THE GLOBAL

ECONOMY
LEARNING OBJECTIVES
Define economic globalization.

Identify the actors that facilitate economic globalization.

Stance on global economic integration.

ECONOMIC GLOBALIZATION
The mobility of
people, capital,
technology, goods
and services
internationally.
 History of Economic
Globalization

Silk Road - a network of roads in the ancient world that spanned

from China to what is now the Middle East and to Europe.

Silk was one of the most profitable products traded through this
network.

While it was international, it was not truly “global”. Because it had

no ocean routes that could reach the American continent.
 History of Economic
Globalization

Historians Dennis O. Flynn and Arturo Giraldez said that

globalization began when
“all important populated continents began to exchange products
continuously — both with each other directly and indirectly via
other continents — and in values sufficient to generate crucial
impacts on all trading partners”

1571. The establishment of the galleon trade that connected Manila

in the Philippines and Acapulco in Mexico. This was the first that the
Americas were directly connected to Asian trading routes.

Economic globalization began on Philippine shores.

 History of Economic
Globalization

Galleon Trade - 16th century to 18th century. European countries.

Monetary reserves (country’s income)

1867. UK, US and other European nations adopted the gold

standard.
 History of Economic
Globalization

World War I
The Great Depression - 1920s to 1930s
World War II
Abandonment of the gold standard

Fiat currencies - currencies that are not backed by precious metals

and whose value is determined by their cost relative to other
currencies.

This system allowed governments to freely and actively manage

their economies by increasing or decreasing the amount of money
in circulation as they see fit.
ECONOMIC SYSTEM
 ECONOMIC SYSTEM
1 TRADITIONAL ECONOMIES

2 SOCIALIST ECONOMIES

3 CAPITALIST ECONOMIES

4 COMMUNIST ECONOMIES
TRADITIONAL ECONOMIES
This economy relies on
tradition and culture to
choose what goods and
services will be produced,
how those goods and
services will be produced,
and how those goods and
services will be distributed
throughout the populace.
 SOCIALIST ECONOMIES
Basically, socialism is defined
as an economic model where all
citizens in a country, region or
community each own the
factors of production equally.
Typically, equal economic
outcomes are generated after
the election of a democratically
chosen government.
CAPITALIST ECONOMIES
• Capitalism- the country’s
industry is being controlled
by private organization or
owners

• Historically, these societies

leverage market forces, such
as supply and demand, with a
strong motivation to earn a
profit, to shape their
economic models.
 COMMUNIST ECONOMIES
Communism is an economic
model where the collective,
governed by a centralized
government, owns any and all
properties located in the
collective. Communism is
modeled upon a classless society,
where the work of the citizenry -
the fruits of their labor - are
taken by the government and
distributed throughout the
populace based on need.
WHICH ECONOMIC SYSTEM IS IN
PLACE IN THE PHILIPPINES?
 3 PHASES OF
GLOBALIZATION
 THE EARLY VOYAGES OF
EXPLORATION & COLONIZATION

• Phase one begins in 1492, with

the voyage of Christopher
Columbus to the new world, and
continues with later European
voyages of exploration that
eventually made possible the
formation of Europe’s colonial
empires.
 THE AGE OF TRANSNATIONAL
INTEGRATION

• Western world
experienced a dramatic
intensification of inter-
national connectivity
due to four advancing
technologies–trains,
steamships, the
telegraph, and the
postal system.
 THE MODERN AGE OF
GLOBALIZATION
• The third phase of globalization
that began in 1945 was made
possible by the long economic
expansion that followed the end
of the Second World War. New
global economic reforms
agreed upon by the United
States and its wartime allies in
1944 provided a new framework
for international commerce and
finance.
INTEGRATION OF
ECONOMIES
ECONOMIC INTEGRATION
1. The increasing reliance of economies
on each other
2. The opportunity to buy and sell in any
country in the world

3. The opportunities for land and capital to be

located anywhere in the world.

4. The growth of global markets in finance

MADE POSSIBLE BY:
1. INTERNET ACCESS

2. TECHNOLOGY

3. MOVEMENT OF FREE TRADE

4. COMMUNICATION NETWORK
WHAT ARE THE
BENEFITS OF
TRADE?
1. INCREASES COMPETITION AND
LOWERS WORLD PRICES

2. INCREASES CHOICES

3. GREATER POTENTIAL FOR GROWTH

4. GREATER EMPLOYMENT
OPPOTUNITIES
WHAT ARE THE
DOWNSIDES
OF TRADE?
1. INCREASE IN GAP BETWEEN
RICH AND THE POOR

2. DOMINANCE OF GLOBAL TRADE BY

THE RICH, NORTHERN COUNTRIES

3. EXPLOITATION OF WORKERS
“Race to the Bottom” - refers to countries’ lowering their labor standards,
including the protection of workers’ interests, to lure in foreign investors seeking
high profit margins at the lowest cost possible.

