UNIT II.

THE GLOBAL ECONOMY

Overview
This unit will provide you a deeper understanding of how economic globalization takes place in
our society. Nonetheless, this unit will enlighten you of the possible realities when it comes to the
role of each and every institution in our economic system. the different forms of economic
integration will also be included in this unit to help you decide on the advantages and
disadvantages of a specific economic integration.
Learning Objectives

At the end of the unit, I am able to:

1. define economic globalization;

2. identify the actors that facilitate economic globalization;
3. define the modern world-system; and
4. articulate a stance on global economic integration.
Setting Up

Name: __________________________________________________ Date:____________

Course/Year/Section: ________________________________
Directions: According to Immanuel Wallerstein the modern world system is composed of
nations under the category of Core, Semi-Periphery, and periphery. In this regard, identify the 5
nations for each category: Periphery, Semi-Periphery, and Core. Write it in a separate sheet of
paper.

Lesson Proper

GLOBAL ECONOMY

Local products of the Philippines such as Marikina Shoes, Datu Puti Vinegar, Philippine Dried Fish,
and other products are usually available not only here in the Philippines but also in other
countries such as in America and Canada. The accumulation, importation, and exportation of
goods and commodities from one country to other countries and vice-versa is best explained by
the economic globalization.
Economic Globalization refers to the increasing interdependence of world economies as a result
of the growing scale of cross-border trade of commodities and services, flow of international
capital and wide and rapid spread of technologies (Shangquan, 2000). Economic globalization is
not only limited in goods as it also involves, capital, labor, migration and anything that is related to
goods and services.
From the viewpoint of the International Monetary Fund, Economic Globalization is a historical
process that was the outcome of human evolution from traditional and primitive technology to the
present technological advancement. It refers to the increasing integration of economies around
the world, mainly through the movement of goods, services, and capital across borders.
Interconnected Dimensions of Economic Globalization

1. Goods and Services: Goods are tangible objects that satisfy people's wants. Services are
actions, such as haircuts and car repair, which also satisfy people's wants.
2. Capital: It is the total assets a company needs to stay solvent. A company’s capital assets are
significant because organizations use capital assets to create wealth.
3. Communication and Technology: Advances in Communication and technology has allowed
the integration of economies worldwide through increases in trade, investment flows, and
technology transfer.
4. Market Exchange: it is an economic system in which goods and services are produced,
distributed, and exchanged by the forces of price, supply, and demand.
ECONOMIES ASSOCIATED WITH ECONOMIC GLOBALIZATION

PROTECTIONISM: Protectionism refers to government policies that restrict international trade by

imposing tariffs, quotas, product standards, and subsidies.
Reason for the implementation of strict policies
a. Its goal is to improve the domestic economy by forcing its citizen either direct or indirect to
purchase local products instead of imported products.
b. For safety and quality concerns of both imported and exported products

Primary policy tools

a. Tariffs: These are charges to importing countries in the form of either money or goods that
will serve as a payment for allowing its international products to be sold in the local market. It
also raises revenues of the government and protects domestic products from foreign
competition due to the price hike of imported goods.
b. Import Quotas: This is a kind of tariffs that lessens the number of products that can be
imported for a certain period of time. It protects its domestic businesses by allowing its local
businesses to cover the shortfall of certain products. Thus, it helps the local market to increase
its production that may also increase the number of local products in market.
c. Product Standards: This is a kind of barrier that imposes strict standards in imported
products which may make it difficult for different importing countries to bring their goods in
the local market. Thus, the restriction increases the volume of local products.
d. Government Subsidies: incentives and cash payments are distributed to domestic businesses
to encourage them to expand their market globally by increasing international export. Thus,
the government may strengthen its local market.
Advantages of Protectionism:
a. Taxes imposed on exporter countries may increase government revenues.
b. Strict and rigid policies may protect domestic product
c. Encourages the exportation of national products which may expand their products
globally.
Disadvantages of protectionism:
a. Protectionism policies often time support other countries to make their own protection
policy as well. Hence, it inhibits the exportation of each other products that may result in
less profit

TRADE LIBERALIZATION:
It is the process of removing or reducing the barriers or restrictions in the exchange for goods
between and among nations. With the reduction of barriers such as tariffs and import quotas in
the process of exchanging goods and services, it significantly reduces the cost of goods sold by the
importing countries. Thereby, allowing an increase of exchange between and among countries.
Thus, the proponents of trade liberalization believe that reduction of barriers ultimately lessen
consumer costs while increasing efficiency, and fostering the growth of the economy.
Advantages of Trade Liberalization
a. As it promotes free trade between and among countries, the cost of importing nations in
bringing their goods to other countries is most likely to be lessened. This event may likely
result in lower consumer prices due to lower fees of importing nation and an increase in
competition among local and international businesses.
b. Promotes efficient use and allocation of world resources
c. Increases Capital Flow
d. Allows developing countries access to the heavily protected markets of the developed
world thus helping promote development
e. It encourages specialization among countries by maximizing their capabilities whether to
manufacture goods or provide services. This scenario is related to the concept of
comparative advantage wherein one specializes in which they can gain the most
profitable.
f. It can lead to a higher efficiency of producers.
g. It can attract foreign investment

