The Contemporary World GE 3 Module 2 PDF

UNIT II. THE GLOBAL ECONOMY Overview This unit will provide you a deeper understanding of how economic globalization takes place in our society. Nonetheless, this unit will enlighten you of the possible realities when it comes to the role of each and every institution in our economic system....

UNIT II. THE GLOBAL ECONOMY Overview This unit will provide you a deeper understanding of how economic globalization takes place in our society. Nonetheless, this unit will enlighten you of the possible realities when it comes to the role of each and every institution in our economic system. the different forms of economic integration will also be included in this unit to help you decide on the advantages and disadvantages of a specific economic integration. Learning Objectives At the end of the unit, I am able to: 1. define economic globalization; 2. identify the actors that facilitate economic globalization; 3. define the modern world-system; and 4. articulate a stance on global economic integration. Setting Up Name: __________________________________________________ Date:____________ Course/Year/Section: ________________________________ Directions: According to Immanuel Wallerstein the modern world system is composed of nations under the category of Core, Semi-Periphery, and periphery. In this regard, identify the 5 nations for each category: Periphery, Semi-Periphery, and Core. 11 Lesson Proper GLOBAL ECONOMY Local products of the Philippines such as Marikina Shoes, Datu Puti Vinegar, Philippine Dried Fish, and other products are usually available not only here in the Philippines but also in other countries such as in America and Canada. However, the question arises as to how is this possible? If one wonders how it happens, you should also be curious about how your countrymen can wear branded shoes and other garments such as Nike, Louis Vuitton, and Uniqlo. The accumulation, importation, and exportation of goods and commodities from one country to other countries and vice-versa is best explained by the economic globalization. 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 (Shangquan, 2000). The given example above was only a part of economic globalization as the scope of economic globalization is not only limited in goods as it also involves, capital, labor, migration and anything that is related to goods and services. From the viewpoint of the International Monetary Fund, Economic Globalization is a historical process that was the outcome of human evolution from traditional and primitive technology to the present technological advancement. It refers to the increasing integration of economies around the world, mainly through the movement of goods, services, and capital across borders. The term sometimes also applies to the change of people (labor) and knowledge (technology) across international borders (Staff, I. M. F., 2008). From these explanations, it makes sense that advancements in technology allow foreign transactions to make the acquisition of imported goods possible. Interconnected Dimensions of Economic Globalization 12  1. Goods and Services: Goods are tangible objects that satisfy people's wants. Services are actions, such as haircuts and car repair, which also satisfy people's wants. 2. Capital: It is the total assets a company needs to stay solvent. A company’s capital assets are significant because organizations use capital assets to create wealth 3. Communication and Technology: Advances in Communication and technology has allowed the integration of economies worldwide through increases in trade, investment flows, and technology transfer. 4. Market Exchange: it is an economic system in which goods and services are produced, distributed, and exchanged by the forces of price, supply, and demand. ECONOMIES ASSOCIATED WITH ECONOMIC GLOBALIZATION PROTECTIONISM: Protectionism refers to government policies that restrict international trade by imposing tariffs, quotas, product standards, and subsidies. Reason for the implementation of strict policies a. Its goal is to improve the domestic economy by forcing its citizen either direct or indirect to purchase local products instead of imported products. b. For safety and quality concerns of both imported and exported products Primary policy tools a. Tariffs: These are charges to importing countries in the form of either money or goods that will serve as a payment for allowing its international products to be sold in the local market. It is usually documented in the custom of a particular government. These Import tariffs are the reasons for the increase of international product prices. It also raises revenues of the government and protects domestic products from foreign competition due to the price hike of imported goods. b. Import Quotas: This is a kind of tariffs that lessen the number of products that can be imported for a certain period of time. The implementation of import quotas helps the government protects its domestic businesses by allowing its local businesses to cover the shortfall of certain products. Thus, it helps the local market to increase its production that will lead to the increase of numbers of goods that can be sold in the market c. Product Standards: This is a kind of barrier that imposes strict standards in imported products which may make it difficult for different importing countries to bring their goods in the local market. Thus, the restriction of a particular product can lead to a higher volume of product production domestically. d. Government Subsidies: This is a strategy of the national government by which incentives and cash payments are distributed to domestic businesses to encourage them to expand their market globally by increasing international export. Thus, the government may strengthen its local market. Advantages of Protectionism: a. Taxes imposed on exporter countries may increase government revenues. 