Governments weaken environmental laws to attract investors, creating fatal

consequences on their ecological balance and depleting them of their finite
resources (oil, coal, and minerals)
MULTINATIONAL COMPANIES
VS
TRANSNATIONAL COMPANIES
MULTINATIONAL COMPANIES
Have a centralized management system where the
headquarters in the home country make key decisions
for all the operations worldwide.

They usually adapt their products and services to

local markets but maintain overall control in the home
country.

Operate in several countries but have a strong focus

on the parent company's home country. The
subsidiaries abroad follow guidelines and strategies
that are designed by the headquarters.
MULTINATIONAL COMPANIES
TRANSNATIONAL COMPANIES
Have many companies around the world but do not
have a centralized management system.

Allowing each branch in different countries to

operate independently and make decisions that suit
local needs.

This approach enables them to adapt to local markets

more effectively, while still benefiting from global
coordination.
TRANSNATIONAL COMPANIES
 PROTECTIONISM
VS.
TRADE LIBERALIZATION
PROTECTIONISM
Protecting one’s
economy from
foreign competition
by creating trade
barriers.

Domestic Products
> Imported Goods
PROTECTIONISM
Protectionism is an economic policy where a country
takes measures to protect its domestic industries from
foreign competition. This is often done by imposing
restrictions designed to discourage imports and
encourage the consumption of domestic goods.
MAIN MEANS
TARIFFS QUOTAS BANS
TARIFFS
A tax on goods
coming into a
country. Increases
the price of the
good and makes it
less competitive.
QUOTAS
Physical Go
restriction on the Local
v

number of goods goods

coming into a
country.
BANS
Forbid products on
import goods. Refers
to a government
policy that prohibits
the importation of
certain goods from
foreign countries into
a domestic market.
TRADE LIBERALIZATION
Also known as “free
trade”.

Act of reducing
trade barriers to
make international
trade easier
between countries. Association of Southeast Asian Nations (ASEAN)
Free Trade Area (AFTA)
TRADE LIBERALIZATION

TARIFFS QUOTAS BANS

REASONS FOR PROTECTIONISM
1. Protect domestic industries

2. Strategic reasons

3. Protect culture

4. Prevent ‘Dumping’ - selling

goods at a very cheap price
BENEFITS OF PROTECTIONISM
1. Promotes efficient use and
allocation of world resources

2. Promotes international
specialization and increases
world output
BENEFITS OF PROTECTIONISM
3. Facilitates the working of the
global market system and the
working of price signals to
ensure efficient allocation of
resources, international
competition, and the associated
benefits to all.
HOW TO MAKE TRADE EASIER?
HOW TO MAKE TRADE EASIER?
Promoting free trade
The trading of goods and services between two
or more countries without tariffs.

Creating trade blocs

Agreement between countries to reduce or
eliminate trade barrier.
HOW TO MAKE TRADE EASIER?
Outsourcing is the act of subcontracting
work. This includes buying labor or parts
from outside a company or business rather
than using the company’s own staff or plant.
INSTITUTIONS OF GLOBALIZATION
THE WORLD BANK

WORLD TRADE ORGANIZATION

INTERNATIONAL MONETARY FUND

THE WORLD BANK
To bridge the
economic divide
between poor and
rich countries by
turning rich country
resources into poor
country growth.
2 GOALS OF THE
WORLD BANK
• End extreme poverty
• Promote shared prosperity
of every country.
WORLD TRADE ORGANIZATION (WTO)
The only global organization
dealing with the rules of
trade between nations.

Its goal is to ensure that

trade flows as smoothly,
predictably, and freely as
World Trade Organization (WTO) headquarters at the Centre
possible. William Rappard in Geneva, Switzerland
 BENEFITS DRAWBACKS
Solves trade disputes Only focuses on
between countries in a developed nation.
peaceful way.

Lowers the cost of goods To achieve low cost, labor

and services for developed rights and environmental
nations. concerns are ignored.
Promotes economic growth Favors the rich nations and
in developed nations. powerful transnational
corporations.
INTERNATIONAL MONETARY
FUND (IMF)
An organization of 189 countries,
working to foster global
monetary cooperation, secure
financial stability, facilitate
international trade, promote high
employment and sustainable
economic growth, and reduce
poverty around the world INTERNATIONAL MONETARY FUND (IMF) headquarters
at the 700 19th Street NW, Washington, D.C., U.S.
FUNCTIONS OF IMF
• Ensure the stability of the international monetary system–
the system of exchange rates and international payments
that enable countries to transact with each other.

• Keep track of the global economy.

• Lend to countries with a balance of payments difficulties.

• Give practical help to members.