Lesson 2 & 3:

Global Economy
and Market Integration

By: Elaiza Polo

Faculty, DSS

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 Learning Objectives

✓ Define Economic Globalization;

✓ Identify the actors that facilitate economic globalization;

✓ Define the modern world system;

✓ Narrate a short history of global market integration in the twentieth century; and

✓ Identify the attributes of global corporations

DEFINING ECONOMIC GLOBALIZATION

Economics

The study of how societies allocate

allocate scarce resources to
produce goods and services and
and distribute them among people
people (Claudio & Abinales, 2022)
2022)
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DEFINING ECONOMIC GLOBALIZATION

Economic Globalization
Globalization
It is the process that involves growing interconnectedness
of global economies through exchanging goods, services,
and capital across international boarders. This
phenomenon is driven by the actions and innovations of
individuals, organizations, institutions, and technological
developments (Claudio & Abinales, 2022)
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ACTORS OF ECONOMIC GLOBALIZATION
GLOBAL CORPORATIONS
These entities are pivotal in economic globalization due to their extensive international
operations. They establish complex supply chains spanning multiple countries, invest
heavily in foreign markets, and actively lobby for policies that promote seamless cross-
border business activities.

INTERNATIONAL FINANCIAL INSTITUTIONS

Institutions like the World Bank, International Monetary Fund (IMF), and World Trade
Organization (WTO) play crucial roles in regulating global finance and trade. They facilitate
capital flows between countries, provide financial assistance during economic crises, and
set international standards and regulations that govern economic interactions among
nations.

NATIONAL GOVERNMENTS
Governments wield significant influence over globalization through policy-making. They
negotiate and implement trade agreements, formulate trade policies that affect imports
and exports, regulate foreign investments to safeguard national interests, manage currency
exchange rates to maintain economic stability and devise strategies to enhance the global
competitiveness of their economies.
ACTORS OF ECONOMIC GLOBALIZATION
REGIONAL ECONMIC BLOCS
4 These blocs, such as the European Union (EU), NAFTA (now USMCA), ASEAN, and others,
focus on reducing trade barriers and harmonizing regulations among member countries.
These blocs amplify their bargaining power and promote regional economic integration by
pooling resources and negotiating collectively in global trade forums.

NON-GOVERNMENTAL ORGANIZATIONS (NGOs)

NGOs play a vital role in economic globalization by advocating for social and environmental
5 issues. They push for fair trade practices, advocate for labor rights across global supply
chains, promote sustainable development practices, and hold corporations and
governments accountable for their impacts on communities and the environment.

CONSUMERS
Individual consumers also shape economic globalization through their purchasing decisions.
Consumers drive global trade and influence corporate practices by demanding goods and
6 services worldwide. Their preferences for quality, price, and ethical considerations impact
global production and consumption patterns.
DEFINING MODERN WORLD SYSTEM

MODERN WORLD
SYSTEM (WALLERSTEIN
THEORY)
A theory that posits that the world operates as a
operates as a cohesive social system defined by
defined by distinct boundaries, hierarchical
hierarchical structures, diverse member groups,
groups, established rules of legitimacy, and
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and overall coherence.
Wallerstein Theory’s Categories:
1 CORE STATES
These are states characterized by advances industrialization,
industrialization, high-technology, and capital concentration.
concentration.
Examples: G7 countries and China

2 PERIPHERAL STATES
States that are resource-extraction economies with low-wage labor,
dependent on core states for capital and technologies. These states’
intensified roles in the global economy are supplier of raw materials
and cheap labor.

Examples: African and Southeast Asian Countries

3 SEMI-PERIPHERAL STATES
These states occupies a mixed advanced and less
less developed economic activities. They often
often serve as regional manufacturing hubs and
and emerging markets.
Examples: Brazil, India, Mexico
Global Market
Integration

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Global Market Integration
Refers to the growing interconnectedness of economies
worldwide.

