Chapter 2: Global Economy

 CHAPTER 2: The Structures of Globalization Prepared by: CYRELLE J. DOMINICO Instructor I, Dept. Social Sciences  Global Economy COLLEGE OF ARTS & SCIENCES Department of Social Sciences The World Bank is an International Financial Institution that provides f...

 CHAPTER 2: The Structures of Globalization Prepared by: CYRELLE J. DOMINICO Instructor I, Dept. Social Sciences  Global Economy COLLEGE OF ARTS & SCIENCES Department of Social Sciences The World Bank is an International Financial Institution that provides financial and technical assistance to developing countries for development programs. COLLEGE OF ARTS & SCIENCES Department of Social Sciences WORLD BANK MISSION Reduce poverty in Improve the living he globe standard COLLEGE OF ARTS & SCIENCES Department of Social Sciences  FUNCTIONS BANK MISSION Provide assistance to developing countries. Promote the economic development of the world’s poorest countries. Finances the poorest developing countries whose per capita GNP is less than $ 865 (PHP50, 894) a year special financial assistance through the International Development Association (IDA). COLLEGE OF ARTS & SCIENCES Department of Social Sciences TWO TYPES OF LOANS WORLD BANK CAN OFFER INVESTMENT LOANS DEVELOPMENT POLICY LOANS COLLEGE OF ARTS & SCIENCES Department of Social Sciences  International Monetary Fund is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. COLLEGE OF ARTS & SCIENCES Department of Social Sciences  FUNCTIONS OF IMF Works with governments around the world to modernize their economic policies and institutions, and train their people. This helps countries strengthen their economy, improve growth and create jobs. COLLEGE OF ARTS & SCIENCES Department of Social Sciences  MISSION OF IMF Keeping track of the global economy and the economies of member countries Lending to countries with balance of payments difficulties Giving help to members COLLEGE OF ARTS & SCIENCES Department of Social Sciences IMF provides loans to help members build: Stabilize their Continue Paying Restore conditions for Imports for strong economic Currencies growth COLLEGE OF ARTS & SCIENCES Department of Social Sciences “let it be” Invisible hand - competition Adam Smith (father of modern economic COLLEGE OF ARTS & SCIENCES Department of Social Sciences  he believed that free, self-interested economic transactions promote the well-being of society he was highly skeptical of government's attempt to regulate the economy and competition COLLEGE OF ARTS & SCIENCES Department of Social Sciences  government intervention can stabilize the economy John Maynard Keynes (founder of modern macroeconomics) COLLEGE OF ARTS & SCIENCES Department of Social Sciences  FISCAL POLICY tax cuts and increased government spending MONETARY POLICY price stability by using tools such as interest rates, reserves, bonds, etc. Keynesian economics focus on using active government policy to manage aggregate demand to address or prevent economic recessions COLLEGE OF ARTS & SCIENCES Department of Social Sciences  GLOBAL ECONOMY Ø also referred to as world economy Ø refers to the international exchange of goods and services Ø it may also mean as the free movement of goods, ca p i t a l , services, technology, and information. COLLEGE OF ARTS & SCIENCES Department of Social Sciences Economic Globalization Ø it is concerned with globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and labor. Ø it is expanding since the emergence of t r an sn at i o n al t r ad e an d i n cr ease d exponentially due to the increase rate of communication and technology. COLLEGE OF ARTS & SCIENCES Department of Social Sciences Economic Globalization Ø The creation of World Trade Organizations made countries cut down trade barriers and open up their current accounts and capital accounts. COLLEGE OF ARTS & SCIENCES Department of Social Sciences Dimensions of Economic Globalization 1. Globalization of trade of goods and services. 2. Globalization of financial and capital markets. 3. Globalization of technology and communication. 4. Globalization of production. COLLEGE OF ARTS & SCIENCES Department of Social Sciences How does the price of gas affect your daily life? COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Wallerstein, Frank and O’Rourke and Williamson Ø introduced the concept of a fully integrated world economy which consequently established the roots of divergence and convergence. COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Immanuel Wallerstein world economy “the modern world system”, COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Immanuel Wallerstein It is a world-system not because it encompasses the whole world but because it is larger than any juridically-defined political unit and a ‘system’ because it is largelyself-contained and the dynamics of its development are largely internal. He calls it a ‘world economy’ because the basic linkage between the parts of the system is economic. COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Modern World Sytem CORE SEMI PERIPHERY PERIPHERY COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Modern World Sytem that part of the system where production is primarily of the part of the system where that part of the system that is lower- ranking goods that have less added value but are essential for daily free, often