Global Economy: Overview

• GLOBAL ECONOMY refers to the exchange of goods and services integrated into a single global market, essentially a world without borders.
• It involves marketing individuals and companies conducting research, development, and sales on a global scale.
• The global economy encompasses the international exchange of goods and services in monetary units.
• It includes the economic activities within and between countries, each with its own production, labor, financial markets, resources, and environment.
• The global economy considers all national economies as one interconnected system.
• GREAT DEPRESSION describes the worst economic downturn in industrialized history, lasting from 1929 to 1939.
• WORLD WAR II was a global war from 1939 to 1945 that worsened the Great Depression.
• BRETTON WOODS CONFERENCE, or the United Nations Monetary and Financial Conference, involved 44 nations meeting from July 1-22, 1944, in Bretton Woods, New Hampshire.
• The aim was to establish new rules for the post-World War II international monetary system.
• The Philippine representatives at the Bretton Woods Conference included:
  • President Manuel L. Quezon appointed Hon. Andres Soriano, Secretary of Finance and Chairman
  • Hon. Jaime Hernandez, Auditor-General
  • Mr. Joseph A. Foley, Manager of the Philippine National Bank, N. Y. Agency
  • Mr. Ismael Mathay, Technical Assistant to the Auditor-General, served as Secretary to the delegation.
• BRETTON WOODS SYSTEM emerged because major world economies suffered from World War I, the Great Depression, and World War II.
• There was a fear of lacking cooperation among nation-states, political instability, and economic turmoil after World War II.
• The focus shifted to reducing trade barriers and enabling the free flow of money to restructure the world economy and ensure global financial stability.
• The IMF's primary goal was to assist countries in financial trouble that couldn't obtain money otherwise, acting as a lender of last resort.
• WORLD BANK promotes long-term economic development and poverty reduction by providing technical and financial support for reforms or projects like:
  • Building schools
  • Providing water and electricity
  • Fighting disease
  • Protecting the environment
• WORLD TRADE ORGANIZATION (WTO) is an independent multilateral organization responsible for trade in services, non-tariff barriers, and trade liberalization.
• The WTO addresses differences in national regulations on manufactured goods or food, intervening if regulations unfairly restrain trade.
• GATT was a forum for representatives from 23 member countries to discuss trade goods through multinational agreements.
• The Uruguay Round (1986-1993) resulted in an agreement to create the World Trade Organization (WTO).
• MARKET INTEGRATION means separate markets for the same product become one single market, such as when an import tax is removed.
• FREE TRADE involves international trade (import and export) without tariffs and non-tariff barriers like quotas, embargoes, or sanctions.
• EMBARGO is a government-imposed prevention of exports to a specific country, representing an official trade ban.
• ECONOMIC SANCTIONS are commercial and financial penalties one or more countries apply against a targeted country, group, or individual.
• FREE TRADE AREAS consist of groups of countries that abolish tariffs and non-tariff trade barriers among members but lack a common trade policy toward non-members.
• Free trade areas create exclusivity among members.
• OECD (Organization for Economic Cooperation and Development) includes 38 member states as of 2023 and serves as a club for the richest countries.
• The OECD's influence stems from its member countries' resources and economic power, despite its limited formal power.
• It helps governments compare experiences, address common challenges, identify good practices, and develop high standards for economic policy.
• INTERSTATE SYSTEM refers to the modern world-system structured politically as a system of competing and allying states.
• Political scientists often refer to this as the international system.

Causes of Depression:

• Overproduction
• High demand and prices during WWI
• Demand and prices falling after the war
• Farmers unable to repay loans
• Decrease in consumer spending
• Rising prices, low wages
• Overbuying on credit
• Uneven distribution of income

Key Elements of Bretton Woods System:

• Currency is expressed in terms of gold value to establish a par value.
• Each country's monetary authority agrees to exchange its currency for others at established rates, plus or minus a one-percent margin.
• The International Monetary Fund (IMF) was founded to oversee exchange rates.
• U.S. dollar became the global currency.

Institutions Created During Bretton Woods System:

• International Monetary Fund
• World Bank
• General Agreement on Tariffs and Trade

World's Major Free Trade Areas:

• North American Free Trade Agreement (NAFTA)
• Association of Southeast Asian Nations Free Trade Area (AFTA)
• Southern Common Market (MERCOSUR)
• Common Market of Eastern and Southern Africa (COMESA)

Not Free Trade Areas:

• European Union
• Trans-Pacific Partnership
• Transatlantic Trade and Investment Partnership – not yet ratified