International Financial Institutions

Organizations that provide financial and technical
technical assistance to the countries around the world.
world.
Examples: World Bank, International Monetary Fund,
Fund, ASEAN Development Bank

Global Corporations
Large companies that operate globally. It may be
transnational or multinational corporations
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Global Market Integration
An example of market integration is the
availability of international food products in
local supermarkets. It allows consumers to
access diverse products from different
countries, facilitated by global trade networks
and transportation systems.

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International Financial Institutions
WHAT THEY DO?

- They lend money to countries that need it, especially when they're having
economic troubles.
- They advise on how countries can manage their economies better.
- They help make sure that different countries' money can be easily exchanged.
- They support poorer countries in developing their economies.
- They encourage countries to trade with each other and allow money to move
across borders more easily.

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International Financial Institutions Operating Today
The Bretton Woods System is an international monetary framework established in 1944, during a
Today
conference in Bretton Woods, New Hampshire, USA. It was designed to create a stable global financial
environment after World War II and foster economic cooperation among nations.

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International Financial Institutions

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International Financial Institutions

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WORLD TRADE ORGANIZATION (WTO)
an international organization that regulates global trade between nations, aiming to ensure trade flows
smoothly, predictably, and freely. Established in 1995 as a successor to the General Agreement on Tariffs
and Trade (GATT), the WTO provides a framework for negotiating trade agreements, settling trade disputes,
and enforcing trade rules.

Key Functions of the WTO:

1. Facilitates negotiations between member countries to reduce

tariffs and other trade barriers.
2. Establishes and enforces a set of rules for international trade
to promote fairness, transparency, and non-discrimination
(e.g., the Most-Favored-Nation principle).
3. Provides a structured process for resolving trade disputes
between countries to prevent trade wars.
4. Ensures that member countries comply with their trade
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commitments and policies.

 What is Neoliberalism?
Neoliberalism?
An economic ideology that emphasizes the importance of free markets, deregulation,
and the reduction of government intervention in the economy. It advocates for
privatization, trade liberalization, and limited government spending, particularly in
social services, with the belief that economic growth is best achieved through the free
market.

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The Rise of Neoliberalism
Keynesian Economics
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. When economies slow down, according to
Keynes, governments have to reinvigorate markets with infusions of capital.
The Oil Embargo
In the early 1970s, however, the prices of oil rose sharply as a result of the Organization of Arab
Arab Petroleum Exporting Countries' (OAPEC, the Arab member-countries of the Oganization of
Oganization of Petroleum Exporting Countries or OPEC) imposition of an embargo in response to the
response to the decision of the United States and other countries to resupply the Israeli military with
military with the needed arms during the Yom Avab Kippur War. Arab countries also used the embargo
the embargo to stabilize their economies and growth.
The Washington Consensus
From the 1980s onward, neoliberalism became the codified strategy of the United States Treasury
Department, the World Bank, the IMF, and eventually the World Trade Organization (WTO)-a new
organization founded in 1995 to continue the tariff reduction under the GATT. The policies they
forwarded came to be called the Washington Consensus.

The Household Analogy

The appeal of neoliberalism was in its simplicity. Its advocates like US President Ronald Reagan and
Reagan and British Prime Minister Margaret Thatcher justified their reduction in government
government spending by comparing national economies to households. Thatcher, in particular,
particular, promoted an image of herself as a mother, who reined in overspending to reduce the
reduce the national debt.
Key Principles of Neoliberalism
1 DEREGULATION
Aimed to remove barriers to market entry and stimulate
competition.
2 FREE MARKET
An economic system where prices for goods and services
are determined by the open market and consumers. In a
free market, the laws of supply and demand govern the
economy, with minimal government intervention.
3 PRIVATIZATION
The transfer of ownership or control of a business,
industry, or service from the public sector (government)
to the private sector (individuals or companies).
Privatization often aims to improve efficiency, reduce
public expenditure, and increase competition.
4 TRADE LIBERALIZATION
The process of reducing or eliminating trade barriers, such
as tariffs, quotas, and regulations, to promote freer
exchange of goods and services between countries.
Global Corporations
Large companies that operate globally. It may be
transnational or multinational corporations

