CWORLD Economic Globalization and Trade

 It refers to the increasing interdependence of

Global Economy and Global world economies as a result of the growing
Integration scale of cross-border trade commodities and
services, flow of international capital, and
Global Economy wide and rapid spread of technologies.
 Is the exchange of Goods and services
Economic Globalization, Poverty, and
integrated into a huge single global market.
Inequality
 This term refers to the international
exchange of goods and services that is  Economic and Trade globalization is the
expressed in monetary units of money. It result of companies trying to outmaneuver
may also mean as the free movement of their competitors. This process creates
goods, capital services, technology and winner and losers. The winners include
information. “ corporations and their stockholders who earn
 Refers to the interconnected worldwide more profit. They also include consumers
economic activities that takes place between who get products at a cheaper price. The
multiple countries…. This is an economic losers are high wage workers who used to
theory that refers to produce goods and make those shoes. Their jobs moved
services at a lower opportunity cost than its overseas.
trade partners.
“Brazil, Russia, India, China, South Africa”
 Is also refers to as World Economy. This
term is also refers to the international Historical Background
exchange of goods and services that is
expressed in monetary units of money.  Silk Road – a network of pathways in the
 Economic globalization is a prominent ancient world that spanned from China to
feature of the contemporary world. what is now the Middle East and t Europe. It
 It involves integration of economies around called as such because one of the most
the world, particularly through free trade and profitable products traded through this
financial flows network as silk, until the Ottoman Empire
 Economic interconnectedness may not be closed it
entirely new, but the framework of the  Bretton Woods System – was inaugurated
global economy can be said to have its roots in 1944 during the United Nations Monetary
in the planning for post-war economic order and Financial Conference to prevent the
just before the end of World War II. catastrophes of the early decades of the
 The institutions that were established have century. This was largely influence by the
since been instrumental in the integration of ideas of British economist John Maynard
markets. While these institutions indeed Keynes.
facilitated opening of markets, the process  Delegates agreed two financial institutions:
has not always been smooth. International Bank for Reconstruction
 The institutions that were established have and Development (IBRD/World Bank)
since been instrumental in the integration of and the International Monetary Fund
markets. While these institutions indeed (IMF) which was to be the global lender.
facilitated opening of markets, the process Theories of Global Stratification
has not always been smooth.
 Economic globalization focuses on the  Stratification is an institutionalized pattern
developments since BRETTON WOODS of Inequality in which social category are
CONFERENCE rank on the basis of their access to scarce
resources
World Economy  The hierarchical arrangement of individuals
 Is exclusively limited to human economic and groups in societies around the world.
activity and is typically judged in monetary Modernization Theory: Argues that poor
terms. Example are illegal drugs and other nations remain poor because they hold onto
black market goods, which by any standard traditional attitudes, beliefs, technologies,
are part of the world economy, but for which and institutions.
these is by definition no legal market of any  Modernization Theory. This theory frames
kind. global stratification as a function of
 technological and cultural differences o Tribe
between nation (Example Western Europe o Caste
and some African states). Modernization o Or all four
theory rests on the idea that wealth could be
attained by anyone. Market Integration
 Dependency Theory (Latin American
 The term Integration refers to a process
Experience). Dependency is the condition in
whereby the quality of relations among
which the development of the nation-state of
autonomous social units (Kinship groups,
the south contributed to a decline in their
tribes, cities, and trade unions, trade
independence and to an increase in
associations, political parties) changes in
economic development of the countries of
such a way to erode the autonomy of each
the north.
and make it part of larger aggregate.
Primary Cause of Global Stratification  A situation in which separate markets for the
same product become one single market.
 The view that global stratification results For example when an import tax in one of
from a failure of poor nations to have the the markets is removed: it has long been
beliefs, values, and practices necessary for recognized that market integration is far
industrialization and rapid economic growth. more efficient than firm integration
The view that globalization stratification
results from colonization and exploitation of History of Global Market Integration
the poorest nations by the richest ones.
 Before the rise of today’s modern economy,
Factors of Global Stratification people only produced for their family.
