THE GLOBALIZATION OF

WORLD ECONOMICS
THE GLOBAL ECONOMY
 Globalization
 worldwide
interconnectedness in all
aspects of contemporary
social aspects
 Multidimensional
phenomenon
 But the economic dimension
is one of the major driving
forces
 Economic Globalization

 A historical process
 Increases integration of
economies around the world
through the movement of goods,
services, and capital across
borders. (Transportation and
Communication Revolution)
Economic Globalization

 a historical process of human

innovation and technological
progress. (IMF)
 characterized by the increasing
integration of economies
around the world through the
movement of goods, services,
and capital across borders
 Economic Globalization

 A process making the world economy

an “organic system” (holistic
approach) by extending transnational
economic processes and economic
relations to more and more countries
and by deepening the economic
interdependence among them
(Szentes)
 Attributes of Economic Globalization

 Theglobalization of trade of
goods and services;
 Theglobalization of financial
and capital markets;
 Theglobalization of technology
and communication; and
 The globalization of production
 WHEN DID ECONOMIC
GLOBALIZATION START?
 History of Economic
Globalization
 Grills and Thompson, globalization
began since Homo sapiens began
from migrating from the African
continent to populate the rest of the
world
 Frank and Grills considered the
Silk Road (Asia, Europe, Africa)the
best example for archaic
globalization 5,000 years ago
History of Economic Globalization

 Adam Smith considered the

discovery of America by
Christopher Columbus in 1492
and the discovery of the
direct sea route to India by
Vasco de Gama in 1498 as the
two(2) greatest achievements
of human history
 History of Economic Globalization

 British Industrial Revolution spread

to Continental Europe and North
America
 17th – 19th century, economic
nationalism and monopolized trade
such as the British (1600) and the Dutch
(1602) East India Companies
 20th century transport revolution :
The “golden age of globalization
Nation–state and economic
globalization ?
 Nation – State &
Economic Globalization

 For hyperglobalists, (sometimes referred to as

global optimists) believe that globalization is
happening and that local cultures are being
eroded.
 states ceased as primary economic organization
 People consume highly standardized global
products and services produced by global
corporations in a borderless world
 There will be no national products, technologies,
no national companies
 Nation – State &
Economic Globalization

 Neo - Liberals claim that nation –states have

lost an important element of economic
sovereignty
 “Buy Taiwan, hold Italy and sell France”,
Thomas Friedman compared countries to
individual stocks.
 The major players of global economy are the
TRANSNATIONAL CORPORATIONS or TNCs
TRANSNATIONAL CORPORATIONS (TNC)

 EXTENDING OR OPERATING ACROSS NATIONAL

BOUNDARIES
 A LARGE COMPANY OPERATING INTERNATIONALLY;
A MULTINATIONAL
 TRANSNATIONAL CORPORATIONS
are constantly evolving as a result of
outsourcing activity
- Going out to find the source of
what you need
 We live in an age of outsourcing.
 Firms are subcontracting an
expanding set of activities. Some
have become “virtual”
manufacturers, owning designs for
so many products but making almost
nothing themselves.
 Example : AMERICAN CAR (WTO)
KOREA – assembly
JAPAN – components & advanced technology
GERMANY – design
TAIWAN & SINGAPORE – minor parts
UK – advertising and marketing services
IRELAND/ BARBADOS – data process
INTERNATIONAL TRADING SYSTEMS
 1. SILK ROAD (1400)
 network of pathways in the ancient world
that spanned from China to Middle East and
to Europe.
 silk was the most profitable product
 initially international but not global because it had no ocean routes
that could reach the American continent.
 the age of globalization began when all important populated
continents began to exchange products continuously (Flynn and
Giraldez). The Galleon trade- Manila, Philippines and Acapulco in
Mexico.
 2. MERCANTILISM (1600-1800)
 includes the galleon trade
 16th to 18th century
 countries (Europe) competed with one another to sell
more goods as a means to boost their country's income
 to defend their products from competitors, imposed of
high tariffs, forbade countries to trade with other nations,
restricted trade routes and subsidized its exports
 a system of global trade with multiple restrictions
 3. GOLD STANDARD (1867)
 intended to create a common system that would allow for
more efficient trade and prevent the isolationism of the
mercantilist era.
 established a common basis for currency prices and a
fixed exchange rate system - all based on the value of
gold.
 currency backed by gold reserves
 4. FLOATING CURRENCIES
 During the WW1, there was a depletion of gold reserves to
fund their armies.
 low gold reserves led to adoption of floating currencies
that were no longer redeemable in gold.
 global economic crisis - the Great Depression (1920-1930)
worst and longest recession in Western world. Believed
that it was caused by the gold standard which limited the
circulation of money and, therefore, reduced demand
and consumption.
 5. FIAT CURRENCY / MONEY
 currencies that are not backed by precious metals
and whose value is determined by their cost
relative to other currencies
 government manages their economies by
increasing or decreasing the amount of money in
circulation as they see fit.
 Fiat money is currency that a government has
declared to be legal tender, but it is not backed by
a physical commodity. The value of fiat money is
derived from the relationship between supply and
demand rather than the value of the material
from which the money is made.
 6. BRETTON WOODS SYSTEM (1940-1970)
 a network of global financial institutions that would promote economic
interdependence and prosperity.
 influence by John Maynard Keynes: economic crises occur not when a country
does not have enough money, but when money is not being spent and, thereby,
not moving.
 Keynesianism: active role of governments in managing spending .When
economies slow down, governments have to reinvigorate markets with
infusions of capital


 two financial institutions created: 1)International Bank for Reconstruction and

Development (IBRD or World Bank) for funding postwar reconstruction projects
and 2) International Monetary Fund (IMF) global lender.
 Other global integration after Bretton Woods: General Agreement on Tariffs
and Trade (GAAT) - reduce tariffs and hindrances to free trade.
7. Neoliberalism

 Keynesianism effect: governments poured money into their economies.

Increased demand for products, increased the prices of goods. Increased
economic growth and reduced unemployment
 Sharp rise of oil (Organization of Arab Petroleum Exporting Countries
(OAPEC) /Yom KippurWar (Arab and Israeli)/ US and other countries
supplied the Israeli
 1973-1974: stock market crashed when US stopped linking the dollar to
gold which ended the Bretton Woods system. Stagflation: decline in
economic growth and employment (stagnation) takes place alongside a
sharp increase in price (inflation).
 Neoliberalism - ( Friedrich Hayek and Milton Friedman) new form of
economic thinking
 -government intervention distort the proper functioning of the market
 -governments pouring money into economies caused inflation by increasing
demand for goods without increasing supply.
 Neoliberalism as a codified strategy of the US Treasury Dept., World Bank,
IMF and World Trade Organization forwarded policies known as Washington
Consensus (1800-2000):
 - minimal spending to reduce gov't. debt
 - privatization of gov't-controlled services
 - reduced tariffs and open up their economies
 Negative effect: After the collapse of Communism in Russia (1900), IMF
called for privatization of all government industries. This was to avoid the
corrupt bureaucrats but only individuals who had accumulated wealth
under the previous communist order had the money to purchase industries.