skilled labour in between the core and the use in produces goods with high periphery on a series of the core and that are produced added value in strong states. dimensions. predominantly by unfree, unskilled, less well remunerated labour. CORE SEMI PERIPHERY PERIPHERY COLLEGE OF ARTS & SCIENCES Department of Social Sciences COLLEGE OF ARTS & SCIENCES Department of Social Sciences COLLEGE OF ARTS & SCIENCES Department of Social Sciences Life could have been better if there is no coordination between core, periphery, and semi-periphery countries since there will be greater Control over Resources. Agree? COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Andre Gunder Frank rejected the idea that there were separate "world-economies" like Europe, Asia, or the Americas. He argued that these regions were always interconnected through trade, capital flows, and power relations. COLLEGE OF ARTS & SCIENCES Department of Social Sciences World Economy: Convergence vs. Divergence Kevin H. O’Rourke and Jeffrey G. Williamson focus on the economic interconnectedness of nations, particularly during the "Great Convergence" period. They emphasize the role of trade and factor mobility in shaping the global economy, leading to both growth and inequality. "world system" is a dynamic network of interconnected economies, constantly evolving in response to various factors. COLLEGE OF ARTS & SCIENCES Department of Social Sciences Three Distinct Eras of Commodity Exchange and Specialization (O’Rourke and Williamson) COMMODITY EXCHANGE The Pre-Industrial Era The Post-World War (Before 1820) The Age of Mass Production II Era (1945-Present) and Globalization (1820-1914) COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEMS IMS refers to the rules, customs, instruments, facilities, and organizations effecting international payments. The main task of IMS is to facilitate cross-border transaction, especially trade and investment. COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEM GOLD STANDARD is a monetary system where a country's currency is directly linked to gold. This means that the value of the currency is fixed to a specific amount of gold, and the government agrees to convert paper money into gold at that fixed rate. COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEM GOLD STANDARD How the Gold Standard Works? Imagine a country sets the price of gold at $500 an ounce. In this scenario, the value of the dollar would be 1/500th of an ounce of gold. This means that anyone could exchange their dollars for gold at this fixed rate. COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEM GOLD STANDARD History of Gold Standard The gold standard has a long history, dating back to ancient civilizations. It gained prominence in the 19th century, with England becoming the first country to officially adopt it in 1819. By the early 20th century, many developed nations had joined the gold standard, creating a system of fixed exchange rates between currencies. COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEM GOLD STANDARD The Rise and Fall of the Gold Standard The gold standard was seen as a way to stabilize prices and prevent inflation. However, it also had drawbacks, such as limiting a government's ability to manage the economy during recessions.The gold standard was abandoned by most countries during the Great Depression and World War II. The United States officially ended the gold standard in 1971, when President Nixon terminated the convertibility of the dollar to gold. COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEMS Advantages of Gold Standard The gold standard can provide The gold standard can help control stable exchange rates between inflation by limiting the amount of money in circulation. countries, simplifying international trade. PRICE STABILITY FIXED EXCHANGE RATES COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEMS Disadvantages of Gold Standard The gold standard restricts a government's ability to use The economy is dependent on Gold mining can have monetary policy to stimulate significant environmental the economy during the availability of gold, which consequences. recessions can fluctuate. LIMITED FLEXIBILITY DEPENDENCE ON ENVIRONMENTAL GOLD SUPPLY PROBLEMS COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEM BRETTON WOODS SYSTEM The Bretton Woods system was a global monetary management system established in 1944 after World War II. It was designed to create a more stable and predictable international financial system, replacing the chaotic system of floating exchange rates that had prevailed during the interwar period. COLLEGE OF ARTS & SCIENCES Department of Social Sciences INTERNATIONAL MONETARY SYSTEMS How Bretton Woods System Works? The US dollar was chosen as the most The IMF and World Bank: valuable currency, and everyone else The value of each currency had to exchange their money for US was fixed to the US dollar. This These were like the dollars to trade. This made things was like having a price tag on marketplace managers, easier because everyone knew how helping countries with much their money was worth in relation everything, so you always problems and lending money to the US dollar. knew how much something for development. cost in US dollars The US Dollar as the King The IMF and World Fixed Prices Bank COLLEGE OF ARTS & SCIENCES