GE 3 The Global Economy (1) PDF

GE 3 The Contemporary World Module 2: Lesson 1 LOBAL ECON G OM HE Y T  NING OBJECTIV EAR ES: L At the end of the course, the students will be able to: define and explain the underlying principles of...

GE 3 The Contemporary World Module 2: Lesson 1 LOBAL ECON G OM HE Y T  NING OBJECTIV EAR ES: L At the end of the course, the students will be able to: define and explain the underlying principles of each structure of globalization. identify the role of each actor that facilitates globalization. explain the role of various institutions in the creation of the structures of globalization. articulate a personal stance on global integration. ECONOMIC GLOBALIZATION The economic mixing and interdependence of economies across the world through an escalation of cross-cultural movement of goods, services, technologies, and wealth (Joshi, 2009).  OBAL IN B GL U SI G GOIN NES S Pros Global reputation Cheaper labor costs Hiring local employees Fresh business ideas Cheaper operating costs Cheaper supply costs Global partnerships Back-up income source Pros IMPACT ON JOBS AND PRICING Creates jobs Lower the prices of goods POLITICAL IMPACT Growth of democracy Cons Dealing with local politics Consider crime rate and war Cultural differences Possibility of financial instability Cons CAPITAL FLIGHT The large-scale departure of companies, assets, and wealth from a country due to economic instability or the opportunity for cheaper production (Hermes, et. Al, 2003). Cons Small companies could not compete with cheap prices forcing their closure. Allowed for social injustices MAJOR DRIVERS OF ECONOMIC GLOBALIZATION Technological innovation Transportation systems Social and Political reforms  WORLD S RN Y E ST D MO EM  MARKET GLOBALIZATION PRODUCTION GLOBALIZATION MARKET GLOBALIZATION The decline in barriers to selling in countries other than the home country. PRODUCTION GLOBALIZATION The sourcing of materials and services from other countries to gain advantage from price differences in different nations. PRIMARY EFFECTS OF GLOBALIZATION Distributed operations Changes in location Increasing complexity The Modern World System is focused on the concept of Economic Integration.  IC INTEG M RA N O TI ECO ON ECONOMIC INTEGRATION Involves agreements between countries to permit, to varying degrees, the flow of capital, labor, goods, and services across their respective international borders (Tovias, 1994). The theory of ECONOMIC INTEGRATION The general theoretical basis of it that every country is better suited to engage in certain activities than other activities. Each country can capitalize on its advantages. The theory of ECONOMIC INTEGRATION The theory hypothesizes that eventually the ratio between wages and profits should equalize among the participating countries, resulting in fair and balanced trade. TYPES OF INTEGRATION Free Trade Agreements Free Trade Areas Customs Union Common Market Economic Union  CTIVITY A FREE TRADE AGREEMENT agreements entered into between countries regarding specific trade issues, such as reduction of tariffs (a type of tax on imported or exported goods and services) and quotas (nontariff barriers between countries) that limit imports. FREE TRADE AREAS eliminates barriers to trade among the members such as tariffs and quotas. Members of a free trade area make their own policies concerning trade with other countries outside of the free trade area. CUSTOMS UNION formed by countries that not only eliminate trade barriers between the members but also have a unified trade policy with countries outside of the union. For example, a customs union will establish a common tariff that is applied to all imports coming into each member country. The tariff revenues may be split among the members, according to a formula agreed to by the members. COMMON MARKET Has all of the characteristics of a customs union but also eliminates barriers to the movement of capital, labor, and technology. Restrictions on immigration, emigration, and foreign investment between members are lifted. ECONOMIC UNION members of an economic union must be able to maintain consistency with monetary policy, fiscal policy, and tax policy. An economic union also uses a common currency. Pros Trade benefits Employment Political cooperation Cons Creation of trading blocs Trade diversion Erosion of national sovereignty Think about it... Do you think it gives more benefits than costs?