Nowadays, economy demands the different
 Factors used to measure a country’s sectors to work together in order to produce,
development can include: distribute, and exchange products and
o per capita income, services.
o life expectancy,  Agricultural Revolution – The first
o literacy rate, and economic change was the Agricultural
o general standard of living. Revolution, when people learned how to
domesticate plants and animals, they
How is Global Stratification Different realized that it was much more productive
from Social Stratification? than hunter-gatherer societies. Farming
helped societies build surpluses, meaning
 Global Stratification - a companion of
not everyone had to spend their time
wealth stability, status and power of the
producing food. This in turn, led to major
country as a whole
developments like permanent settlements,
 Social Stratification – a socioeconomic
trade networks and population growth
system that divides society’s members into
 Industrial Revolution (1800) – with the
categories ranking from high to low, based
rise of the industry came new economic
on things like wealth, power, and prestige.
tools, like steam engines, manufacturing,
Upper – Upper upper & Upper lower and mass production. Factories popped up
and change how work functioned. Overall,
Middle – upper middle & middle lower
productivity went up, standards of living
Lower – upper lower & lower lower rose, and people had access to a wider
variety of goods due to mass production.
 Social Stratification is typically defined in  Capitalism and Socialism – these were two
terms of Three Social Classes: competing economic models that sprung up
o The Upper Class during the industrial Revolution. Capitalism
o The Middle Class is a system which all natural resources and
o The lower Class means of production are privately owned. It
 In turn each class can be subdivide into the emphasizes profit maximization and
upper-stratum, the middle-stratum, and the competition as the main drivers of
lower-stratum. Moreover, a social stratum efficiency. In a Socialist System, the means
can be formed upon the bases of of production are under collective
o Kinship ownership. It rejects capitalism’s private
o Clan property and hands-off approaches. Karl
Marx was the father of Socialism. These
 two economic Models are still in existent shareholders. Today’s the World’s Largest
even today. IFI is the European Investment Bank (1)
with balance sheet size of EURO 573 Billion
Types of Market Integration in 2016.
 Horizontal Integration – is a competitive  The International Financial Institutions
strategy that can create economics of scale, (IFIS) are
increase market power over distributors and o International Monetary Fund (IMF)
suppliers, increase product differentiation, o Multilateral Development Banks
and help businesses expands their market or (MDB’s) which include:
enter new markets. By merging two  World Bank
companies, they may be able to generate  African Development Bank
more revenue that they could have done  Asian Development Bank
independently. Horizontal Integration is  Inter-American Development
when a business grows by acquiring a Bank
similar company in their industry at the  European Bank for
same point of the supply chain. Reconstruction and
 Vertical Integration is the merging together Development
of two businesses that are at different stages
Multilateral Development Bank
of production – for example, a food
manufacturer and a chain of supermarkets.  It is an institution, created by a group of
Merging in this way with something further countries, that provides financing and
on in the production process (and thus closer professional advising for the purpose of
to the final consumer) is known as forward development. MDB’s have a larger
integration. Vertical Integration is when a memberships including both developed
business expands by acquiring another donor countries and developing borrower
company that operates before or after them countries. MDB’s finance projects in the
in supply chain. form of the long-term loans at market rates,
 Backward Vertical Integration is when a very-long-term loans (also known as credits)
company buys another company that below market rates, and through grants.
supplies the products or services needed for
production. Objectives of International Financial
 Forward vertical integration is conducted Institutions
by a company advancing along the supply
 To reduce Global poverty and improve
chain. A good example of forward
people’s living conditions and standards;
integration would be a farmer who directly
to support sustainable economic, social and
sells his crops at a local grocery story rather
institutional development; and to promote
than to a distribution center that controls the
regional cooperation and integration.
placement f foodstuffs to various
 IMF provides temporary financial assistance
supermarkets.
to member countries to help ease balance of
 Conglomerate Integration is a fusion of
payments adjustment.
companies involved in completely unrelated
 MDB’s provide financing for development
business activities. It is a merger of two
to developing countries through:
firms that have completely unrelated
o Long term Loans (with maturities
business activities. Examples of
conglomerate integration is Samsung – the of up to 20 years)
electronics giant also makes military o Very-Long-term loans (credits with
hardware, apartments, ships, and Samsung maturities to 30-20 years)
also Operates a Korean amusement park. o Grant financing by some MDS’s
for technical assistance advisory
International Financial Institutions service or project preparation.
 An International Financial Institution BRETTON WOODS CONFERENCE
(IFIS) is chartered by more than one country
and therefore are subjects to international  Formally known as the United Nations
law. Its owners or shareholders are generally Monetary and Financial Conference, was
national governments, although other the gathering of 730 delegates from all 44
international institutions and other allied nations at the Mount Washington,
organizations occasionally figure as
 Hotel situated in Bretton Woods, New organization would be put in place, became
Hampshire, United States, July 1-22, 1944. a forum for trade negotiations among states.
