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MODULE I
INTRODUCTION TO GLOBALIZATION

Lesson 1 The Study of Globalization

Lesson 2 Structures of Globalization

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MODULE I

INTRODUCTION TO GLOBALIZATION

INTRODUCTION

This module will discuss the working definitions of globalization and

the underlying concepts regarding it.

OBJECTIVES

At the end of the module, you should be able to:

1. Differentiate the varying concepts of globalization.

2. Explain the role of international financial institutions in the
creation of global economy.
3. Relate the relevance of the state amid globalization.

DIRECTIONS/ MODULE ORGANIZER

1. There are two lessons in the module. While the lessons maybe long
and others short, the basic content are properly presented in every
lesson.

2. There is a need to read the lessons one by one without skipping any
of them. One lesson is the continuation of the next lesson. For some
parts that need further explanation, you may contact your tutor or
take note of this topic to be presented for the next meeting.

3. There are evaluation techniques at the end of each lesson. Please

answer them and be sure that you get the correct answer. If and
when you did not pass the checked learning activity or exercise, do
not proceed to the next lesson but instead go over again until you
have fully understand all the lessons. This is for your own good for I
would like you to understand all the given topics. There are also
other requirements like giving your ideas or own interpretation of
presented concepts, visiting websites and others, it is highly
suggested that you undergo these requirements.

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Lesson 1

 THE STUDY OF GLOBALIZATION

Considering the dynamic world, the study of globalization is

important because it is an essential part of our daily involvements in this
contemporary generation.

As properly explained by Anthony McGrrew, globalization bridges the

gaps so that multiplicity of linkages and interconnections between the
states and societies will make up the present world system. Thus,
globalization means increased competitions among nations in a more closely
intertwined international economy, a competition that is continuously
enhanced by more rapid communication and computer technology and by
way of business thinking that is increasingly global rather than regional or
national (Carnoy, 2014).

According to Thomas Friedman, globalization is the “shrinking and

flattening of the world” due to the ease and accessibility of travel and
communication. Hence, he added that, “globalization is not just some
economic fashion or a passing trend but an international system”. Others
may perceived globalization to be the second industrial revolution,
“perceived not only as an economic trend, but a powerful transition that
brings out a new world system” (Tamayo, 2013).

DEFINITIONS AND PERSPECTIVES OF GLOBALIZATION

Globalization may be thought of initially as the widening, deepening
and speeding up of worldwide interconnectedness in all aspects of the
contemporary social life, from the cultural to the criminal, the financial to
the spiritual. Beyond the general acknowledgement of the real or perceived
intensification of global interconnectedness, there are substantial
disagreements as to how globalization is best conceptualized. Debates on
these issues to characterize and distinguish globalization could be possible
with the three schools of thought that refer to as the hyperglobalizers, the
sceptics and the transformationalist.

A. Hyper globalist Perspectives

Hyper-globalists (sometimes referred to as global optimists) believe

that globalization is happening and that local cultures are being eroded
primarily because of the expansion of international capitalism and the
emergence of a homogeneous global culture; they (‘optimist’) believe that
globalization is a positive process characterized by economic growth,
increasing prosperity and the spread of democracy.

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For the hyperglobilizers, such as Ohame, contemporary globalization

defines a new era in which peoples everywhere are increasingly subject to
the disciplines of the global marketplace (1990; 1995).

Hyperglobilizers defines globalization as a new epoch of human history

in which traditional nation-states have become unnatural, even impossible
business units in a global economy (Ohame, 1995 cf. Wriston, 1992).

Hyperglobilizers argue that economic globalization is bringing about a

‘denationalization’ of economies through the establishment of transnational
networks of production, trade and finance. In this respect many
hyperglobilizers share a conviction that economic globalization is
constructing new forms of social organization that are supplanting, or will
eventually supplant, traditional nation-states as the primary economic and
political units of world society.

B. Skeptical Perspectives

Sceptics, such as Hirst (1996) and Thompson (1996), argue that

globalization is essentially a myth which conceals the reality of an
international economy increasingly segmented into three major regional
blocs in which national governments remain very powerful. In arguing
that globalization is a myth, the sceptics rely on a wholly economistic
conception of globalization, equating primarily with a perfectly
integrated global market.