13  b. Strict and rigid policies may protect domestic product c. Encourages the exportation of national products which may expand their products globally. Disadvantages of protectionism: a. Protectionism policies often time support other countries to make their own protection policy as well. Hence, it inhibits the exportation of each other products that may result in less profit TRADE LIBERALIZATION: It is the process of removing or reducing the barriers or restrictions in the exchange for goods between and among nations. With the reduction of barriers such as tariffs and import quotas in the process of exchanging goods and services, it significantly reduces the cost of goods sold by the importing countries Thereby, allowing an increase of exchange between and among countries. Thus, the proponents of trade liberalization believe that reduction of barriers ultimately lessen consumer costs while increasing efficiency, and fostering the growth of the economy. Advantages of Trade Liberalization a. As it promotes free trade between and among countries, the cost of importing nations in bringing their goods to other countries is most likely to be lessened. This event may likely result in lower consumer prices due to lower fees of importing nation and an increase in competition among local and international businesses. b. Promotes efficient use and allocation of world resources c. Increases Capital Flow d. Allows developing countries access to the heavily protected markets of the developed world thus helping promote development e. It encourages specialization among countries by maximizing their capabilities whether to manufacture goods or provide services. This scenario is related to the concept of comparative advantage wherein one specializes in which they can gain the most profitable. f. It can lead to a higher efficiency of producers. g. It can attract foreign investment Disadvantages of Trade Liberalization a. It can affect local businesses and their domestic product. b. The possible risk may be experienced if the products or raw materials coming from other countries have a lower environmental standard. c. Developing nations may be threatened to back out in the global market as they are forced to compete in the same market with other nations possessing stronger economies. d. Countries with lower educational standards may struggle to adapt to a changing economic environment. e. It can exploit the natural resources due to the competition and shallow environmental policies in a country. 14  f. It can lead to structured unemployment whereby countries and companies who cannot compete with others may lose gain and have less profit that may result in layoff. The effect of Trade Liberalization to its stakeholder as explained in the table: Consumer, Worker, Companies and Consumer, Worker, Companies and Countries who have benefited from the Countries who did not benefit from the Trade Liberalization Trade Liberalization 1. Consumer: they get products at lowest 1. Consumer: they get products that are and cheapest price cheap yet have the least and lowest quality 2. Worker: Low wage worker earned more 2. Worker: Low wage workers work in hazardous environment 3. Countries: they are able to gain out of the 3. Countries: they did not gain as much as trade for the cheaper price and sell it to a the countries who have bought their raw higher price materials for a cheaper price. 4. Corporation who earned more profit 4. Corporation who lose out to foreign either due to increase in sale and low labor competition. cost for manufacturing its good Main Actors of Economic Globalization 15 WORLD SYSTEM THEORY For Wallerstein, "a world-system is a social system that has boundaries, structures, member groups, rules of legitimation, and coherence. Its life is made up of the conflicting forces which hold it together by tension and tear it apart as each group seeks eternally to remold it to its advantage. A world-system is what Wallerstein terms a "world economy", integrated through the market rather than a political center, in which two or more regions are interdependent concerning necessities like food, fuel, and protection, and two or more polities compete for domination without the emergence of one single center forever. World- system theory is, in many ways, an adaptation of the dependency theory. Wallerstein draws heavily from the dependency theory, a neo-Marxist explanation of development processes, famous in the developing world. Dependency theory focuses on understanding the "periphery" by looking at core-periphery relations, and it has flourished in peripheral regions like Latin America. Wallerstein proposes different categories, core, semi-periphery, and periphery into which all regions of the world can be placed. Of the three, two are of the uttermost importance: core and periphery. These are geographically and culturally different, focusing on labor-intensive (Periphery), and the other on capital-intensive production(core). The core-periphery relationship is structural. Semi-peripheral states act as a buffer zone between core and periphery and have a mix of the kinds of activities and institutions that exist on them 16 ECONOMIC INTEGRATION El-Agraa (1998) defines the term economic integration as the discriminatory removal of all trade impediments between at least two participating countries and the establishment of certain elements of coordination and cooperation between them. In other words, Economic integration is an arrangement among nations that typically includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. Economic integration aims to reduce costs for both consumers and producers and to increase trade between the countries involved in the agreement. Levels of Economic Integration  Preferential trading area. Allow member countries to have access to some of their products. Tariffs are not eliminated but it is lessened as compared to non- participating countries  Free trade. It aimed to reduce the tariff significantly between or among partnered countries. In regards to external countries which are not part of their agreement, each of them has its own decision making in regards to the tariff they will impose on those external countries. The general goal of free trade agreements is to develop economies of scale and comparative advantages, which promotes economic efficiency.  Custom union. It almost the same with free trade agreement as it aims to reduce and abolish the tariff but it differs from free trade as the member country has common external tariffs among member countries, implying that the same tariffs are applied to third countries; a common trade regime is achieved.  Common market. It is an integration by which member countries are able to move their capital and services within their organization. This leads to the expansion of scale economies and the maximization of comparative advantages. However, each national market has its own regulations such as product standards.  Economic union: This kind of economic integration is usually called as a single market for several reasons. First and foremost, tariffs are eliminated within the member countries by which they are able to exercise free trade between and among countries. Likewise, workers from a member country of this organization can migrate and work to another member country. At this level, some policies related to economic and political aspects are also integrated such as the existence of a common currency to be used by each member country like the Euro of European Union.  Political union. It is a form of integration wherein member countries abide by the rules presented by a common government in which the member country’s sovereignty is reduced significantly. This integration can be found within the nation- state, such as federations where there are a central government and regions (provinces, states, etc.) having a level of autonomy. References 17