 During world war II to make financial  CONTAINMENT – means that the US
arrangements for the postwar world after the with its allies sought to encircle and isolate
expected defeat of Germany and Japan the adherents of communism from
 The conference was attended by experts international affairs.
noncommitally representing 44 states or  MARSHALL PLAN – extended huge
governments including the Soviet Union. It financial assistance to Europe, and
drew up a project for the International supported the Bretton Woods system.
Bank for Reconstruction and
Development (IBRD) to make long – term The Primary Dilemma Facing States
capital before the Bretton Wood System was
 Available to states urgently needing such between
foreign aid and a project for the International
 the desire for domestic autonomy in
Monetary Fund (IMF) to finance short term
economic policies.
imbalances in international payments in
order to estabilize exchange rates.  the desire stability of the international
monetary system
 Although the conference recognized that
exchange control and discriminatory tariffs National Intervention in Monetary Issues
would probably be necessary for some time Undermined the Stability of the System
after the war, it prescribed that such
measures should be ended as soon as  - Beggar-thy-neighbor policies
possible  or engaging in - Competitive currency
 After governmental ratifications the IBRD devaluations
was constituted late in 1945 and the IMF in  Two primary goals the dilemma between the
1946, to become operative, respectively, in domestic autonomy and international
the two following years. stability that the Bretton Woods system
sought to address.
PLANNING FOR THE POST –WAR o First, a system in which governments
GLOBAL ECONOMY would have a considerable leeway to
 During the last phase at the Second World pursue economic objective.
War delegates from different states o Second, a monetary order that would
assembled in the United States for the be based on fixed exchange rate to
Bretton Woods Conference. prevent currency manipulation.
 The objective was to set up a stable How did the Bretton Woods System Work
o a. Monetary System
o b. Trade System – that will help  There are requirements for a stable
prevent another great depression, international monetary system.
promote world trade and support  First, a system should provide liquidity to
postwar economic rehabilitation finance international transactions
institutions. LIQUIDITY – refers to the amount of
assets such as, money that can be available
The negotiations led to the creation of three to finance trade.
multilateral institutions.
 Second, it should specify adjustment
 First, the International Monetary Fund mechanisms or the methods to resolve
(IMF) was established to supervise the fixed balance of payments between balance of
exchange rate system and help countries payment disequilibria.
with their balance of payment problems. Balance of payment – refers to a payment
 Second, the International Bank for between a country and its trading partners.
Reconstruction and Development (IBRD,  Third, the system should provide
or the World Bank) Was created to assist in CONFIDENCE among states.
the recovery efforts and promotion of  If a state is suffering temporary balance of
investments. payment disequilibria the IMF would
 Third, the General Agreement on Tariffs provide a loan to that state.
and Trade (GATT), which served initially  But if a state is suffering fundamental
as an interim agreement until a trade balance of payment problems, the system
 would permit that state to change its  * In monetary system, this series of events
exchange rate. It refers to the system as led the US to announce in 1971 that it will
“EMBEDDED LIBERALISM” suspend the convertibility of dollar into gold
 * The Bretton Woods system broke down
US AND GLOBAL ECONOMY IN and the role of the IMF collapsed
DECLINE
Era of Structural Adjustment Program
 Starting the 1960's the US economy slowed
down, the foreign and domestic policies  In the 1960's and 1970's, the US and
pursued by the US administration had taken European policies facilitated growth in
their toll on the economy. direct foreign investments and global capital
 The escalating war in Vietnam markets. Financial flow found their way to
 The heavy government spending on public government in developing countries that
education were offered loans. The Philippines was
 Urban development had weakened US fiscal among these countries of destinations
position.  However, in 1979, the US Federal Reserve
 As INFLATION - hit the economy that raised the interest rates, its purpose was to
competitiveness of US goods and services in reduce inflation by contracting economic
the global economy declined. the confidence activity in the US. The effect of the
of US dollar had likewise fallen. contractionary policy was felt by the rest in
the global economy
Inflation  The rise of US interest rates was a wake-up
call to both borrowers and creditors many of
 is a quantitative measure of the rate at which
whom were US-based banks who suddenly
the average price level of a basket of
realized that many of the loans could not be
selected goods and services in an economy
repaid.
increases over a period of time
 The IMF was called in to prevent the
 it indicates a decrease in the purchasing
governments in developing countries from
power of a nation currency.
defaulting on their loans. There was
 increase in prices across in many goods and
apprehension that it would cause a global
services in an economy over a sustained
financial crisis. Some critics in the
period of time.