For most sceptics, if the current evidence demonstrates anything it is

that economic activity is undergoing a significant ‘regionalization’ as the
world economy evolves in the direction of three major financial and
trading blocs: Europe, Asia-Pacific and North America.

Sceptics tend also to discount the presumption that international

prefigures the emergence of a new, less state-centric world order. In
general they take issue with all of the primary claims of the
hyperglobilizers pointing to the comparatively greater levels of economic
interdependence and the more extensive geographical reach of the
world economy at the beginning of the twentieth century.

C. Transformationalist Perspectives

The transformationalist Giddens (1990) and Rosenau (1997)

view the contemporary patterns of globalization are conceived as
historically unprecedented, such that states and societies across the
globe are experiencing a process of profound change as they try to
adapt to a more interconnected but highly uncertain world.

In comparison with the skeptical and hyperglobalist accounts,

the transfomationalists make no claims about the future trajectory of

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globalization; nor do they seek to evaluate the present in relation to

some single, fixed ideal-type ‘globalized world’, whether a global
market or a global civilization. Rather, transformationalists
emphasize globalization as a long-term historical process which is
inscribed with contradictions and which is significantly shaped by
conjectural factors.

CONCEPTUALIZING GLOBALIZATION: THREE TENDENCIES

Hyperglobalists Sceptics Transformationalist

 Trading blocs,  Historically

What’s new?  A global age weaker unprecedented
geogovernance than levels of global
earlier periods interconnectedness
 Global
capitalism,
 Word less  Thick (intensive
global
Dominant features interdependent than and extensive)
governance,
in 1890s globalization
global civil
society
Power of national  Declining or  Reinforced or  Reconstituted,
governments eroding enhanced restructured
Driving forces of  Capitalism and  Combined forces of
 States and markets
globalization technology modernity
 Increased
Pattern of  Erosion of old  New Architecture
marginalization of
stratification hierarchies of world order
South
 Transformation of
 McDonalds,
Dominant motif  National interest political
Madonna, etc.
community
 As a  AS the reordering
reordering of  As of interregional
Conceptualization
the framework internationalization relations and
of globalizations
of human and regionalization action at a
action distance
 Indeterminate:
Historical  Global  Regional blocs/
global integration
trajectory civilization clash of civilizations
and fragmentation
 Internationalization  Globalization
Summary  The end of the depends on state transforming state
argument nation-state acquiescence and power and world
support politics

REASONS FOR GLOBALIZATION

Below are the reasons why we have to globalize in this contemporary world
(Ariola, 2018).
1. Rapid shrinking of time and distance across the globe. One can easily
cross the bridge going to the other side of the market place due to
advance tools of technology than before.
2. Domestic markets are no longer rich as a consequence of many
interlocking factors.
3. Companies and institutions go global to find political and economic
stability which is relatively good in other countries than the country
of origin. Reducing

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4. To get technological and managerial know-how of other countries due

to their advancement in science, technology, education, health, and
other fields of discipline.
5. To reduce high transportation costs if one goes globally using the
advance tools of communication and information.
6. To be close to raw materials and to markets for their finished
products which are not available in the country of origin.
7. The nation of the World Trade Organization (WI‘O) had made it
possible in stimulating increased cross border trade. There are other
world bodies like the UN and several arbitration bodies where
countries agree.

STAGES OF GLOBALIZATION
Ariola (2018), explained the different stages a business go through
before reaching the global operations in the international scheme.

STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5

domestic based company moves
arms length company into a full
service activity institution insider position company moves
the company
of a domestic begins to carry by a complete towards a
takes over the
company moving out its own business system genuinely global
activities on its
into new manufacturing with research mode of
own
markets marketing & and operation.
overseas sales in foreign development &
markets engineering

OTHER CONCEPTS RELATED TO GLOBALIZATION

Internalization
When globalization is interpreted as internationalization, the term refers to
a growth of transactions and interdependence between countries. From this
perspective, a more global world is one where more messages, ideas,
merchandise, money, investments, pollutants and people cross borders
between national-state-territorial units (Scholte, 2007).

GLOBALIZATION INTERNALIZATION
Task/ Result  A result which is  The task or process with
desired by the global which globalization can
economies be achieved.

Set and Subset  Structure that  A part of that structure
people want to set hence can be termed as
up a subset of

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globalization.

