Globalization of World Economics Lesson 2 PDF

Lesson 2 The Globalization of World Economics Learning Outcomes: At the end of this lesson, you should be able to: 1. define economic globalization; 2. identify the actors that facil...

Lesson 2 The Globalization of World Economics Learning Outcomes: At the end of this lesson, you should be able to: 1. define economic globalization; 2. identify the actors that facilitate economic globalization; 3. narrate a short history of global market integration in the twentieth century; and 4. articulate your stance on global economic integration.  International Monetary Fund (IMF) regards “economic globalization” as a historical process representing the result of human innovation an 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. As with all other processes of globalization, there is a qualitative and subjective element to this definition.  International Monetary World Bank fund IMF is not a bank and does not The World Bank is an intermediate between investors investment bank, and recipients. These resources intermediating between come from quota subscriptions, investors and recipients, or membership fees, paid in by borrowing from the one and the IMF’s 189 member countries. lending to the other. Its primary mission to ensure monetary stability around the world. Economic globalization 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.  Value of trade (goods and services) 70 Data from International Monetary 60 50 Fund (IMF) 40 30 20 10 0 1980 2007 Increased trade also means that investments are moving all over the world at faster speeds. According to the United Nations Conference in Trade and Development (UNCTAD), the amount of foreign direct investments flowing across the world was US $57 billion in 1982. By 2015, that number was $1.76 trillion. Video analysis! https://youtu.be/HfN8BnRJryQ Processing Questions: 1. What is the difference between goods and services? 2. What is Mercantilism? 3. What is the difference between specialization and comparative advantage? 4. What is GATT? And what is its function? 5. How International trade affects economic growth? International trade The conclusion of World War ll signaled the beginning of trade facilitation around the globe. Economies set rules and guidelines for international trade which led to the formation of General Agreement on Tariffs and Trade (GATT). These trade rules were developed through series of rounds or meetings of member ‘economies. International International Trade (IT) is the process trade and system when goods, commodities, services cross national economy, and boundaries in exchange for money or goods of another country (Balaam and Veseth, 2008). Global trade has grown dramatically since the post-cold war era as a result of increasing demand of goods and services of countries. This global norm is a reflection of growing practice of internationalizing and globalizing local products and services. International trade -exchange of goods, services, and capital across national borders. It is a multi-billion dollar activity, central to the Gross Domestic Product (GDP) of many countries and it is the only way for many people in many countries to acquire resources. -exchange of goods and services along international borders. This type of trade allows for a greater competition and more competitive pricing in the market Gross Domestic Gross National Product (GDP) Product (GNP) is the value of the is the value of all finished domestic finished goods and goods and services services produced by a produced within a country's citizens, both nation's borders. domestically and abroad Trade theories Descriptive theory Prescriptive theory Descriptive theory Trade theories It deals with the natural order and movement of trade. it describes the pattern of trade under the idea of laissez faire. It refers to the notion that individuals are the best economic agents to solve the problems through invisible hand rather than the government ‘policies. Descriptive theory addresses the questions of which product to trade, how much product to offer and produce, and which country to trade in the absence of government restrictions. Prescriptive Theory Trade theories This prescribes whether government, an important economic institution, should interfere and restrict with the movement of goods and services. This theory views government to have participation in deciding which countries to alter the amount, composition and direction of goods. The pressing question describing descriptive theory is “Should the government control trade?” International Trading System  Silk Road, the oldest known international trade route but it is not truly “global”. Ancient trade route linking China with the West, that carried goods and ideas between the two great civilizations of Rome and China.  The age of globalization began when “all important populated continents began to exchange 1571- galleon products continuously- both with trade happens and each other directly and indirectly this is the first via other continents- and in time that values sufficient to generate Americas were crucial impact on all trading directly connected Arturo Giraldez partner.” to Asian trading routes. Dennis O. Flynn 16th to 18th century The galleon trade was part of the edge of mercantilism. Mercantilism an economic practice by which governments used their economies to increase state power at the expense of other countries. It is also a system of global trade with multiple restrictions. Countries, primarily in Europe, competed with one another to sell more goods as a means to boost their country’s income (called monetary reserves later on). Focuses of Trade Policy in International Trade a tax imposed by the government of a country or by a 1 supranational union on imports or exports of goods refers to any regulation or policy that restricts 2 international trade, especially tariffs, quotas, licenses etc. Ensure that imported products in the country are of high 3 quality. Inspection regulations laid down by public officials ensure the safety and quality standards of imported products.  Open trade system emerged during this time, when, following the lead of the 1867 United Kingdom, the United States and other European nations adopted the gold standard at an international monetary conference in Paris. For example, if the U.S. hypothetically set the price of gold at $500 an ounce, the value of the dollar would be 1/500th of an ounce of gold.  Countries depleted their gold reserves to fund their armies, many were forced to abandon the gold standards. Since World War European countries had low 1 adopted gold reserves, they floating currencies that were no longer redeemable in gold. Great depression refers to global economic crisis which started during 1920s and extended up to the 1930s. End of using gold standards were until as late as the The world economy today 1970. us fiat currencies.  1973-1974 During this time, the stock market crashed. U.S. stopped linking dollars to gold. This resulted on Keynesian economics could not have predicted- a phenomenon called stagflation. Stagflation decline in economic growth and employment (stagnation) takes place alongside a sharp increase in prices (inflation).  They argued that the governments’ practice of pouring money into their economies had caused inflation by increasing demand for goods without Friedrich Hayek necessarily increasingly supply. More profoundly, they argued that government intervention in economies distort the proper functioning of the market. Milton Friedman Neoliberalism emphasizes free markets (1980s onwards). Washington Consensus dominated global economic policies from the 1980s until early 2000s, it advocates pushed for minimal government spending to reduce government debt. They also called for the privatization of government-controlled services like water, power, communications, and transport, believing that the free market can produce the best results.