MULTINATIONAL CORPORATIONS
TRANSNATIONAL CORPORATIONS
Transnational corporations operate Multinational corporations operate in
across many countries and often several countries but maintain a
decentralize decision-making to adapt to centralized management structure. They
local markets. Unlike MNCs, TNCs don’t often have subsidiaries in different
have a single home base; their operations countries, but their main strategic
are more globally integrated. decisions are made at the headquarters
in the home country.
Examples: Examples:
- Apple - Toyota
- Samsung - Nestle’
- McDonalds - Coca Cola
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- Microsoft
Economic
Globalization in
history

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The Evolution of Global Trade
1 The Silk Road
The oldest known international trade route was the Silk Road, a network of pathways in the ancient world that spanned from China to the Middle East and Europe. It was
East and Europe. It was called as such because one of the most profitable products traded through this network was silk, which was highly prized in the Middle East and
the Middle East and Europe. Traders used the Silk Road regularly from 130 BCE when the Chinese Han dynasty opened trade to the West until 1453 BCE when the Ottoman
BCE when the Ottoman Empire closed it.

2 The Galleon Trade

According to historians Dennis O. Flynn and Arturo Giraldez, the age of globalization began when "all important populated continents began to exchange products
exchange products continuously both with each other directly and indirectly via other continents and in values sufficient to generate crucial impacts on all trading
impacts on all trading partners."10 Flynn and Giraldez trace this back to 1571 with the establishment of the galleon trade that connected Manila in the Philippines and
the Philippines and Acapulco in Mexico.11 This was the first time that the Americas were directly connected to Asian trading routes.

3 The Gold Standard

A more open trade system emerged in 1867 when, following the lead of the United Kingdom, the United States and other European nations adopted the gold standard at
the gold standard at an international monetary conference in Paris. Broadly, its goal was to create a common system that would allow for more efficient trade and prevent
efficient trade and prevent the isolationism of the mercantilist era. The countries thus established a common basis for currency prices and a fixed exchange rate system-all
exchange rate system-all based on the value of gold.

4 The Bretton Woods System

After the two world wars, world leaders sought to create a global economic system that would ensure a longer-lasting global peace. They believed that one of the ways to
that one of the ways to achieve this goal was to set up a network of global financial institutions that would promote economic interdependence and prosperity. The
prosperity. The Bretton Woods system was inaugurated in 1944 during the United Nations Monetary and Financial Conference to prevent the catastrophes of the early
catastrophes of the early decades of the century from reoccurring and affecting international ties.
The Global Financial Crisis
The Roots of the Crisis The Subprime Mortgage Crisis The Global Multiplier Effect

The crisis can be traced back to the The crisis spread beyond the United
the 1980s when the United States Taking advantage of "cheap housing United States since many investors
systematically removed various loans," Americans began building investors were foreign governments,
banking and investment restrictions. houses that were beyond their governments, corporations, and
restrictions. The scaling back of financial capacities. To mitigate the individuals. The loss of their money
regulations continued until the 2000s, risk of these loans, banks that were money spread like wildfire back to
2000s, paving the way for a brewing lending houseowners' money pooled to their countries. These series of
brewing crisis. In their attempt to these mortgage payments and sold interconnections allowed for a global
promote the free market, government them as "mortgage-backed securities" global multiplier effect that sent
government authorities failed to (MBSs). One MBS would be a ripples across the world. For example,
regulate bad investments occurring in combination of multiple mortgages example, Iceland's banks heavily
occurring in the US housing market. that they assumed would pay a steady depended on foreign capital, so when
market. rate. when the crisis hit them, they failed to
failed to refinance their loans.
The Aftermath of the Crisis
The Dodd-Frank Law
The global financial crisis will take decades to resolve. The solutions proposed by certain
certain nationalist and leftist groups of closing national economies to world trade, however,
however, will no longer work. The world has become too integrated. Whatever one's opinion
one's opinion about the Washington Consensus is, it is undeniable that some form of
form of international trade remains essential for countries to develop in the contemporary
contemporary world.
The Rise of Protectionism
First, developed countries are often protectionists, as they repeatedly refuse to lift policies
policies that safeguard their primary products that could otherwise be overwhelmed by
overwhelmed by imports from the developing world. The best example of this double
double standard is Japan's determined refusal to allow rice imports into the country to protect
country to protect its farming sector. Japan's justification is that rice is "sacred."