Related to  More related to  More related with

economies of the individual, firm or
nation business for their goods
and services.
Factors that affect  Infrastructural setup,  Cultural taste and
telecommunications, preferences, local
logistics, etc. highly traditions, etc., plays a
affects the major role in the
globalization process internalization
Example  Eliminating visa  Sourcing, producing and
obligations for selling materials from
visitors, tariff and one or more countries,
non-tariff trade set up of branch or
barriers and subsidiaries in other
Liberalization of countries for carrying
investment out business etc.
regulations
Process  An economic process  An improvisation process

Organizations  International  European Union, Asia

Handle Monetary fund, Pacific Economic
World Bank, World Cooperation, North
Trade organizations, American Free Trade
etc’, are handling Agreement, etc. work
globalization for boosting the
implementation. Internationalization

Liberalization
A second common analytical dead-end in discussions of globalization has
equated the notion with liberalization. In this case, globalization denotes a
process of removing officially imposed restrictions on movements of
resources between countries in order to form an “open and borderless‟
world economy. On this understanding, globalization occurs as authorities
reduce or abolish regulatory measures like trade barriers, foreign-exchange
restrictions, capital controls, and visa requirements (Scholte, 2007).

Liberalization is the process where a state lifts restrictions on some

private individual activities. It is a situation in which government
regulations and restrictions are relaxed to make room for economic
expansion

GLOBALIZATION LIBERALIZATION

Economic activities  Closely related to the scale of  Mainly concentrated on

economic activities across economic activities as a
nations result of modernization
and development
Globalized Setup  Localities develop direct  Often involves reductions
economic and cultural in taxes, social security,
relationships to the global and unemployment
system through information benefits.

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technologies, bypassing and

subverting traditional power
hierarchies like national
governments and markets.
Others  Access to New Culture and  Inward Investments
Talents
 Increased competition will
 Lower Costs for Products lead to a rise in quality
goods for the consumer

 There are chances of  Loss of domestic units due

developing nations will be open to the inflow of foreign
to exploitation by advanced goods
economies
 Unbalanced economic
 Adverse effects on local development
economies
 Increased dependency on
 Cultural Homogenization foreign assistance

Universalization
Universalization in this case, globalization is taken to describe a process of
dispersing various objects and experiences to people at all inhabited parts
of the earth (Scholte, 2007).

The phenomenon of globalization can be defined as universalization.

Here, it refers mainly to a planetary synthesis of cultures, a process of the
worldwide spread of culture, ideas, objects and experiences. This is the
idea of globalization that this paper suggests as the philosophy for
globalization. The synthesis of cultures, ideas, objects and experiences
should be world –wide and really global. In this regard we can talk of
globalization of ideas, economics, politics, decolonization and policies that
will develop humanity. This does not rule out cultural identity as a world
phenomenon in that it is a philosophy which expects the global world to be
structured along respect for others, their cultures, ideas, goals and de-
emphasizes of competition for the sake of it: That is, a universalization of
ideas that will lead to heterogenization of cultures and not homogenization.

Westernization
A fourth common conception of globalization has defined it as
westernization. As such, globalization is regarded as a particular type of
universalization, one in which social structures of modernity (capitalism,
industrialism, rationalism, urbanism, etc.) are spread across all of humanity,
in the process destroying pre-existent cultures and local self-determination
(Scholte, 2007).

Globalization in the Modern World

If you look at the tag on your shirt, chances are you would see that it was
made in a country other than the one in which you sit right now. What's
more, before it reached your wardrobe, this shirt could have very well been
made with Chinese cotton sewed by Thai hands, shipped across the Pacific
on a French freighter crewed by Spaniards to a Los Angeles harbor. This
international exchange is just one example of globalization, a process that
has everything to do with geography (Stief, 2019).

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Characteristics of globalization in the contemporary world

1. Improved Technology in Transportation and Telecommunications
2. Movement of People and Capital
3. Diffusion of Knowledge
Positive Aspects of Globalization
1. There is a greater chance for the people in the developing countries to
economically succeed and increase their standard of living.
2. Global competition encourages creativity and innovation and keeps prices
for commodities/services in check.
3. Developing countries are able to reap the benefits of current technology
without undergoing many of the growing pains associated with the
development of these technologies.
4. Governments are able to better work together towards common goals
now that there is an advantage in cooperation, an improved ability to
interact and coordinate, and a global awareness of issues.
5. There is greater access to foreign culture in the form of movies, music,
food, clothing, and more. In short, the world has more choices.

