GLOBALIZATION FOR STEGER (2003)

• Globalization refers to a multidimensional set of social processes that

create, multiply, stretch, and intensify worldwide social
interdependencies and exchanges while at the same time fostering in
people a growing awareness of deepening connections between the local
and the distant.
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GLOBAL
The
ECONOMY
J O H N W AY N E V. J A C I N T O , P H D
 LEARNING OUTCOMES

• Explain economic globalization;

• Tell the historical events which led to global
market integration;
• Identify the actors that facilitate economic
globalization; and
• Defend a stance on global economic
integration.

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Source:http://induced.info/?s=Supply+Chain+Management+Boeing+And+A
irbus++UK+Essays
 CRUDE ATTEMPT OF DEFINING ECONOMIC
GLOBALIZATION

First Component:
• Increasing trade relations among countries
• Exports of goods and services – earning foreign exchange ($, yen, euro)
income
• Imports of goods and services – payment using foreign exchange (Lim
2017)
• Note: Trade mostly in goods but, increasingly, also in services
 CRUDE ATTEMPT OF DEFINING
ECONOMIC GLOBALIZATION
Second Component
• Increased flow of persons (embodying labor) in and out of countries
• Important for the Philippines – OFWs,
• earning income and foreign exchange
but criticized sometimes as brain drain
• Controversial for developed countries (e.g. Trump’s views)
• Immigrants seen as stealing jobs from the country’s citizens
• Immigrants seen as bringing in bad/ inferior culture, crime, terrorism
(non-economic dimension) (Lim 2017).
 CRUDE ATTEMPT OF DEFINING
ECONOMIC GLOBALIZATION
Third Component
• Flow of finance and capital in and out of countries
• Foreign Direct Investments (LT, MNCs)
• Medium and LT Foreign Debts (LT)
• Short Term Foreign Debts (ST)
• ST debt is called ‘hot money’: they can easily go in and out of the country
especially with modern telecommunication and computer technology (Lim
2017).
 CRUDE ATTEMPT OF DEFINING
ECONOMIC GLOBALIZATION
• Recent globalization processes have resulted in global production
networks and global value chains (google and wiki)
• More radical thinkers view this as the rise of global factories,
with economic governance and power moving away from
nation-states to MNCs. Some even make this the definitive
character of globalization
• Most, however, still view national governments as critical
policy makers in economic processes and plans (Lim 2017).
 WHAT IS ECONOMIC GLOBALIZATION?

• “The International Monetary Fund (IMF) regards “economic

globalization” as a historical process representing the result of
human innovation and technological progress (Claudio &
Abinales, 2018).
• “Economic globalization refers to the intensification and stretching
of economic interrelations across the globe.” (Steger, 2003)
 ECONOMIC GLOBALIZATION

➢It is characterized by increasing integration of

economies around the world (Claudio &
Abinales, 2018).
The world GDP Foreign direct
increased from investments
42.1% in 1980 to US$ 57 billion in 1982
62.1% in 2007.
US$ 1.76 trillion in 2015

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 FACTORS FACILITATING ECONOMIC GLOBALIZATION
AMONG COUNTRIES
For trade and finance (capital):
• Improved transportation systems
• Improved technology, info and telecommunications
• Increased surpluses and capital searching for markets (corporations and
MNCs)
• Economic policies aimed at opening up trade and capital account
liberalization (opening up flow of capital and money going in and out of
country)
For labor or person flows:
• Lack of economic opportunities in poorer countries driving people to search
for employment abroad
• improved transpo, cross border arrangements, and info systems (Lim 2017).
 INTERNATIONAL TRADING SYSTEMS

➢Silk Road – oldest known international trade route (130 BCE

network of pathways – from China to what is now the Middle
East and to Europe) (Claudio & Abinales, 2018).
➢Flynn & Giraldez as cited in Claudio & Abinales (2018) said
that the age of globalization started during the time when
all important populated continents exchanged products
continuously.
➢They traced this back in 1571 with the establishment of
galleon trade.

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 INTERNATIONAL TRADING SYSTEMS

➢The galleon trade was part of the age of mercantilism.

➢A more open trade system emerged in 1867 when UK, US
and other European nations adopted the gold standard at an
international monetary conference in Paris.
➢The countries established a common basis for currency prices
and a fixed exchange rate system (all based on the value of
gold) (Claudio & Abinales, 2018).

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 INTERNATIONAL TRADING SYSTEMS

➢Despite facilitating simpler trade, the gold standard was still a

very restrictive system, as it compelled countries to back their
currencies with fixed gold reserves.
➢WWI forced countries to abandon gold standard as there was a
depletion of gold reserves necessary to fund their armies
(Claudio & Abinales, 2018).

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 THE BRETTON WOODS SYSTEM

➢After the two world wars, the world leaders sought to

create a global economic system that would ensure a
longer-lasting global peace.
➢One of the ways to achieve the above system was to set up a
network of global financial institutions that would promote
economic interdependence and prosperity.
➢Bretton Woods System was inaugurated in 1944 during
the United Nations Monetary and Financial Conference
(Claudio & Abinales, 2018).

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 THE BRETTON WOODS SYSTEM

➢The Bretton Woods System was largely influenced by the

ideas of British economist John Maynard Keynes who
believed that economic crises occur not when a country
does not have enough money, but when money is not
being spent and thereby not moving (Claudio & Abinales,
2018).

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 NEOLIBERALISM AND ITS DISCONTENTS

• Global Keynesianism came in the mid-1940s to the early 1970s.

