Core countries – ineexploit nila ang peripheral countries kumbaga naasa sa peripheral countries na

mag export ng raw materials papunta sa core

Semi peripheral – nasa gitna sila, core na nagging mababa, peri na tumaas ang performance

Peripheral – undeveloped countries

Dependency theory – nakadepende ang developing countries sa advance

Core countries ay nakadepende sa peripheral countries

WHAT IS GLOBAL ECONOMY?

The global economy refers to the interconnected worldwide economic activities that take place between
multiple countries. ... It refers to the exchange of goods and services between different countries, and it
has also helped countries to specialise in products which they have a comparative advantage in.

WHY DO COUNTRIES TRADE?

Countries trade with each other when, on their own, they do not have the resources, or capacity to
satisfy their own needs and wants. By developing and exploiting their domestic scarce resources,
countries can produce a surplus, and trade this for the resources they need

Reason for Trade #1: Differences in Technology

Advantageous trade can occur between countries if the countries differ in their technological abilities to
produce goods and services. Technology refers to the techniques used to turn resources (labor, capital,
land) into outputs (goods and services). The basis for trade in the Ricardian model of comparative
advantage in Chapter 2 "The Ricardian Theory of Comparative Advantage" is differences in technology.

Reason for Trade #2: Differences in Resource Endowments

Advantageous trade can occur between countries if the countries differ in their endowments of
resources. Resource endowments refer to the skills and abilities of a country’s workforce, the natural
resources available within its borders (minerals, farmland, etc.), and the sophistication of its capital
stock (machinery, infrastructure, communications systems). The basis for trade in both the pure
exchange model in Chapter 3 "The Pure Exchange Model of Trade" and the Heckscher-Ohlin model in
Chapter 5 "The Heckscher-Ohlin (Factor Proportions) Model" is differences in resource endowments.

Reason for Trade #3: Differences in Demand

Advantageous trade can occur between countries if demands or preferences differ between countries.
Individuals in different countries may have different preferences or demands for various products. For
example, the Chinese are likely to demand more rice than Americans, even if consumers face the same
price. Canadians may demand more beer, the Dutch more wooden shoes, and the Japanese more fish
than Americans would, even if they all faced the same prices. There is no formal trade model with
demand differences, although the monopolistic competition model in Chapter 6 "Economies of Scale
and International Trade" does include a demand for variety that can be based on differences in tastes
between consumers.

Reason for Trade #4: Existence of Economies of Scale in Production

The existence of economies of scale in production is sufficient to generate advantageous trade between
two countries. Economies of scale refer to a production process in which production costs fall as the
scale of production rises. This feature of production is also known as “increasing returns to scale.” Two
models of trade incorporating economies of scale are presented in Chapter 6 "Economies of Scale and
International Trade".

Reason for Trade #5: Existence of Government Policies

Government tax and subsidy programs alter the prices charged for goods and services. These changes
can be sufficient to generate advantages in production of certain products. In these circumstances,
advantageous trade may arise solely due to differences in government policies across countries. Chapter
8 "Domestic Policies and International Trade", Section 8.3 "Production Subsidies as a Reason for Trade"
and Chapter 8 "Domestic Policies and International Trade", Section 8.6 "Consumption Taxes as a Reason
for Trade" provide several examples in which domestic tax or subsidy policies can induce international
trade.

Summary

There are very few models of trade that include all five reasons for trade simultaneously. The reason is
that such a model is too complicated to work with. Economists simplify the world by choosing a model
that generally contains just one reason. This does not mean that economists believe that one reason, or
one model, is sufficient to explain all outcomes. Instead, one must try to understand the world by
looking at what a collection of different models tells us about the same phenomenon.

For example, the Ricardian model of trade, which incorporates differences in technologies between
countries, concludes that everyone benefits from trade, whereas the Heckscher-Ohlin model, which
incorporates endowment differences, concludes that there will be winners and losers from trade.
Change the basis for trade and you may change the outcomes from trade.

In the real world, trade takes place because of a combination of all these different reasons. Each single
model provides only a glimpse of some of the effects that might arise. Consequently, we should expect
that a combination of the different outcomes that are presented in different models is the true
characterization of the real world. Unfortunately, because of this, understanding the complexities of the
real world is still more of an art than a science.

WHAT IS FREE TRADE?

Free trade, a policy by which a government does not discriminate against imports or interfere with
exports by applying tariffs (to imports) or subsidies (to exports).

Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the
free market idea applied to international trade
Pro: Economic Efficiency

The big argument in favor of free trade is its ability to improve economic efficiency. According to basic
economic theory, free trade policies mean that each country focuses on its comparative advantage,
lowering the price of goods and making everyone better off. If the United States is really good at making
cars and China is good at making televisions, free trade rules should mean that each country plays to its
strengths instead of wasting time and effort doing less efficient tasks.

Con: Job Losses

Economic efficiency might be beneficial for the economy as a whole in the long run, but that doesn't
much help the factory worker who loses his job in the short-term. Free trade makes a nation's overall
economy more productive, but it also can force millions to change careers. NAFTA, for example, may
have destroyed more than 1 million jobs in the United States. When discussing the pros and cons of
protectionism, the practice of taxing imports heavily as a way to maintain local industries, the issue of
job loss is always an important point.

Pro: Less Corruption

Barriers to trade create lots of opportunities for political corruption, according to some advocates of
free trade. Powerful interest groups can convince governments to give them special protections like
tariffs or subsidies, while less powerful groups have to go it alone. That may give established wealthy
businesses huge advantages over rising entrepreneurs. Free trade proponents say eliminating trade
barriers creates a level playing field for everyone.

Con: Free Trade Isn't Fair

Trade barriers might create opportunities for corruption, but so do free trade agreements. Economists
may envision a society where trade barriers vanish entirely, but free trade agreements are negotiated
and signed by politicians with their own interests to worry about. As a result, the agreements usually are
immense documents full of loopholes and rules that create big advantages for established businesses.
Economic experts have noted that while NAFTA proponents said the agreement would deregulate
commerce in North America, in many cases it just replaced existing regulations with new ones that
favored the biggest corporations.

Pro: Reduced Likelihood of War

One strong advantage is that free trade reduces conflict by encouraging countries to rely on each other
for foods and services. Some economists have argued this interdependence makes wars much less likely,
since neither side would want to risk losing access to the other's markets.

Con: Labor and Environmental Abuses

Opponents of free trade often argue that it encourages businesses to move to countries with poor
environmental and labor regulations. These moves could potentially lead to systematic labor abuses and
destruction of the environment. For example, a coal mining company in the United States might have to
pay workers a high minimum wage, adopt aggressive safety policies and protect local rivers from
pollution. Free trade agreements might allow the mining company to move operations to a country
without any of those rules, allowing it to cut costs by imperiling workers and the environment.
FACTORS THAT FACILITATE ECONOMIC GLOBALIZATION

Containerisation

The costs of ocean shipping have come down, due to containerisation, bulk shipping, and other
efficiencies. The lower unit cost of shipping products around the global economy helps to bring prices in
the country of manufacture closer to those in export markets, and it makes markets more contestable
globally

Technological change

Rapid and sustained technological change has reduced the cost of transmitting and communicating
information – sometimes known as “the death of distance” – a key factor behind trade in knowledge
products using web technology
Economies of scale

Many economists believe that there has been an increase in the minimum efficient scale (MES)
associated with some industries. If the MES is rising, a domestic market may be regarded as too small to
satisfy the selling needs of these industries. Many emerging countries have their own transnational
corporations

Differences in tax systems

The desire of businesses to benefit from lower unit labour costs and other favourable production factors
abroad has encouraged countries to adjust their tax systems to attract foreign direct investment (FDI).
Many countries have become engaged in tax competition between each other in a bid to win lucrative
foreign investment projects.

Less protectionism

Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually
been dismantled. Borders have opened and average import tariff levels have fallen.

That said, it is worth knowing that, in the last few years, there has been a rise in non-tariff barriers such
as import quotas as countries have struggled to achieve real economic growth and as a response to
persistent trade and current account deficits.

FACTORS OF CONTEMPORARY ECONOMIC GLOBALIZATION

Three suggested factors accelerated economic globalization: advancement of science and technology,
market oriented economic reforms, and contributions by multinational corporations.
ADVANTAGES AND DISADVANTAGES OF ECONOMIC INTEGRATION

ECONOMIC INTEGRATION

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 is the unification of economic policies between different states, through the
partial or full abolition of tariff and non-tariff restrictions on trade

Negative integration: this implies the elimination of barriers that restrict the movement of goods,
services and factors of production.

Positive integration: this refers to the creation of a common sovereignty through the modification of
existing institutions and the creation of new ones.