Negative Aspects of Globalization

1. Outsourcing
2. Greater chance of disease spreading worldwide
3. There is little international regulation
4. Large Western-driven organizations such as the International Monetary
Fund and the World Bank make it easy for a developing country to obtain a
loan. However, a Western focus is often applied to a non-Western situation,
resulting in failed progress.

Globalization is not an easy task to define. Globalization is the word

used to describe the growing interdependence of the world's economies,
cultures, and populations, brought about by cross-border trade in goods and
services, technology, and flows of investment, people, and
information.There are three schools of thought of globalization namely:
Hyper-globalization, Sceptical and Transformationalist.

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LEARNING ACTIVITY
A. Building Vocabulary.
Define the following terms according to your own understanding.

1. Globalization
____________________________________________________________
___________________________________________________________

2. Contemporary world
____________________________________________________________
___________________________________________________________

B. Identification.
Below are definitions of globalization according to different authors.
Identify the best school of thought on globalization based on the
scholar or author’s definition.

___________________ 1. Globalization refers to all those processes by which the

peoples of the world are incorporated into a single world
society, global society (Martin Albrow, 1990).

___________________ 2. Globalization is the process of economic integration of

countries, through the increasing flow of goods, services,
capital and labor (Joseph Stiglitz, 2003).

___________________ 3. Globalization is a complex web of social processes that

intensify and expand worldwide economic, cultural, political
and technological exchanges and connections. (Campbell,
MacKinnon, & Stevens, 2011, p.4)

___________________ 4. Globalization is a historical process which is characterized by

a growing engagement between peoples on all corners of the
globe (Modelski , 2003).

___________________ 5. Globalization is “bringing about a denationalization of

economies through the establishment of transnational
networks of production, trade and finance” (Held et al,
2000).

___________________ 6. Globalization as the establishment and intensification of – in

particular, economic – interdependencies among different
nations, which, in his opinion, would contribute to the
prevention of violent conflicts (Thomas Friedman, 1999).

___________________ 7. Globalization is dominated by transnational firms and

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financial institutions, operating independently of national

boundaries or domestic economic considerations (Milberg
1998).

___________________ 8. Globalization refers to all those processes by which the

peoples of the world are incorporated into a single world
society, global society (Albrow, 1990).

___________________ 9. The world-wide interconnectedness between nation-states

becomes supplemented by globalization as a process in which
basic social arrangements (like power, culture, markets,
politics, rights, values, norms, ideology, identity, citizenship,
solidarity) become disembedded from their spatial context
(mainly the nation-state) due to the acceleration,
massification, flexibilisation, diffusion and expansion of
transnational flows of people, products, finance, images and
information (Beerkens 2004).

___________________ 10. Globalisation may indeed mean the end of the nation-state if
the nation-state fails to redefine itself to meet the new
conditions it faces in the global environment (Carnoy, 2001).

___________________ 11. The global economy is an economy with the capacity to work
as a unit in real time on a planetary scale (Castelles , 1996).

___________________ 12. The state as a ‘competition state' plays a fundamental role in

promoting globalization. However, this does not mean that,
once the genie is out of the bottle, globalization is reversible
(Cerney, 1990).

___________________ 13. Globalisation can be defined as a material set of practises

drawn from the world of business combined with a neo-
liberal market ideology (Curry & Newson 1998).

___________________ 14. Globalization is A social process in which the constraints of

geography on social and cultural arrangements recede and in
which people are increasingly aware that they are receding
(Waters, 1995).

___________________ 15. Globalization has by and large become synonymous with

state power erosion. This zero-sum logic drives the reasoning
process to the irresistible conclusion that global and national
are antinomies rather than interdependent , competing
rather than complementary. (Weiss, 1999)

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Lesson 2

 STRUCTURES OF GLOBALIZATION

GLOBAL ECONOMY
Global economy is also referred to as world economy. This term
refers to the international exchange of goods and services that is expressed
in monetary units of money. It may also mean as the free movement of
goods, capital, services, technology, and information.

In some contexts, ”global” or ”International” economy is

distinguished and measured separately from national economies while the
”world economy" is simply an aggregate of the separate country’s
measurements.

