The global economy

What is economic globalization?

• Globalization has been the buzzword
since the end of the cold war in the
late 1980s.

• Free flowing of goods had increased

dramatically in the second half of the
21st century.
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What is economic globalization?

✖ IMF defined economic globalization as a
historical process, the result of human
innovation and technological progress.
✖It refers to the increasing integration of
economies around the world, particularly
through the movements of goods, services
and capital across boarders (IMF, 2008).
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What is economic globalization?

✖ The term sometimes also refers to the

movement of people and knowledge
across international boarders.
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Economic globalization has several in

interwoven dimensions
1. The globalization of trade of goods and
services;
2. The globalization of financial and capital
markets;
3. The globalization of technology and
communication; and
4. The globalization of production
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✖A closer description of economic globalization is

internationalization.
✖But the two is distinct such that the former is on
qualitative transformation of functional integration
between internationally dispersed activities while
the latter is more on quantitative change (Diken,
2004).
✖Meaning it is more about the extension of economic
activities of nation states across boarders.
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✖In economic terms, globalization is

incorporating the world’s economy as an
“organic system” by extending transnational
economic processes and economic relations to
greater countries and deepening economic
interdependence (Szentes, 2003).
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Confluence vs. divergence

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Confluence vs. divergence

Confluence Divergence

✖Convergence ✖Divergence
generally means generally means
coming together moving apart.
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Confluence vs. divergence

✖ In the world of finance and trading,

convergence and divergence are terms
used to describe the directional
relationship of two trends, prices, or
indicators.
 Confluence vs. divergence
11

Is globalization the answer to end, if not minimize,

inequality and dehumanizing poverty in the peripheries?
Or would it only make the poor worse off and benefit
more the rich? Why most poor countries failed to catch
up with developed ones?
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WAVES OF
ECONOMIC
GLOBALIZATION
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WAVES OF ECONOMIC GLOBALIZATION

The
Early Keynesian The Neo-
Liberal
Wave Liberal
Wave
Wave
 EARLY WAVE
14

• Boudreaux (2008) aptly described the primary

reason people engage in trade so that “each
party expects to be made better off by that
trade.”
• Through trade the exchange is not limited
merely to goods and services there is also
more important and that is ideas and
knowledge.
 EARLY WAVE
15

• This trade did not only transpire from its

close neighbors but encompasses for
thousands of miles.
• Famous of which that lasted for 2,000 years,
from ancient times into the 16th century was
known as the Silk Road.
• The coverage of this trade was so vast
connecting by land and sea from Asia to the
far end of Europe, Middle East, as well as
Africa.
 EARLY WAVE
16

• During this period traded goods, silk, spices,

ceramics, textile, compasses, gun powder
from India and China (Frank, 1998).
• By middle ages, trade increased and expanded
due to more treaties signed by nations for a
safe passage and secure trade.
However, This growing trade was hampered
becausee the feudal economic system was self
sustaining.
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EARLY WAVE
• Manorial structure promoted economic self
sustenance by producing their own needs
thereby negating any chances 4th raid outside
the Manor.
• When feudal system weekend and capitalism
increased, this gave an impetus to spur
economic globalization.
 EARLY WAVE
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• The age of exploration, from early 15th to 17th

century was the pivotal era that “changed the
shape of the world in the course of history”
(Roberts, 1992).
• European made an unprecedented levels of
exploration because of the growing numbers
of professional explorer and navigators.
• European ships traveled around the world in
search for trading routes and new lands to
colonize.
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Maps

our office
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The Keynesian liberal wave

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The Keynesian liberal wave

✖In anticipation of the inevitable end of the
Second World war, 44 countries headed by the
United States of America in Great Britain
gathered in Bretton Woods, New England to
frame new international economic policies
that will regulate trade and financial
agreement.
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The Keynesian liberal wave

✖Economic setbacks in the Inter war years From

1918- 1938 such as The Great Depression in
1929 and 1930s motivated political and financial
leaders to set the institutional foundations for
the establishment of three international
economic organizations.
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The Keynesian liberal wave

✖The International Monetary Fund was established to
administer responsibility to coordinate and regulate
International Monetary transaction as well as to
promote global economic prosperity and political
stability.
✖The international bank for reconstruction and
development became known as World Bank, primarily
designed for the Marshall Plan to extend financial loans
to reconstruct the devastated economies in Europe. By
1950s Loans were expanded to the developing countries
in the world to provide funds to finance various
industrial projects (Steger, 2002).
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The Keynesian liberal wave

