Economic Globalization PDF

LESSON 2: THE GLOBALIZATION OF WORLD ECONOMICS The Global economy alludes to different financial exercises among various nations with either negative or beneficial outcomes. The idea of a world economy is identified with regular day to day existence dependent on the interconnected idea of the diffe...

LESSON 2: THE GLOBALIZATION OF WORLD ECONOMICS The Global economy alludes to different financial exercises among various nations with either negative or beneficial outcomes. The idea of a world economy is identified with regular day to day existence dependent on the interconnected idea of the different countries around the world. Exchange interrelations are noteworthy pointers of the worldwide economy. Thus, the growth of globalization of the world's economies to a great extent is dependent on the advancement of science and technology. Notwithstanding the drawbacks, globalization is still changing the world. Socially, it has encouraged the trading of thoughts and societies, adding to a world view wherein individuals are progressively open and lenient of each other. HELPFUL POINTS The International Monetary Fund (IMF) regards “economic globalization’ as a historical process representing the result of human innovation and technological progress. It is characterized by the increasing integration of economies around the world through the movement of goods, services, and capital across borders. These changes are the products of people, organizations, institutions, and technologies. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders According to the United Nations (as cited by Shangquan, 2000), economic globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. It reflects the continuing expansion and mutual integration of market frontiers, and is an irreversible trend for the economic development in the whole world at the turn of the millennium. Approached to International Trade  Protectionism - protecting one’s economy from foreign competition by creating trade barriers but this can lead to higher prices and reduced consumer choice.  Trade Liberalization - Reducing trade barriers to make international trade easier between countries. Trade Barriers - are government-induced restrictions on international trade.  Tariffs - tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry  Non-tariff Barriers - restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs. (e.g. embargo, import/export licenses, import quotas)  Ways for easier trade  Free Trade – trading of goods and services between two or more countries without tariffs or taxes  Trade Bloc - type of intergovernmental agreement, often part of a regional intergovernmental organization, where barriers to trade (tariffs and others) are reduced or eliminated among the participating states.  Outsourcing- Manufacturing jobs transfer from developed nations to developing nation reduce the cost of products. International Trading System this includes an open, rule-based, predictable, nondiscriminatory trading and financial system as an essential goal. The international trading system comprises many thousands of unilateral, bilateral, regional, and multilateral rules and agreements among more than two hundred nations. i. Silk Road – a network of pathways in the ancient world that spanned from China to Middle East and Europe. ii. Galleon Trade - According to Flyn and Giraldez, the age of globalization started “when all important populated continents began to exchange products continuously-both with each other directly and  indirectly via other continents and in values sufficient to generate crucial impact on all trading partners” (Abinales, Cladion, 2018) iii. Gold Trade - The United Kingdom, United states and other European nations adopted the gold standard...as a common basis for currency prices and fixed exchange-rate system -all based on the value of gold. (Abinales, Claudio, 2018) iv. Fiat Currencies - is a system in 20th century that "allows governments to freely and actively manage their economies by increasing or decreasing the amount of money in circulation as they see fit. Fiat money is a government-issued currency that is not backed by a commodity such as gold. ACTIVITY Follow the product! Globalization allows for a worldwide exchange of most of the commodities that we consume. This activity will allow you to investigate the origin and spread of the products and services sold in our country. You will also be able to know the countries involved in the production, distribution, and consumption of the products being sold and consumed in the country. The following are the steps to accomplish this activity: 1. Choose a specific foreign product/brand that is being sold in the Philippines. 2. List down the main ingredients or raw materials in manufacturing the chosen product. Identify the corresponding country from which each ingredient or raw material came from. 3. Identify the countries involved in the manufacturing of the chosen product. Indicate the corresponding service the country does for the product (e.g., Costa Rica planting of coffee beans). 4. Aside from the Philippines, list other countries where the product is being sold. Cite the kinds of technology that made the creation of the product possible. Consider communications and transportation. 