Global economy or economic globalization is concerned on the

globalization of production, finance, markets, technology, organizational
regimes, institutions, corporations, and labor. While economic globalization
has been expanding since the emergence of trans-national trade, it has
grown at an increased rate due to an increase in communication and
technological advances under the framework of General Agreement on
Tariffs and Trade and World Trade Organization, which made countries
gradually cut down trade barriers and open up their current accounts and
capital accounts.

MARKET INTEGRATION

Definition of Market
Integration
According to the
Cambridge Business
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English Dictionary,
Market Integration is
a situation in which
separate markets for the
same product become one
single market,
for example when an import
tax in one of the market is
removed.
Integration is taken to
denote a state of affairs or a
process involving attempts
to combine
separate national economies
into larger economic regions
(Robson, 1998, p.1
Definition of Market Integration

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According to the Cambridge Business English Dictionary, Market

Integration is a situation in which separate markets for the same
product become one single market, for example when an import tax in
one of the market is removed. Integration is taken to denote a state of
affairs or a process involving attempts to combine separate national
economies into larger economic regions (Robson, 1998, p.1)

When prices among different location or related goods follow the same
pattern over a long period of time, market integration exist. Similarly’ when
groups of prices often move proportionally to each other and when this
relation is very clear among different markets it is said that the markets are
integrated. Hence, it could be concluded that market integration is an
indicator that explains how much different markets are related to each
other.

FREE TRADE

Definition
Free Trade wherein international trade (the importation and
exportation) left to its natural course without tariffs and non-tariff
trade barriers such as quotas, embargoes, sanctions or other restrictions.

 Tariffs - taxes or duties to be paid on a particular class of imports or

exports
 Embargo - a government-instituted prevention of exports to
a certain country. Official ban on trade or other commercial
activity. (The United States has imposed several long-running
embargoes on other countries including Cuba, North Korea and
Iran)
 Economic sanctions - commercial and financial penalties applied by
one or more countries against a targeted country, group, or individual

Free Trade Areas - a group of countries within which tariffs and non-
tariff trade barriers between the members are generally abolished but
with no common trade policy toward non-members. Both in the
sense of geography and price, is the foundation of these
trading agreements. However, tariffs are not necessarily completely
abolished for all products. Free trade areas impose exclusivity among its
members since the world is not entirely a free trade economy.

WORLD’S MAJOR FREE TRADE AREAS

1. North American Free Trade Agreement (NAFTA)
2. Association of Southeast Asian Nations Free Trade Area (AFTA)
3. Southern Common Market (MERCOSUR)
4. Common Market of Eastern and Southern Africa (COMESA)

Here are not Free Trade Areas yet Union and Partnership Agreements
5. European Union
6. Trans-Pacific Partnership

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7. Transatlantic Trade and Investment Partnership – not yet ratified

North American Free Trade Agreement (NAFTA)

 Free trade between the three member nations, Canada, the US and
Mexico
 Effective on January 1, 1994 -Although tariffs weren’t fully abolished
until 2008
 by 2014 total trilateral merchandise trade exceeded US$1.12 trillion
trade with Canada and Mexico supports more than 140,000
small and medium-size businesses and over 3 million jobs in the US
 Gains in Canada are reportedly even higher, with 4.7 million new jobs
added since 1993.Canada is also the largest exporter of goods to the US

Association of Southeast Asian Nations Free Trade Area (AFTA)

 The original members were Brunei, Indonesia, Malaysia,
Philippines, Singapore and Thailand. Four countries have
subsequently joined: Vietnam, Laos, Myanmar and Cambodia
 The AFTA was signed in January 1992 in Singapore The bloc has largely
removed all export and import duties on items traded between the
nations.
 It has also entered into agreements with a number of other
nations, including China, eliminating tariffs on around 90% of imported
goods.
 The AFTA nations had a combined GDP of US$2.3 trillion in 2012, and
they're home to600 million people.