Disadvantages of Trade Liberalization

a. It can affect local businesses and their domestic product.
b. The possible risk may be experienced if the products or raw materials coming from other
countries have a lower environmental standard.
c. Developing nations may be threatened to back out in the global market as they are forced
to compete in the same market with other nations possessing stronger economies.
d. Countries with lower educational standards may struggle to adapt to a changing economic
environment.
e. It can exploit the natural resources due to the competition and shallow environmental
policies in a country.
f. It can lead to structured unemployment whereby countries and companies who cannot
compete with others may lose gain and have less profit that may result in layoff.
The effect of Trade Liberalization to its stakeholder as explained in the table:
Consumer, Worker, Companies and Consumer, Worker, Companies and
Countries who have benefited from the Countries who did not benefit from the
Trade Liberalization Trade Liberalization
1. Consumer: they get products at lowest 1. Consumer: they get products that are
and cheapest price cheap yet have the least and lowest quality
2. Worker: Low wage worker earned more 2. Worker: Low wage workers work in
hazardous environment
3. Countries: they are able to gain out of the 3. Countries: they did not gain as much as
trade for the cheaper price and sell it to a the countries who have bought their raw
higher price materials for a cheaper price.
4. Corporation who earned more profit 4. Corporation who lose out to foreign
either due to increase in sale and low labor competition.
cost for manufacturing its good
Main Actors of Economic Globalization

WORLD SYSTEM THEORY

For Wallerstein, "a world-system is a social system that has boundaries, structures,
member groups, rules of legitimation, and coherence. Its life is made up of the conflicting forces
which hold it together by tension and tear it apart as each group seeks eternally to remold it to its
advantage. A world-system is what Wallerstein terms a "world economy", integrated through the
market rather than a political center, in which two or more regions are interdependent concerning
necessities like food, fuel, and protection, and two or more polities compete for domination
without the emergence of one single center forever. Worldsystem theory is, in many ways, an
adaptation of the dependency theory. Wallerstein draws heavily from the dependency theory, a
neo-Marxist explanation of development processes, famous in the developing world. Dependency
theory focuses on understanding the "periphery" by looking at core-periphery relations, and it has
flourished in peripheral regions like Latin America.
Wallerstein proposes different categories, core, semi-periphery, and periphery into which all
regions of the world can be placed. Of the three, two are of the uttermost importance: core and
periphery. These are geographically and culturally different, focusing on labor-intensive
(Periphery), and the other on capital-intensive production(core). The core-periphery relationship
is structural. Semi-peripheral states act as a buffer zone between core and periphery and have a

mix of the kinds of activities and institutions that exist on them

ECONOMIC INTEGRATION

El-Agraa (1998) defines the term economic integration as the discriminatory removal of
all trade impediments between at least two participating countries and the establishment of
certain elements of coordination and cooperation between them. In other words, 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 aims
to reduce costs for both consumers and producers and to increase trade between the countries
involved in the agreement.
Levels of Economic Integration

• Preferential trading area. Allow member countries to have access to some of their
products. Tariffs are not eliminated but it is lessened as compared to nonparticipating
countries
• Free trade. It aimed to reduce the tariff significantly between or among partnered
countries. In regards to external countries which are not part of their agreement, each of
them has its own decision making in regards to the tariff they will impose on those
external countries. The general goal of free trade agreements is to develop economies of
scale and comparative advantages, which promotes economic efficiency.
• Custom union. It almost the same with free trade agreement as it aims to reduce and
abolish the tariff but it differs from free trade as the member country has common
external tariffs among member countries, implying that the same tariffs are applied to
third countries; a common trade regime is achieved.
• Common market. It is an integration by which member countries are able to move their
capital and services within their organization. This leads to the expansion of scale
economies and the maximization of comparative advantages. However, each national
market has its own regulations such as product standards.
• Economic union: known as a single market. In this integration, Tariffs are eliminated
within the member countries by which they are able to exercise free trade among other
countries. Likewise, workers from a member country of this organization can migrate and
work to another member country. At this level, some policies related to economic and
political aspects are also integrated such as the existence of a common currency to be used
by each member country like the Euro of European Union.
• Political union. It is a form of integration wherein member countries abide by the rules
presented by a common government in which the member country’s sovereignty is
reduced significantly.