✖The General Agreement on Tariffs and Trade what's
established in 1947 charged in grafting in policing
multilateral trade agreements.
✖Then it became World Trade Organization in 1995.
✖Since the 1990s WTO became the subject of great
controversy over the policies imposed that have made
more developing countries worse off.
✖The Bretton Woods goals and strategies we're
macroeconomic stability import substitution an
governance reform.
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Macroeconomic stability
✖ The term "Macroeconomic Stability" describes a national economy
that has minimized vulnerability to external shocks, which in turn
increases its prospects for sustained growth.
✖ To maintain macroeconomic stability, the US dollar was the only
international standard currency of choice peg at $35 for ounce of
gold.
✖ Each country set a value for its currency and pledged to maintain
the value within a range of variations to eliminate extreme
volatility.
✖ The IMF was expected to maintain an equilibrium functioning of
the gold standard that if a certain country get short of its balance of
payments financial assistance is provided.
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The Asian financial crisis of 1997

✖The Asian financial crisis was a period of financial crisis

that gripped much of East Asia and Southeast Asia
beginning in July 1997 and raised fears of a worldwide
economic meltdown due to financial contagion.
✖By the last quarter of 1997 the entire region was into
crisis and escalated to other parts of the world.
✖The 1997 Asian financial crisis threatening the entire
world was the worst such crisis since 1973 OPEC price
hike.
 Import substitution
27

✖Domestic industries were built in the 50s and 60s to

replace imported products and promote domestic
industrial development and eventually achieve
industrialization.
✖This will move people from primary industry into
manufacturing and better jobs.
✖Improvement of jobs creates substantial demand for
goods and services.
✖Some developing nations recovered rapid growth , such
as Brazil, Mexico, Argentina, and some in Africa and
Middle East.
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Governance reform

✖Article IV of the Bretton Woods agreement

stipulates “members” exchange rate policies,
avoid pursuing policies that are designed to either
interfere with the adjustment process or gain an
unfair competitive advantage over other
members.
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The Neoliberal wave

✖After the dissolution of the Bretton Woods a new set of
policies were introduced: neoliberalism and the
Washington consensus.
✖Neoliberalism economic policies were grounded under
the laissez-faire principal that market is the
fundamental dominant decision maker.
✖Joseph Stiglitz aptly described neoliberal doctrine is
more on freedom from the government in terms of
taxation, freedom from Regulation
 The Neoliberal wave
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✖At term Washington consensus was named after

the key players in Washington headed by
President Ronald Reagan of US and Prime
Minister Margaret Thatcher of England.
✖Washington consensus as defined by John
Williamson, president of World Bank in the
1970s, required governments to implement the
following structural adjustments in order to
qualify for loans
 The Neoliberal wave
31

1. A guarantee of fiscal discipline, and a curb to budget

deficits;
2. a reduction of public expenditures , particularly in the
military and public administration;
3. tax reform, aiming at the creation of a system with a broad
base and would effective enforcement;
4. financial liberalization, with interest rates determined by
the market;
5. competitive exchange rates, to assist export led growth;
6. Trade liberalization, coupled with the abolition of import
licensing and a reduction of tariffs;
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The Neoliberal wave

7. Promotion of foreign direct investment;
8. privatization of state enterprises, leading
to efficient management and improved
performance;
9. deregulation of the economy; and
10. production of property rights.
 The power of transnational Corporation
33

✖International companies are importers in

exporters, typically without investment outside
of their home country.
✖Multinational companies have investments in
other countries, but do not have coordinated
product offerings in each country. They are more
focused on adopting their products and services
to each individual local market.
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The power of transnational Corporation

✖Global companies have invested in and are
present in many countries. They typically
market their products and services to each
individual local market.
✖Transnational companies are more complex
organizations which have a central Corporation
facility but give decision making, research and
development and marketing powers to each
individual foreign markets.
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There are three fundamental innovations

that have substantially changed the character of
global Corporation.
First was the advent and impact of
digitalization in instantaneous global
communication.
Second, the structural transformation of
global Commerce from producer driven
commodity chains to buyer driven.
Third, the increasing role performed through
the global system by financial elements an
emergence of the global financial firm.