Philippines argued that the country could
 around this time other states were fast
have issued a a moratorium on its debt
catching up. In Europe member - states of
servicing, to address more pressing issues of
the European Economic Community
poverty and income redistribution, which it
(EEC) had greatly benefited from the
was constrained to do because of the tough
intensification of regional economic
conditions imposed by the IMF.
integration.
 The IMF ensured that indebted countries
 this resulted in the less reliance on the US
undertook structural adjustment measures.
not only on the aspect of economic but also
These measures include
of security. In Asia the success of
o Reducing government spending
developmental states in Japan, South Korea
o Tax Reform
and Taiwan in promoting export - oriented
o Trade Liberalization
industrialization posed a serious challenge
for US trade position. o Liberalization of inflows of foreign
 In the 1970's the global economy also direct investment
slowed down. o Privatization and deregulation.
 The primary cause was the Oil Crisis in  These neo - liberal policies, later to be
1973. labelled collectively as the WASHINGTON
 When the Arab member states of the CONSENSUS, aimed to minimize the role
organization of the Petroleum Exporting of the state in the economy.
Countries (OPEC) imposed an embargo after The Philippines and the 1980's Debt
US and its allies decided to supply arms to
Crisis
Israel during the Yom kippur war.
 * The oil crisis plunge the world economy  As part of undertaking the structural
into stagflation, a phenomenon in which lack adjustment programs, during the debt crisis,
of economic growth as accompanied by high the Philippines shifted towards all-out trade,
prices. investment and finance liberalization
 policies together with cuts on public Reasons for Foreign Corporate
spending and privatization / deregulation of Investments
public services to arrest negative balance of
payments. It also started unilateral tariff  Market - seeking
reduction programs together with lifting of  Resource - seeking
import restrictions on key products as well  Strategic asset - seeking
as reduction or withdrawal of domestic  Efficiency – seeking
support for agriculture
Perspectives on Economic Globalization
END OF COLD WAR
 Hegemonic Theory - argues that the
 Aid Conditionality - to promote good preponderance of power and the willingness
governance among members. of the US to act as a hegemon made possible
 East Asian Crisis (1997) - started in the establishment of a liberal global
Thailand and spread across East Asia,
showed that IMF might have gone too far in Reasons for Foreign Corporate
imposing conditionality. Investments
 2008 Global Recession and recently the
 Neo - Liberal Institutionalist Theory -
Eurozone Crisis - The measures required
explains that international institutions such
among European countries where the
as, the IMF, World Bank, and the GATT,
Eurozone crisis erupted include cutbacks on
have an independent impact on the global
government spending and raising of taxes
economy.
MULTINATIONAL CORPORATIONS
 Multinational Corporations (MNC's) is a
striking feature of contemporary economic
Global Divide
globalization. Individuals consume goods  It Is A Disparities In Income And Living
and services produced by MNC's. Conditions Between The Advance
 Are organizations that own or control Industrialized States And Developing States
overseas companies or production or service
facilities in one or more countries other than Gross Domestic Product
the home country. Other refer to them as  This measure of income is used to measure
Transnational Corporations (TNC's) which
of how countries are improving or
connotes operations in more than one
deteriorating based on the development
country
aspect
 Their proliferation can be attributed largely
to the liberalization of trade and 15 Countries with Highest GDP
investments. According to Kenichi Ohmae (Nominal)
(1990), they are “a natural response to a
borderless world economy.  UNITED STATES $20.89 trillion
 Economies of Scale - a situation where  China: $14.72 trillion
firms incur falling average cash with  Japan: $5.06 trillion
increase in the volume of production. With  Germany: $3.85 trillion
open markets, firms can produce and sell  United Kingdom: $2.67 trillion
goods or services in multiple locations  India: $2.66 trillion
 Foreign Direct Investment (FDI) - the  France: $2.63 trillion
entry into a business enterprise in one  Italy: $1.89 trillion
country by an entry based in another  Canada: $1.64 trillion
country, or through Portfolio Investment,  South Korea: $1.63 trillion
which is a passive investment on securities  Russia: $1.48 trillion
(as stocks and bonds) in a host country.  Brazil: $1.44 trillion
 Australia: $1.32 trillion
 Spain: $1.28 trillion
 Indonesia: $1.05 trillion
10 COUNTRIES WITH HIGHEST GDP  The HDI can also be used to question
(PPP) national policy choices, asking how two
countries with the same level of GNI per
 CHINA capita can end up with different human
 US development outcomes.