Department of Social Sciences Market Integration Ø This does not pertain only to fusion of markets into one but it includes also the elimination of barriers that cause price differences among states. Ø This refers to the process of different markets becoming more closely linked, with prices and trading activity becoming increasingly synchronized. COLLEGE OF ARTS & SCIENCES Department of Social Sciences MARKET INTEGRATION How Market Integration Works? The prices for similar products, like The farmers market and the apples, start to become more alike in You have more options to supermarket now have to both the farmers market and the choose from. You can buy compete with each other and supermarket. This happens because apples from the farmers with sellers from other areas. people can now choose where to buy their apples, so sellers have to compete market or the supermarket, This pushes them to offer to offer good prices. and maybe even order them better quality products and online from another city! better prices. Prices become similar Competition More choices Increases COLLEGE OF ARTS & SCIENCES Department of Social Sciences Global Trade is like a giant marketplace where countries exchange goods and services. It's how we get things from all over the world, like coffee from Brazil, clothes from China, and electronics from Japan. COLLEGE OF ARTS & SCIENCES Department of Social Sciences Global Trade Imports: Things we buy from other countries (like that delicious chocolate from Switzerland). Exports: Things we sell to other countries (like those cool American sneakers). COLLEGE OF ARTS & SCIENCES Department of Social Sciences Global Trade Trade Barriers Sometimes, countries put up walls (figuratively!) to make it harder for other countries to trade with them. These are called trade barriers, like tariffs (taxes on imported goods) or q u o t a s (l i m i t s o n h o w m u c h o f a product can be imported). COLLEGE OF ARTS & SCIENCES Department of Social Sciences Global Trade Free Trade When countries remove trade barriers, it's called free trade. This allows for more competition and lower prices for consumers, but it can also lead to challenges for local businesses. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION are often referred to mutinational corporation, transnational corporation and international or global corporations. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION International companies are importers and exporters, typically without investment outside of their home country. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. They are more focused on adapting their products and services to each individual local market. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION Global companies have invested in and are present in many countries. They typically market their products and services to each individual local market. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION Transnational companies are more complex organizations which have invested in foreign operations, have a central corporate facility but give decision making, research and development (R&D) and marketing powers to each individual foreign market. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION EXAMPLES: 1. Apple: Designs products in the US, manufactures in China, and sells globally. 2. Samsung: A South Korean electronics giant with manufacturing and sales operations across the globe. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION EXAMPLES: 3. Coca-Cola: A beverage giant with production and distribution networks across the globe. 4. McDonald's: A fast-food chain with restaurants in almost every country. COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION EXAMPLES: 5. Nike: A sportswear and footwear company with manufacturing and sales operations worldwide. 6. Toyota: is a Japanese car company that makes cars in many different countries and sells them all over the world. They even have factories in the United States! COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION HOW GLOBAL CORPORATIONS OPERATE? Gereffi has argued persuasively that ‘how global corporations work’ is largely determined by whether they are situated in producer-driven or buyer-driven commodity chains COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION COLLEGE OF ARTS & SCIENCES Department of Social Sciences GLOBAL CORPORATION COLLEGE OF ARTS & SCIENCES Department of Social Sciences STRUCTURAL PERIODS COLLEGE OF ARTS & SCIENCES Department of Social Sciences STRUCTURAL PERIODS COLLEGE OF ARTS & SCIENCES Department of Social Sciences STRUCTURAL PERIODS COLLEGE OF ARTS & SCIENCES Department of Social Sciences  SEAT WORK NO. 2 Write a Letter: Students may write a letter to the CEO of a global corporation, expressing their concerns or opinions about the company's practices. COLLEGE OF ARTS & SCIENCES Department of Social Sciences  QUIZ NO. 2 30 PTS. (coverage:Chapter 02) Schedule: TBA (depends on the agreement of the class) COLLEGE OF ARTS & SCIENCES Department of Social Sciences Food for Thought: "The only person you are destined to become is the person you decide to be." - Ralph Waldo Emerson Get in Touch With Us Send us a message or visit us City of Batac, Ilocos Norte, Philippines (63) 77-600-0459 [email protected] Follow us for updates facebook.com/MMSUofficial www.mmsu.edu.ph