The Race to the Bottom

The beneficiaries of global commerce have been mainly transnational corporations (TNCs) and
corporations (TNCs) and not governments. And like any other business, these TNCs are
TNCs are concerned more with profits than with assisting the social programs of the
the governments hosting them. Host countries, in turn, loosen tax laws, which prevents wages
prevents wages from rising, while sacrificing social and environmental programs that protect
that protect the underprivileged members of their societies. preencoded.png
The Future of Global Trade
The Rise of Developing Economies
In the past, those that benefited the most from free trade were the advanced nations that were
were producing and selling industrial and agricultural goods. The United States, Japan, and the member-
the member-countries of the European Union were responsible for 65 percent of global exports, while
exports, while the developing countries only accounted for 29 percent.

The Role of the WTO

The WTO-led reduction of trade barriers, known as trade liberalization, has profoundly altered the
altered the dynamics of the global economy. In the recent decades, partly as a result of these increased
these increased exports, economic globalization has ushered in an unprecedented spike in global growth
global growth rates. According to the IMF, the global per capita GDP rose over five-fold in the second half
the second half of the 20th century.

The Challenges of Globalization

And yet, economic globalization remains an uneven process, with some countries, corporations, and
corporations, and individuals benefiting a lot more than others. The series of trade talks under the WTO
under the WTO have led to unprecedented reductions in tariffs and other trade barriers, but these
these processes have often been unfair.
The Impact of Globalization on Developing
Developing Countries
Increased Exports Developing countries have seen a significant
significant increase in their exports, contributing
contributing to economic growth and job
creation.
Foreign Investment Globalization has attracted foreign investment to
investment to developing countries, providing
providing access to capital and technology.
technology.
Trade Imbalances Developing countries often face trade
imbalances, with their exports being primarily
primarily raw materials and manufactured
goods, while imports are often finished products
products from developed countries.

Exploitation of Labor Globalization can lead to the exploitation of

of labor in developing countries, as companies
companies seek to minimize costs by paying low
paying low wages and offering poor working
working conditions.
The Future of Globalization

Continued Growth
Economic globalization is likely to continue, with increasing interconnectedness between countries and
businesses. This will likely lead to further growth in global trade and investment.

Addressing Inequality
There is a growing need to address the inequalities that have arisen from globalization, ensuring that the
benefits are shared more equitably among countries and individuals.

Sustainable Development
Globalization must be aligned with sustainable development goals, protecting the environment and ensuring
that economic growth does not come at the expense of natural resources.

International Cooperation
International cooperation is crucial to address the challenges of globalization, including trade disputes,
disputes, environmental issues, and global financial crises.
The Importance of
International Trade
Despite the challenges, international trade remains essential for
economic growth and development. It allows countries to specialize in
producing goods and services that they are best at, leading to increased
efficiency and productivity. It also provides access to a wider range of
goods and services, improving consumer choice and lowering prices.
Conclusion
Economic globalization has brought about significant changes in the world, with both positive and negative consequences. It
has led to increased economic growth and interconnectedness, but it has also exacerbated inequalities and environmental
challenges. As we move forward, it is crucial to find ways to harness the benefits of globalization while addressing its
drawbacks, ensuring a more just and sustainable future for all.