5. Write one to three statements about the creation of the product and answer the following questions: How do economic trading institutions influence global economic activity? How does it affect the Philippine economy? Does the position of rich countries as giants in the economic chain threaten the status of less developed countries in the global market? Lesson 3: MARKET INTEGRATION Much of globalization is anchored on the role global economy plays in the different nations. We often think of economy as something that covers a wide variety of financial aspects like employment, Gross Domestic Product (GDP) or the stability of stock markets. However, we must understand that the economy is composed of people. It is the social institution that organizes all productions, consumptions and trade of goods in the society. World economies have been brought closer together by globalization. These days, many occurrences of foreign affairs are conducted to cement trading relations between and among nations. Thus, this chapter will show the contributions of the different financial and economic institutions in the growth of the global economy.  International Financial Institutions An international financial institution (IFI) is a financial institution that has been established (or chartered) by more than one country, and hence are subjects of international law. Its owners or shareholders are generally national governments, although other international institutions and other organizations occasionally figure as shareholders.  The Bretton Woods System The major economies in the world had suffered because of World War I, the Great Depression in the 1930, and World War II. Because of the fear of the recurrence of lack of cooperation among nation-states, political  instability, and economic turmoil (especially after the Second World War), reduction of barriers to trade and free flow of money among nations became the focus to restructure the world economy and ensure global financial stability (Ritzer, 2015). After the two world wars, leaders sought to create a global economic system that would ensure a longer- lasting global peace. They believed that one of the ways to achieve this goal was to set up a network of global financial institutions that would promote economic interdependence and prosperity. The Bretton Woods System was inaugurated in 1944 during the United Nations Monetary and Financial Conference to prevent catastrophes of the early decades of the century from recurring and affecting international ties. BWS was "influenced by the ideas of British Economist John Maynard Keynes who assumed that: 1) Economic crisis not occur when a country does not have enough money, but when money is not being spent and, thereby, not moving. 2) If the economies slow down then government should infuse money to reinvigorate the market. 3) As prices of commodities increased, companies would earn more, and would have more money to hire workers. (Abinales, Claudio, 2018) Financial Institutions created under Bretton Woods System 1. International Bank for Reconstruction and Development (IBRD or World Bank) - responsible for funding a reconstruction projects of countries affected by world wars. 2. International Monetary Fund (IMF) - Lender of last resort to prevent individual countries from spiraling into credit crises. If economic growth in a country slowed down because there was not enough money to stimulate the economy, the IMF would step in. 3. General Agreement on Tariffs and Trade (GATT) - reduce tariffs and other hindrances for free market. Global Keynesianism When economies slow down, according to Keynes, governments have to reinvigorate markets with infusions of capital. This active role of governments in managing spending served as the anchor for what would be called a system of Global Keynesianism. The high point of global Keynesianism came in the mid 1940’s to the early 1970’s.  The market is imperfect and not self-sustaining  Consumer income stimulates demand, which causes economic growth  When economic growth is lacking, the government should stimulate demand. Factors that end Keynesianism  OPEC imposition of oil embargo in early 1970s.  Stock Market crashed in 1973-1974.  United States delinked the US dollar to gold. *Stagflation and Stagnation –Decline of economic growth and employment. *Inflation – Increased of prices of goods (Increased of Demand and Low supply) Neoliberalism Friedrich Hayek and Milton Friedman challenged the Keynesian theory and argued that the governments’ intervention in economies distort the proper functioning of the market that result to inflation.  Neoliberalism is a political and economic philosophy that emphasizes free trade, deregulation, globalization, and a reduction in government spending. It seeks to transfer control of economic factors from the government to the private sector. World Trade Organization (WTO) – a new organization founded in 1995 to continue the tariff reduction under GATT. The policies they forwarded came to be called Washington Consensus.  The Washington consensus (1980s-2002) advocates for minimal government spending to reduce government debt. Proponents: US Pres. Ronald Regan UK Prime Minister Margaret Thatcher  Privatization of government-controlled services such as; water, power, communications and transport.  Free market can produce the best result.  Pressured governments, particularly in the developing world, to reduce tariffs and open up their economies, arguing that it is the quickest way to progress. The Washington Consensus dominated global economic policies from the 1980s until the early 2000s. Advocates of the Washington Consensus conceded that, along the way, certain industries would be affected and die. But they considered this “shock therapy” necessary for long-term economic growth The Global Financial Crisis and the Challenge to Neoliberalism Neo-liberalism came under significant strain during the global financial crisis in 2007-2008 when the world experienced the greatest economic downturn since the great depression. The crisis can be traced back to the 1980s when the United State systematically removed various banking and investment restrictions. Challenges to Neoliberalism 1. Greece has been forced by Germany and IMF to cut back their social and public spending. 