Global Economy.docx

***Global Economy:** Refers to the interconnected system of international exchange of goods and services, valued in monetary units (usually money).* ***Variation Within the System:** Production, use, and exchange value of goods and services differ across countries. Economic definitions, models, and...

***Global Economy:** Refers to the interconnected system of international exchange of goods and services, valued in monetary units (usually money).* ***Variation Within the System:** Production, use, and exchange value of goods and services differ across countries. Economic definitions, models, and valuations also vary.* ***Geographical and Ecological Connections:** The global economy is linked to Earth\'s geography and its ecological well-being.* ***Market Valuations:** Local currencies are converted to a single unit (e.g., Peso) based on Purchasing Power Parity (PPP).* ***Purchasing Power:** Represents the value of a currency based on how many goods or services it can buy. Inflation reduces purchasing power over time.* - ***Definition of Economic Globalization**:* - *Refers to the **increasing interdependence** of world economies.* - *Attributed to the growing scale of **cross-border trade**, **international capital flows**, and the **rapid spread of technology**.* - ***Examples in the Philippines**:* - *Illustrative trading partnerships with countries such as China, the United States, and Australia.* - ***Flow of International Capital**:* - *Includes **foreign direct investments** (FDI), where companies establish businesses in other countries while participating in management.* - *Example: Toyota Motor Philippines, a subsidiary of Toyota, Japan.* - *Also observed through:* - ***Foreign portfolio investments*** - ***Trade flows*** - ***External assistance*** - ***External commercial borrowings*** - ***Private loan flows*** - ***IMF\'s Definition (2008)**:* - *Describes economic globalization as a **historical process** resulting from **human innovation** and **technological progress**.* - *Involves **increasing integration** of global economies through the **movement of goods, services, and capital** across borders.* - ***Economic Change and Globalization**:* - *While precise definitions vary, there is consensus among experts about significant **economic changes** occurring globally.* - ***Trade Value Growth**:* - *According to the IMF, the value of trade as a percentage of world GDP increased from 42.1% in 1980 to 62.1% in 2007.* - ***High-Frequency Trading**:* - *Modern technology, such as supercomputers, enables **rapid stock purchases and sales** across cities in seconds, exemplifying the speed of economic globalization.* - ***Assessment of Globalization**:* - *Aims to explore how economic globalization developed and evaluate its system, including the **beneficiaries** and those **left out**.* ***Mercantilism*** - ***Definition:** A system of economic nationalism that emphasizes a country\'s self-sufficiency and wealth accumulation through trade surpluses.* - ***Historical Context:** Prevalent from the 16th to 18th centuries, primarily in Europe.* - ***Key Features:*** - ***Economic competition:** Countries competed to sell more goods to increase their wealth and power.* - ***Protectionism:** Countries implemented measures to protect domestic industries from foreign competition, such as tariffs, trade restrictions, and subsidies.* - ***Colonialism:** Countries established colonies to provide raw materials and markets for their manufactured goods.* - ***Goals:*** - ***Maximize exports:** To increase a country\'s wealth and power.* - ***Minimize imports:** To reduce dependence on foreign goods and preserve domestic industries.* - ***Currency System:** Currency prices and exchange rates were based on the value of gold.* - *The current world economy operates on **fiat currencies**, which are not backed by precious metals.* - ***Currency values** are determined by their **relative cost** to other currencies.* - *This system allows governments to **actively manage** their economies by adjusting the **money supply** as needed.* - ***Bretton Woods System**:* - ***Inaugurated** in 1944 during the United Nations Monetary and Financial Conference.* - ***Aimed** to prevent economic catastrophes following World War II.* - *Heavily influenced by British economist John Maynard Keynes.* - ***Keynesian Economic Theory**:* - *Keynes argued that economic crises arise not from a lack of money but from **insufficient spending**.* - *He believed that during economic slowdowns, governments should **reinvigorate markets** through **capital infusions**.* - *This approach led to the establishment of \"Global Keynesianism,\" emphasizing **active government involvement** in economic management.* - ***Creation of Financial Institutions**:* - *Delegates at Bretton Woods established two key institutions:* 1. ***International Bank for Reconstruction and Development (World Bank)**:* - ***Focused** on funding **postwar reconstruction** projects.* - *Played a **crucial role** during a time when many cities were devastated by the war.* 2. ***International Monetary Fund (IMF)**:* - ***Functions** as a **lending institution** to prevent countries from experiencing credit crises.* - ***Steps in** to provide financial support when economic growth slows due to **inadequate money supply**.* - ***Continued Importance**:* - *Both the World Bank and IMF remain **significant players** in **economic globalization** today.* - ***Keynesian Era:** Governments actively stimulated economies through increased spending, leading to inflation and economic growth.  * - ***1973 Oil Crisis:** OPEC\'s oil embargo and the end of the Bretton Woods system caused economic turmoil in Western countries.* - ***Neoliberalism:** A new economic ideology emerged, challenging Keynesian principles and advocating for minimal government intervention.  * - ***Washington Consensus:** A set of economic policies promoted by the World Bank and IMF, emphasizing:* - ***Reduced government spending**  * - ***Privatization of state-owned enterprises**  * - ***Reduced trade barriers**  * - ***Keynesian Era:*** - *Government spending increased demand for goods.  * - *Inflation rose as prices increased.* - *Keynesian economists believed this was a necessary trade-off for economic development.* - ***1973 Oil Crisis:*** - *OPEC\'s oil embargo and the end of the Bretton Woods system caused economic instability.  * - *Stagflation occurred, combining high inflation and economic stagnation.  * - ***Neoliberalism:*** - *Challenged Keynesian principles.  * - *Advocated for **minimal government intervention** and **market-based solutions**.  * - ***Washington Consensus:*** - *A set of economic policies promoted by international financial institutions.  * - *Key elements:* - ***Reduced government spending**  * - ***Privatization** of state-owned enterprises  * - ***Reduced trade barriers**  * - ***Impact:*** - *Dominated global economic policy from the 1980s to early 2000s.* - *Shaped economic reforms in many countries.  * ***Intergovernmental Financial Institutions*** - ***World Bank**:* - *An intergovernmental institution **aimed at ending extreme poverty** and **promoting shared prosperity sustainably**.* - *Comprises several organizations, including:* - ***International Bank for Reconstruction and Development (IBRD)*** - ***International Development Association (IDA)**  * - ***International Financial Corporation (IFC)**  * - ***Multilateral Investment Guarantee Agency (MIGA)*** - ***International Center for Settlement of Investment Disputes (ICSID)**  * - *These organizations **facilitate loans and financial assistance** to developing countries.* - ***International Monetary Fund (IMF)**:* - ***Works to foster global monetary cooperation**, **secure financial stability**, and **facilitate international trade**.* - *Provides **financial assistance and loans** to developing countries, similar to the World Bank.* - ***Regional Development Banks**:* - *Established in the 1960s to **promote social progress** and **economic growth**:* - ***Asian Development Bank (ADB)** founded in 1960.* - ***African Development Bank (AfDB)** founded in 1964.* - *Both banks **focus on reducing poverty** and **fostering sustainable development** in their member countries.* ***Private International Financial Institutions*** - ***Citigroup**:* - *An American multinational investment banking and financial corporation.* - *Provides **investment services globally**, including **foreign direct investment** and **financial loans**.* - ***Merrill Lynch**:* - *The wealth management division of Bank of America.* - *Offers **investment services and products worldwide**.* ***Other Functions of Financial Institutions in the Global Economy*** - ***World Bank**:* - ***Project lending** to support various development initiatives.* - ***Establishes structural reforms** in member countries.* - *Provides **support and technical assistance** for projects.* - *Helps **design modern and durable social safety nets**.* - ***International Monetary Fund (IMF)**:* - *Assists in **establishing institutional bodies** to address and **reduce poverty**.* - ***Promotes job generation** and **economic growth**.* - *Aids in **creating conditions for the mobilization of private domestic and foreign capital**.* - ***Works to foster global monetary cooperation** and **financial stability**.* - ***Asian Development Bank (ADB)**:* - ***Lends money for infrastructure development**, facilitating business growth.* - ***Focuses on spurring social progress** and **economic growth** to **reduce poverty** in its member countries.* ***Role of Global Institutions*** - ***Active Agents in Development**:* - *Global institutions **foster social and economic development**.* - *Provide **various forms of assistance** to enhance national and global economies.* ***Emergence of Global Markets*** - ***Post-World War II Integration**:* - *The **integration of global markets** began with the **emergence of large American corporations** after WWII.* - *New conglomerates, such as International Telephone and Telegraph, **expanded by acquiring companies** like Avis Rent a Car, Continental Banking, Sheraton Hotels, and Hartford Fire Insurance.* - ***Expansion in Japan and Europe**:* - *Following the American model, **Japanese global automobile corporations** like Toyota, Nissan, and Isuzu emerged.* - *These companies initially **prospered as major suppliers of trucks for the Japanese military**.* - ***European Companies**:* - *Renault Automobiles, a French multinational manufacturer, was also **utilized for military operations** in the post-war period.* - ***Impact on International Trade**:* - *The **rise of American, Japanese, and European global corporations** facilitated the **development of international trade**.* ***Types of Companies*** - ***Iwan (2012) Classification**:* - *Identifies **differences among various types of companies**, including:* - ***International companies*** - ***Multinational companies*** - ***Transnational companies*** - ***Global companies*** ***Here\'s the summary with the requested bolded text:*** ***Definition*** - ***Multinational Corporations (MNCs)**:* - ***Companies that operate in multiple countries**, managing production or delivering services in more than one nation.* ***Characteristics*** - ***Global Presence**:* - *MNCs have **subsidiaries, branches, or operations in several countries**.* - ***Centralized Control**:* - *Often **centralized in their home country** but adapt strategies to local markets.* - ***Diverse Operations**:* - *Involved in various sectors, including **manufacturing, services, and technology**.* - ***Significant Economic Power**:* - ***Hold substantial resources and capital**, influencing global economies and markets.* ***Advantages*** - ***Economies of Scale**:* - *Can **achieve cost advantages** through large-scale operations.* - ***Access to Resources**:* - ***Benefit from resources, talent, and raw materials** available in different countries.* - ***Market Expansion**:* - ***Ability to enter new markets** and reach a larger customer base.* ***Disadvantages*** - ***Cultural Challenges**:* - *May **face difficulties in adapting to local cultures and consumer preferences**.* - ***Regulatory Hurdles**:* - ***Encounter complex regulations and compliance issues** in different countries.* - ***Public Perception**:* - *Can be **viewed negatively**, especially if accused of **exploiting local labor or resources**.* ***Role in Global Economy*** - ***Job Creation**:* - ***Contribute to employment opportunities** in host countries.* - ***Technological Transfer**:* - ***Facilitate the transfer of technology and expertise** to local markets.* - ***Investment**:* - ***Provide foreign direct investment (FDI)** that supports local economies and infrastructure development.* ***Examples*** - ***Major MNCs**:* - *Companies such as Apple, Coca-Cola, Toyota, and Unilever, which operate in **numerous countries around the world**.*