• Governments poured money into their economies.
• Western and some Asian economies like Japan accepted this rise
in prices because it was accompanied by general economic
growth and reduced unemployment (Claudio & Abinales, 2018).
 NEOLIBERALISM AND ITS DISCONTENTS

• Hayek and Friedman as cited by Claudio & Abinales (2018)

argued that government intervention in economies distort the
proper functioning of the market. Thus, what emerged was a
new form of economic thinking that critics labeled neoliberalism.
 THE GLOBAL FINANCIAL CRISIS AND THE
CHALLENGE TO NEOLIBERALISM

• Russia’s case was just one example of how the “shock therapy” of
neoliberalism did not lead to the ideal outcomes predicted by
economists who believed in perfectly free markets.
• The crisis spread beyond the US since many investors were
foreign governments, corporations and individuals.
 ECONOMIC GLOBALIZATION TODAY

• The global crisis will take decades to resolve.

• The proposed solutions of nationalist and leftist groups of closing
national economies to world trade, however, will no longer work.
• Economic globalization remains uneven process.
 THE WORLD SYSTEMS THEORY

• “The world systems theory, developed by sociologist Immanuel

Wallerstein, is an approach to world history and social change that
suggests there is a world economic system in which some
countries benefit while others are exploited” (Hurst, M. n.d.)
 THE WORLD SYSTEMS THEORY

The main characteristics of this theory are:

• The world systems theory is established on a three-level hierarchy consisting
of core, periphery, and semi-periphery areas.
• The core countries dominate and exploit the peripheral countries for
labor and raw materials.
• The peripheral countries are dependent on core countries for capital.
• The semi-peripheral countries share characteristics of both core and
peripheral countries.
• This theory emphasizes the social structure of global inequality.
Source: https://medium.com/@kendallgrace15/periphery-
role-in-the-world-systems-theory-fa5d291cac55
• Source:
https://www.google.com/url?sa=i&source=images&cd=&ved=2ahUKEwi3huGpj7beAhWLerwKHY
2eBLgQjRx6BAgBEAU&url=http%3A%2F%2Fsocdev.ucpress.edu%2Fcontent%2F1%2F1%2F14
9&psig=AOvVaw2H_G6EZNgfbapaIZzJMA0y&ust=1541261388333032
 THINGS TO PONDER

• When do you think the Philippines started to experience economic

globalization?
• What are the actors which facilitated this experience?
• Does global economic integration bring more good than harm among
developing countries like the Philippines? How?
 DEBATE ON TRADE LIBERALIZATION: PRO-MARKET
ARGUMENTS
• Pro:
• Exposure to international competitiveness good for improving
efficiency and shaping up domestic firms
• Theory of comparative advantage – concentrate on your
country’s natural advantages and all countries will benefit
• International trade exposes the country to the latest and most
efficient technologies and products thus benefiting the
country’s productivity and quality of goods & services (Lim
2017).
 DEBATE ON TRADE LIBERALIZATION

Con (Hypocrisy of developed countries):

• Developed countries practice hypocrisy by not liberalizing their
imports (especially for agricultural and ‘sensitive’ products, but force
developing countries to fully liberalize their imports
• Trade negotiation power is stronger with developed countries (the
‘Green Room’ in WTO) (Lim 2017).
 DEBATE ON TRADE LIBERALIZATION

Con (market failures):

• Countries will benefit from trade liberalization only if they achieve a certain
level of economic development and technological capability, and have the
proper social, legal and political institutions. Just opening up may lead to
disaster. (Rodrik)
• Domestic firms need time for ‘learning by doing’ and will be killed
prematurely by imports
• Liberalization increases the developing countries’ vulnerability to world
shocks like the global recession/ crisis and global trade downturn in 2008 to
the present.
 DEBATE ON TRADE LIBERALIZATION

Con (market failures):

• Countries with more advanced technology will have advantage in prices and
exports, while more countries concentrating on primary and mineral
products will be relegated to low value-added exports (Lim 2017).
 DEBATE ON CAPITAL ACCOUNT LIBERALIZATION

Pro
• Opening up the capital account will lead to availability of needed
funds by the country
• As long as the country or economy has strong macroeconomic
fundamentals, it would not experience massive capital/ financial
outflows.
• The country has to demonstrate it has the confidence of
international finance so that investors will want to have long run
commitment to the country (Lim 2017).
 DEBATE ON CAPITAL ACCOUNT LIBERALIZATION

Con
• Developing economies suffer contagion from global financial
crises experiencing
• massive capital flight,
• depletion of foreign exchange reserves,
• debilitating currency depreciation,
• inability to pay foreign debt (debt default) –
• leading to financial and economic collapse (Lim 2017).
 DEBATE ON CAPITAL ACCOUNT LIBERALIZATION

Con
• During bad times, there is massive and unstoppable capital flight
(by both foreign and domestic capital) as described earlier (Lim
2017)..
Important caveats:
• Economic globalization occurred in the context of historical processes – e.g.
colonization, industrial revolution, market and liberal democratic beliefs
• Above components involve information and technology flows and transfers
• Above components have
• impact on social and political processes
• Impact on culture
• Impact on environment and natural resources

Ultimately, there is no purely economic globalization or purely economic global

relations – they are part of historical, social, political and cultural processes (Lim
2017).
 REFERENCES

• Claudio, L. E. & Abinales, P. N. (2018). The Contemporary World.

Philippines: C & E Publishing, Inc.
• Hurst, M. (n.d). World Systems Theory: Core vs. Peripheral Societies.
Retrieved from https://study.com/academy/lesson/world-systems-theory-core-
vs-peripheral-societies.html
• Lim, J.A. (2017). Economic Globalization: Increasing Interdependent
Economic Relations Among Countries (PowerPoint Presentation).
• Steger, M.B. (2003). Globalization A Very Short Introduction. New York:
Oxford University Press.
 THANK YOU!

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World