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The Global Economy TCW Lesson 3

Economic globalization refers to the increasing economic integration and interdependence between countries through cross-border movement of goods, services, technologies, and capital. It has increased due to improvements in transportation and communication technologies as well as reductions in trade barriers. While globalization has increased incomes and economic growth, it has also changed power dynamics between developing and developed countries and impacted local cultures. Factors driving further economic globalization include containerization, technological advances, economies of scale, tax competition between countries, and growth strategies of multinational companies.

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2K views3 pages

The Global Economy TCW Lesson 3

Economic globalization refers to the increasing economic integration and interdependence between countries through cross-border movement of goods, services, technologies, and capital. It has increased due to improvements in transportation and communication technologies as well as reductions in trade barriers. While globalization has increased incomes and economic growth, it has also changed power dynamics between developing and developed countries and impacted local cultures. Factors driving further economic globalization include containerization, technological advances, economies of scale, tax competition between countries, and growth strategies of multinational companies.

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Emjhay Rodriguez
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THE GLOBAL ECONOMY

Economic globalization is one of the three main dimensions of globalization commonly found
in countries, academic literature, with the two others being political globalization and cultural
globalization, as well as the general term of globalization.[1] Economic globalization refers to the
widespread international movement of goods, capital, services, technology and information. It is
the increasing economic integration and interdependence of national, regional, and local
economies across the world through an intensification of cross-border movement of goods,
services, technologies and capital.[2] Economic globalization primarily comprises the
globalization of production, finance, markets, technology, organizational regimes, institutions,
corporations, and labour.
While economic globalization has been expanding since the emergence of trans-national trade, it
has grown at an increased rate due to improvements in the efficiency of long distance
transportation, advances in telecommunication, the importance of information rather than
physical capital in the modern economy, and by developments in science and technology.[4] The
rate of globalization has also increased under the framework of the General Agreement on
Tariffs and Trade and the World Trade Organization, in which countries gradually cut down
trade barriers and opened up their current accounts and capital accounts.[4] This recent boom has
been largely supported by developed economies integrating with developing countries
through foreign direct investment, lowering costs of doing business, the reduction of trade
barriers, and in many cases cross-border migration.
While globalization has radically increased incomes and economic growth in developing
countries and lowered consumer prices in developed countries, it also changes the power balance
between developing and developed countries and affects the culture of each affected country.
And the shifting location of goods production has caused many jobs to cross borders, causing
some workers to change careers.

Factors Affecting Economic Globalization

Containerization
The costs of ocean shipping have come down, due to containerization, 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 labor costs and other favorable 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.

Growth Strategies of Transnational and Multinational Companies


In their pursuit of revenue and profit growth, increasingly global businesses and brands have
invested significantly in expanding internationally. This is particularly the case for businesses
owning brands that have proved they have the potential to be successfully globally, particularly
in faster-growing economies fueled by growing numbers of middle-class consumers.

The World System


A world-system is a socioeconomic system, under systems theory, that encompasses part or all
of the globe, detailing the aggregate structural result of the sum of the interactions
between polities. World-systems are usually larger than single states, but do not have to be
global. The Westphalian System is the preeminent world-system operating in the contemporary
world, denoting the system of sovereign states and nation-states produced by the Westphalian
Treaties in 1648. Several world-systems can coexist, provided that they have little or no
interaction with one another. Where such interactions becomes significant, separate world-
systems merge into a new, larger world-system. Through the process of globalization, the
modern world has reached the state of one dominant world-system, but in human history there
have been periods where separate world-systems existed simultaneously, according to Janet Abu-
Lughod. The most well-known version of the world-system approach has been developed
by Immanuel Wallerstein. A world-system is a crucial element of the world-system theory, a
multidisciplinary, macro-scale approach to world history and social change.

World-systems are defined by the existence of a division of labor. The modern world-system has
a multi-state political structure (the interstate system) and therefore its division of labor is
international division of labor. In the modern world-system, the division of labor consists of
three zones according to the prevalence of profitable industries or activities: core, semiperiphery,
and periphery. Countries tend to fall into one or another of these interdependent zones core
countries, semi-periphery countries and the periphery countries.[1][2] Resources are redistributed
from the underdeveloped, typically raw materials-exporting, poor part of the world (the
periphery) to developed, industrialized core.
World-systems, past world-systems and the modern world-system, have temporal
features. Cyclical rhythms represent the short-term fluctuation of economy, while secular
trends mean deeper long run tendencies, such as general economic growth or decline.[3] The
term contradiction means a general controversy in the system, usually concerning some short
term vs. long term trade-offs. For example, the problem of underconsumption, wherein the drive-
down of wages increases the profit for the capitalists on the short-run, but considering the long
run, the decreasing of wages may have a crucially harmful effect by reducing the demand for the
product. The last temporal feature is the crisis: a crisis occurs, if a constellation of circumstances
brings about the end of the system.
The world-systems theory stresses that world-systems (and not nation states) should be the basic
unit of social analysis.[2][3] Thus we should focus not on individual states, but on the relations
between their groupings (core, semi-periphery, and periphery).

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