Economic Globalization Handout PDF

ECONOMIC GLOBALIZATION INSTRUCTOR: MS. MINAMI O. IWAYAMA, MA CONTEMPORARY WORLD ECONOMIC GLOBALIZATION Refers to… – the MOBILITY of people, capital, technology, goods and services internationally – the INTEGRATION of countries in the global economy – the INTERDEPENDENC...

ECONOMIC GLOBALIZATION INSTRUCTOR: MS. MINAMI O. IWAYAMA, MA CONTEMPORARY WORLD ECONOMIC GLOBALIZATION Refers to… – the MOBILITY of people, capital, technology, goods and services internationally – the INTEGRATION of countries in the global economy – the INTERDEPENDENCE of different countries and regions across the world ECONOMIC GLOBALIZATION has grown at an increased rate due to: Improvements in the efficiency of long distance transportation STEAM TRAIN BULLET TRAIN ECONOMIC GLOBALIZATION has grown at an increased rate due to: Advances in telecommunication SNAIL MAIL G-MAIL ECONOMIC GLOBALIZATION has grown at an increased rate due to: Importance of information rather than physical capital in the modern economy PHYSICAL CAPITAL INFORMATION ECONOMIC GLOBALIZATION has grown at an increased rate due to: Developments in science and technology TELEPHONE INTERNET ECONOMIC GLOBALIZATION has grown at an increased rate due to: Creation of the GATT and WTO in which countries gradually cut down trade barriers and opened up their current accounts and capital accounts. General Agreement on Tariffs and Trade (GATT) A legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. World Trade Organization (WTO) An intergovernmental organization that is concerned with the regulation of international trade between nations. TARIFF - A tariff is a tax on imports or exports between sovereign states. EXAMPLE: RICE TARIFFICATION LAW - Imposed taxes on rice importers in the Philippines - Ideally, the spirit of the law is to temporarily import rice from other countries so the Philippines will be able to gain tariffs from other nations. Said tariffs will be given to farmers so they can improve their production so later, we need not import rice from other nations. When you buy a Toyota car, its parts have probably been produced in several different countries. Toyota is one of hundreds of companies with globalized operations.  EFFECTS OF ECONOMIC GLOBALIZATION POSITIVE EFFECTS  Global Market The privatization of industries owned by the state has enabled the emerging markets to be successful. Most of the companies are increasing the consumer demand through extension and expansion of their value chain to international levels. As a result, the positive effects of globalization are expressed by the rising transactions across the borders. Globalization has resulted in the formation of multinational corporations which led to investments in various geographical areas creating market competitions.  Competition Global competition leads to high quality products and services. The enhanced quality of both products and services are based on production approaches of customer demands and customer services. For companies to survive in the market, they are forced to raise their customer satisfaction levels, as well as their standards, while fighting competition from foreign companies. Besides, a global product must live to its goodwill when it gets into a new country. EXAMPLE: The competition between Samsung and Apple has raised the market standards, as well as the customer service. Also, the two brands are living on their goodwill to survive the competition.  Economies of Scale Globalization enables large companies to realize economies of scale that reduce costs and prices, which in turn supports further economic growth.  Foreign Direct Investment Foreign direct investment (“FDI”) tends to increase at a much greater rate than the growth in world trade, helping boost technology transfer, industrial restructuring, and the growth of global companies.  Technological Innovation Increased competition from globalization helps stimulate new technology development, particularly with the growth in FDI, which helps improve economic output by making processes more efficient. NEGATIVE EFFECTS  Fluctuation in Prices Globalization has led to increased market competition, hence leading to fluctuation in prices. EXAMPLE Developed countries like the USA have been forced to reduce the prices of their products because countries such as China offer the same products at cheaper prices. This is because the production cost in China is lower than in the USA. As a result, for developed countries like the US to withstand the competition and have customers, they are forced to lower their prices. The impact is adverse, as the ability to sustain social welfare in the US gets reduced.  Job Insecurity Due to globalization, most global economy jobs are insecure and temporary. The impact is mostly felt in developed countries since they can outsource cheaper white collar and manufacturing jobs. EXAMPLE: Wages and manufacturing costs are lower in India and China, making countries like US and UK to outsource cheaper labor. The effect is people in developed countries losing or having fewer jobs.  Economies of Scale Globalization enables large companies to realize economies of scale that reduce costs and prices, BUT this can hurt many small businesses attempting to compete domestically. EXAMPLE: Nike as a brand of footwear vs Marikina Shoes. It will be impossible for the latter to compete with Nike in terms of Economies of Scale.  Interdependence Globalization leads to the interdependence between nations, which could cause regional or global instabilities if local economic fluctuations end up impacting a large number of countries relying on them. EXAMPLE: LEHMAN’S SHOCK (World Financial Crisis) Lehman's bankruptcy filing is the largest in US history, and have played a major role in the world financial crisis. After Lehman Brothers filed for bankruptcy, global markets immediately plummeted. Said event inspired REGIONAL INTEGRATION (especially ASEAN countries – for them to not depend solely on US, Europe or Japanese Markets)  National Sovereignty Some see the rise of nation-states, multinational or global firms and other international organizations as a threat to sovereignty. Ultimately, this could cause some leaders to become nationalistic or xenophobic. EXAMPLE: Multinational companies dictating a developing country’s policies (labor laws, corporation laws, taxation laws)  Equity Distribution The benefits of globalization can be unfairly skewed towards rich nations or individuals, creating greater inequalities and leading to potential conflicts both nationally and internationally as a result.  WATCH: https://www.youtube.com/watch?v=BZRFrvmjfDs&t=34s  SUMMARY Globalization has impacted nearly every aspect of modern life and continues to be a growing force in the global economy. While there are a few drawbacks to globalization, most economists agree that it's a force that's both unstoppable and net beneficial to the world economy. There have always been periods of protectionism and nationalism in the past, but globalization continues to be the most widely accepted solution to ensuring consistent economic growth around the world. END