Southern Common Market (MERCOSUR)

 a Latin American single market, its full members are Argentina,
Brazil, Paraguay and Uruguay. Venezuela is a full member but has been
suspended since December 1, 2016.Meanwhile, Bolivia obtained its full
membership on July 7, 2015.
 Established by the Treaty of Asunción in 1991 and Protocol of Ouro Preto
in 1994
 The four have a combined gross domestic product (GDP) of roughly $2.9
trillion Latin America’s second-largest trade group, the Pacific Alliance,
which comprises Chile,Colombia, Mexico, and Peru, has a combined GDP
of about $1.8 trillion

Common Market of Eastern and Southern Africa (COMESA)

 The member States of COMESA are: Burundi, the Comoros, the
Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia,
Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Sudan,
Swaziland, Seychelles, Uganda, Zambia and Zimbabwe
 Formed in December 1994
 an annual export bill in excess of $80 billion, the organization is a
significant market place, both within Africa and globally  COMESA

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ultimately aims to remove all barriers to intra-regional trade,

starting with preferential tariffs and working towards a tariff-free
common market and economic union.

European Union (EU)

 is a single market, which is similar to a free trade area in that it has no
tariffs, quotas or taxes on trade
 The 28 member countries of the EU Austria, Italy, Belgium, Latvia,
Bulgaria, Lithuania, Croatia, Luxembourg, Cyprus, Malta, Czech Republic,
Netherlands, Denmark, Poland,Estonia, Portugal, Finland, Romania,
France, Slovakia, Germany, Slovenia, Greece, Spain, Hungary, Sweden,
Ireland, United Kingdom
 The European Union's GDP was estimated to be €14.8 trillion or $17.1
trillion (nominal) in2016
 In 1957, the Treaty of Rome established the European Economic
Community (EEC) or Common Market. However, it was not until
1986 that the Single European Act was signed. This treaty formed the
basis of the single market as we know it, as it aimed to establish the
free-flow of trade across EU borders. By 1993 this process was
largely complete.

Trans-Pacific Partnership (TPP)

 Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore and Vietnam have just signed the trade pact
formerly known as the Trans-Pacific Partnership
 In the absence of the US, it has been renamed the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP)
 Signed February 04, 2016 The deal covers a market of nearly 500
million people, despite the US pullout.

The Transatlantic Trade and Investment Partnership

 The Transatlantic Trade and Investment Partnership is a deal currently
being negotiated between the EU and the US.
 It would cover 45% of global GDP.
 The Center for Economic Policy Research has estimated that the deal
would be worth $134billion a year for the EU and $107 billion for the US –
although opponents have disputed these figures.

HISTORY OF GLOBAL MARKET INTEGRATION

The integration of labor market in Southeast Asian countries namely:
Burma, Malaysia and Thailand occurred between 1882 and 1936.
By the 1805 steamships had largely replaced sailing vessels for transport
within Asia as well as to Western markets, and shipping fares had begun to
fall sharply.

Also, already underway was the mass migration of Indian and Chinese
workers, principally from the labor-abundant areas of Madras in India and
the provinces of Kwangtung (Guangdong) and Fukien (Fujian) in

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Southeastern China, to land-abundant but labor-scarce parts of Asia. Chief

among the immigrant-receiving countries were Burma, Malaya and Thailand
(Siam) in Southeast Asia. Indian and Chinese labor inflows to these countries
constituted the bulk of two of three main late nineteenth and early
twentieth-century global migration movements, the other being European
immigration to the New World. Immigration to Southeast Asia was almost
entirely in response to its growing demand for workers which, in turn,
derived from rapidly expanding demand in core industrial countries for
Southeast Asian exports. Studies by Latham and Neal (1983) and by Brandt
(1985, 1989) established the development of an integrated Asian rice
market beginning in the latter part of the nineteenth century.

ROLE OF INTERNATIONAL FINANCIAL INSTITUTIONS IN THE CREATION OF

GLOBAL ECONOMY

International Financial Institution (IFIS). An international financial

institution is chartered by more than one country and therefore are subjects
to international law. Its owners or shareholders are generally national
governments, although other international institutions and other
organizations occasionally figure as shareholders. The most prominent IFIs
are creations of multiple nations, although some bilateral financial
institutions (created by two countries) exist and are technically IFIs. The
best known IFIs were established after World War II to assist in the
reconstruction of Europe and provide mechanisms for international
cooperation in managing the global financial system.