 European Union  The Human Development Index (HDI) is
 India a summary measure of average achievement
 Japan in key dimensions of human development: a
 Germany long and healthy life, being knowledgeable
 Russia and have a decent standard of living
 Indonesia  HDI dimension
 Brazil o INCOME
 United Kingdom o LIFE EXPECTANCY
 France o EDUCATION

Income Inequality COMPETING PERSPECTIVES ON

GLOBAL DIVIDE
 A measure of how the wealth in the
economy is distributed among the MODERNIZATION THEORY
population
 Proponents Of this Theory Argue That
Poverty Society Undergoes Stages Of Growth And
Move From Being A Traditional Society To
 Is A State or Condition In Which A Person A Modern One.
Or Community Lacks The Financial  Poverty Is The Primordial Condition Of
Resources And Essentials For A Minimum Humanity.
Standard Of Living.  All Societies Were Once Poor; But To
 Absolute Poverty Overcome It, Societies Must Advance From
o Refers To Income Below The Traditionalism To Modernization
Minimum Level Required For
Physical Survival. DEPENDENCY THEORY
o A Condition Characterized By  It Argues That The Root Cause Of Poverty
Severe Deprivation Of Basic Human And Underdevelopment Is Imperialism As
Needs, Including Food, Safe Well As The Dependency Of Poor Nation
Drinking Water, Sanitation Facilities, On Rich Nations.
Health, Shelter, Education And  It Is A Counter argument To Modernization
Information. Theory, Which Prescribes That Developing
o In 2018, Extreme Poverty Widely Countries Must Follow The Path Of The
Refers To Making Below The Developed Nations.
International Poverty Line Of
$1.90/Day STAGE 1: TRADITIONAL SOCIETY
 Moderate Poverty STAGE 2: TRANSITIONAL SOCIETY
o Basic Needs Are Barely Met But
Survival Is Not Actually Threatened. STAGE 3: TAKE-OFF
o People In Moderate Poverty STAGE 4: DRIVE TO MATURITY
Generally Have Access To The Basic
Necessities Of Life, But They Do STAGE 5: HIGH MASS CONSUMPTION
Not Have Much If Any Disposable *Rises over Time
Income Beyond That.
o In Moderate Poverty As Less Than “ENDO”
$2 Or $5 A Day
 It is a form of contractualization which
HUMAN DEVELOPMENT INDEX involves companies giving workers
temporary employment that last them less
 The HDI was created to emphasize that than six months and then terminating their
people and their capabilities should be the employment just short of being regularized
ultimate criteria for assessing the in order to skirt on the fees which come with
development of a country, not economic regularization. some examples of such
growth alone.
 benefits contractual workers don't get as
compared to regularized workers are the
benefits of having an employer and
employee SSS, PHILHEALTH, and the
PAG-IBIG housing fund contribution,
unpaid leaves, and the 13th month pay,
among others.
NEO-LIBERAL THEORY
 The Intellectual Basis For Neo-liberal
Theory Comes From Neo-classical
Economics, Which Combines Arguments
Supportive Of Free Market With
Scientifically Inclined School Of
Economics.
 On The International Level, The IMF And
The World Bank Champion Their Own
Form Of Neo-classical Economics Through
The Ideals Of Structural Adjustments.
 It Calls Nations To Reduce Government
Spending And Bureaucracy To Encourage
Free Markets, To Export, And To Encourage
Entrepreneurship, As Well As To Entice
Foreign Investment And Foreign
Technology.
 For Economists, The Culprits Are
Paternalistic Politics That Favour Cronyism,
Corruption, And Bloated Bureaucracies.
WORLD SYSTEM THEORY
 The argument of dependency thinkers that
the cause of underdevelopment and poverty
is external intervention continues in world
system theory, developed by Immanuel
Wallerstein. (CORE CENTER POWERS &
SEMI-PERIPHERAL COUNTRIES, &
PERIPHERY)