in the development of a global emissions-trading market.

    —  Extending the EU ETS to include air travel,[100] so that prices and consumption decisions reflect better the cost to society of every aviation trip.

BIBLIOGRAPHY  Bernanke, Ben S, 2005, The global saving glut and the US current account deficit, Sandridge Lecture at Virginia Association of Economics, 10 March 2005.

  Corporation of London, 2004, London's linkages with the rest of the UK, research commissioned from the Oxford Economic Forecasting, May 2004.

  Corporation of London, 2005, The City's importance to the EU economy 2004, research commissioned from the Centre for Economics and Business Research, January 2005.

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  DTI, 2003, Services and Off-shoring: The Impact of Increasing International Competition in Services, December 2003.

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  GLA Economics, 2004, Enter the Dragon, December 2004.

  GLA Economics, 2005, Growing Together—London and the UK Economy, January 2005.

  GLA Economics, 2005, From the Ganges to the Thames, June 2005.

  GLA Economics, 2005, Our London, Our Future—Planning for London's growth II—main report, November 2005.

  GLA Economics, 2006, Worklessness in London: Explaining the difference between London and the UK, Working Paper 15, prepared by Pam Meadows, Synergy Research and Consulting, January 2006.

  GLA Economics, 2006, London's economic outlook: spring 2006, April 2006.

  Goldman Sachs, 2003, Dreaming with BRICs: The path to 2050, Goldman Sachs Global Economics Paper No 99, October 2003.

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  IMF, 2006, World Economic Outlook Database, April 2006.

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  PwC, 2006, The World in 2050: How big will the major emerging market economies get and how can the OECD compete?, John Hawksworth, Head of Macroeconomics, March 2006.

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  Roubini, Nouriel and Brad Sester, 2005, Will the Bretton Woods 2 regime unravel soon? The risk of hard-landing in 2005-2006, paper presented at the symposium of the Federal Reserve Bank of San Francisco and the University of California Berkeley Revived Bretton Woods system: A new paradigm for Asian development?, February 2005.

  Stiglitz, Joseph, 2000 Capital account liberalization, economic growth and instability, World Development Vol 28, No 6, pp 1075-86.

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May 2006

67   Wolf, "Why globalization works-the case for the global market economy" (2004) Back

68   Sassen, "The Global City", (1991) Back

69   The Greater London Authority has undertaken considerable analysis of London's global economic role, see London Development Agency, Sustaining Success: Developing London's Economy, The Economic Development Strategy (2005), GLA Economics, "Growing Together: London and the UK Economy" (2005) and GLA Economics, "Our London, Our Future", (2005) Back

70   Thomson Financial Investor Relations, Target Cities Report, (2000) Back

71   PPP stands for purchasing power parity. PPP exchange rates are calculated to equate the value of a representative basket of goods and services produced/consumed across countries. They will typically differ from the actual prevailing market exchange rates. The use of PPP exchange rates is generally the preferred method for comparing countries' output or GDP levels Back

72   IMF World Economic Outlook Database (April 2006) Back

73   Goldman Sachs, "Dreaming with BRICs: The path to 2050" (2003) Back

74   PwC, "The World in 2050" (2006) Back

75   HM Treasury, "Globalisation and the UK: strength and opportunity to meet the economic challenge" (2005) Back

76   It is important to note that, even after accounting for the differing size and growth rates, China has contributed more to the globalisation process than India. In their World Economic Outlook (September 2005), the IMF notes that India's share of world trade in goods and services is 2.5%, while that of China and the newly industrialised Asian economies is 10.5% and 9.3% respectively. The IMF goes on to identify the factors in India that have restricted integration despite the rapid pace of economic growth. These include relatively high tariff levels (despite recent reductions), restrictive labour laws and high levels of red tape which have hindered manufacturing growth, a difficult business climate not conducive to FDI, and a growing inadequacy of its infrastructure. However, India is clearly moving in the right direction with the authorities taking steps to strengthen global linkages-assuming this continues, India's emergence will be as important to the globalisation process as that of China Back

77   Fischer, "Capital Account Liberalization and the Role of the IMF" (1997); Stiglitz, "Capital account liberalization, economic growth and instability" (2000) Back

78   Bernanke, "The global saving glut and the US current account deficit" (2005). Back

79   Greenspan, "Globalisation" (2005) Back

80   World Economic Outlook, IMF (September 2005) Back

81   Obstfelt and Rogoff, "The unsustainable US current account revisited" (2005); Roubini and Setser, "Will the Bretton Woods 2 regime unravel soon? The risk of hard-landing in 2005-2006" (2005) Back

82   DTI, "Services and Off-shoring: The Impact of Increasing International Competition in Services" (2003); Corporation of London, "Off-shoring and the City of London" (2005) Back

83   Since London has already seen a large part of its more standardised manufacturing industry move to other parts of the country, it is likely to be less vulnerable to any further weakness in the manufacturing sector than the UK as a whole. In addition, with its strength in specialised services including the financial and business services and creative industries sectors, London can strengthen its position in those areas where it has a comparative advantage. Back

84   GLA Economics, "Enter the Dragon" (2004); GLA Economics, "From the Ganges to the Thames" (2005) Back

85   Visit London, "China Mission"-The Asian Outbound travel market is predicted to rise by 6% per year until 2010, with China leading the way. Chinese outbound visitors are expected to reach 50 million by 2010 Back

86   Think London, "One in seven: The Impact of inward investment on the London economy" (2004). Prepared by DTZ Pieda Consulting Back

87   World Economic Outlook, IMF (September 2005) Back

88   See HMT, "Globalisation and the UK: strength and opportunity to meet the economic challenge" (2005), page 43 Back

89   Many of London's specialisations (financial and business services, creative and leisure industries) are co-located in the same parts of London, usually Central London. This allows companies to take advantage of what economists have termed agglomeration economies, leading to increasing returns to scale in the production of goods and services Back

90   See GLA Economics, "Growing Together-London and the UK Economy" (January 2005)-chapter 3; DTI, "Business Clusters in the UK-A First Assessment" (2001); Corporation of London, "London's linkages with the rest of the UK" (2004) and "The City's importance to the EU economy 2004" (2005) Back

91   See GLA Economics, "Our London, Our Future-Planning for London's growth II-main report" (November 2005)-chapter 4 Back

92   From approximately 730,000 to around 1.4 million jobs Back

93   From approximately 1.3 million to around 270,000 jobs Back

94   See for instance Robinson, "Active labour market policies: a case of evidence-based policy-making?" (2000) Back

95   See GLA Economics, "Our London, Our Future-Planning for London's growth II-main report" (November 2005)-chapter 4 Back

96   GLA Economics, "Worklessness in London: Explaining the difference between London and the UK" (January 2006) Back

97   Soft skills are those skills that influence how individuals interact with each other, including such abilities as effective communication, creativity and analytical thinking Back

98   GLA Economics, "Our London, Our Future-Planning for London's growth II-main report" (November 2005)-chapter 4 Back

99   For a discussion on the oil market see GLA Economics, "London's economic outlook: spring 2006" (April 2006)-chapter 6 Back

100   Air emissions have higher global warming potential as they are emitted at higher altitude Back

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