2. The reduction in government spending has slowed down growth and increase unemployment. 3. Continuous economic crisis has sparked a political upheaval in Europe. ECONOMIC GLOBALIZATION TODAY 1. Exports make national economies grow at present. In the past, the first world countries like US, Japan and European union benefited from free trade by 65% compared with 29 % accounted for the developing countries vs. At present, global exports of developing countries like Philippines, India, Argentina, Brazil accounted for 51% while advance countries gone down to 45 %. 2. Economic globalization is unequal process. - Developed countries are protectionists. Examples: *Japan refused to import rice to their country. *United States protects its sugar industry. 3. The beneficiaries of global commerce have been mainly transnational corporation (TNC) and not the government. Government (HC)   Loosen Tax (GATT)  Weaken Environmental Laws  Sacrifice Social Program that protects the poor.  Race to the Bottom Policy The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) According to Feet (2003), global trade and finance was greatly affected by the Bretton Woods system. One of the systems born out of Bretton Woods was the General Agreement on Tariffs and Trade (GATT) that was established in 1947 [Goldstein et al., 2007). GATT was a forum for the meeting of representatives from 23 member countries. It focused on trade goods through multinational trade agreements conducted in many rounds of negotiation. However, “it was out of the Uruguay Round (1986-1993) that an agreement was reached to create the World Trade Organization (WTO)” (Ritzer, 2015). The WTO headquarters is located in Geneva, Switzerland with 152 member states as of 2008 (Trachtman, 2007). Unlike GATT, WTO is an independent multilateral organization that became responsible for trade in services, non-tarriff- related barriers to trade, and other broader areas of trade liberalization, an example cited by Ritzer (2015) was that of the “differences between nations in relation to regulations on items as manufactured goods or food. A given nation can be taken to task for such regulations if they are deemed to be an unfair restraint on the trade in such items”. The International Monetary Fund (IMF) and the World Bank IMF and the World Bank were founded after the World War II. Their establishment was mainly because of peace advocacy after the war. These institutions aimed to help the economic stability of the world. Both of them are basically banks, but instead of being started by individuals like regular banks, they were started by countries. Most of the world’s countries were members of the two institutions. But, of course, the richest countries were those who handled most of the financing and ultimately, those who had the greatest influence. IMF and the World Bank were designed to complement each other. The IMF’s main goal was to help countries which were in trouble at that time and who could not obtain money by any means. Perhaps, their economy collapsed or their currency was threatened. IMF, in this case, served as a lender or a last resort. The Organization for Economic Cooperation and Development (OECD), the Organization of Petroleum Exporting Countries (OPEC), and the European Union (EU) The most encompassing club of the richest countries in the world is the Organization for Economic Cooperation and Development (OECD) with 35 member states as of 2016, with Latvia as its latest member. It is highly influential, despite the group having little formal power. This emanates from the member countries’ resources and economic power. In 1960, the Organization of Petroleum Exporting Countries (OPEC) was originally comprised of Saudi Arabia, lraq, Kuwait, Iran, and Venezuela. They are still part of the major exporters of oil in the world today. OPEC was formed because member countries wanted to increase the price of oil, which in the past had a relatively low price and had failed in keeping up with inflation. Today, the United Arab Emirates, Algeria, Libya, Qatar, Nigeria, and Indonesia are also included as members. The European Union (EU) is made up of 28 member states. Most members in the Eurozone adopted the euro as basic currency but some Western European nations like the Great Britain, Sweden, and Denmark did not. Critics argue that the euro increased the prices in Eurozones and resulted in depressed economic growth rates, like in Greece, Spain, and Portugal. The policies of the European Central Bank are considered to be a significant contributor in these situations. North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA) is a trade pact between the United States, Mexico, and Canada created on January 1, 1994 when Mexico joined the two other nations. It was first created in 1989 with only Canada and the United States as trading partners. NAFTA helps in developing and expanding world trade by broadening international cooperation. It also aims to increase Cooperation for improving working conditions in North America by reducing barriers to trade as it expands the markets of the three countries.