A. WORLD BANK
- Multinational financial institution established at the end of World War II
(1944) to help provide long-term capital for the reconstruction and
development of member countries.
- It provides much of the planning and financing for economic development
projects involving billions of dollars

Purpose for the setting up of the Bank

- To assist in the reconstruction and development of territories of members

- To promote private foreign investment by means of guarantees or
participation in loans and other investments made by private investors
- To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balance of payments
- To conduct its operations with due regard to the effect of
international investment on business conditions in the territories of
members
- To assist in bringing about a smooth transition from a wartime to a
peacetime economy

International Bank for Reconstruction and Development (IBRD)

- The IBRD was set up in 1945 along with the IMF to aid in rebuilding the
world economy and it was owned by the governments of 151 countries and
its capital is subscribed by those governments

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- It provides funds to borrowers by borrowing funds in the world capital

markets, from the proceeds of loan repayments as well as retained earnings.
- At its funding, the bank’s major objective was to serve as an international
financing facility to function in reconstruction and development.
- Lends money to a government for the purpose of developing that
country’s economic infrastructure such as roads and power generating
facilities
- Also, funds are lent only to members of the IMF, usually when
private capital is unavailable at reasonable terms. - Generally, bank
loans are made to cover only import needs in foreign convertible
currencies and must be repaid in those currencies at long-term rates.
- The government assisted in formulating and implementing an effective and
comprehensive strategy for the development of new industrial free zones
and the expansion of existing ones
- Lays special operational emphasis on environmental and women’s issues.

International Development Association

- The IDA was formed in 1960 as a part of the World Bank Group to provide
financial support to LDCs and has 137 member countries, although all
members of the IBRD are free to join the IDA.
- IDA’s funds come from subscriptions from its developed members and from
the earnings of the IBRD.
- Credit terms usually are extended to 40 to 50 years with no interest.
- Repayment begins after a ten-year grace period and can be paid in the
local currency, as long as it is convertible.
- Although the IDA’s resources are separate from the IBRD, it has no
separate staff. Loans are made for similar projects as those carried out by
IBRD, but at easier and more favorable credit terms.
- The present emphasis seems to be on helping the masses of poor people in
the developing countries become more productive and take an active part
in the development process. Greater emphasis is being placed on
improving urban living conditions and increasing productivity of small
industries.

International Finance Corporation

- The IFC was established in 1956. There are 133 countries that are members
of the IFC and it is legally and financially separate from the IBRD
-Main responsibilities are:
(i) To provide risk capital in the form of equity and long-term loans
for productive private enterprises in association with private
investors and management;
(ii) To encourage the development of local capital markets by
carrying out standby and underwriting arrangements; and
(iii) To stimulate the international flow of capital by
providing financial and technical assistance to privately
controlled finance companies. Loans are made to private firms in the
developing member countries and are usually for a period of seven to
twelve years

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- The key feature of the IFC is that its loans are made to private enterprises
and its investments are made in conjunction with private business.
- In addition to funds contributed by IFC, funds are also contributed to the
same projects by local and foreign investors

investors
What does the World Bank
do?
- The World Bank is the
world’s largest source of
development assistance,
providing nearly
$30 billion in loans,
annually, to its client
countries.
- The main focus is on
helping the poorest people
and the poorest countries
hut for all its

GECC 107 – The Contemporary World Module I

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clients, the Bank

emphasizes the need for:
 investing in people,
particularly through basic
health and education;
 protecting the
environment;
 supporting and
encouraging private
business development;
 strengthening the ability of
the governments to deliver
quality services efficiently
and transparently;
 promoting reforms to
create a stable
GECC 107 – The Contemporary World Module I
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macroeconomic
environment conducive to
investment and long-term
planning;
 focusing on social
development, inclusion,
governance and
 Institution building as key
elements of poverty
reduction
- The Bank is also helping
countries to strengthen and
sustain the fundamental
conditions
that help to attract and retain
private investment.
What does the World Bank do?

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 The World Bank is the world’s largest source of development

assistance, providing nearly$30 billion in loans, annually, to its client
countries.
 The main focus is on helping the poorest people and the poorest
countries hut for all its clients, the Bank emphasizes the need for:
 investing in people, particularly through basic health and
education;
 protecting the environment;
 Supporting and encouraging private business development;
 strengthening the ability of the governments to deliver
quality services efficiently and transparently;
 promoting reforms to create a stable macroeconomic
environment conducive to investment and long-term
planning;
 focusing on social development, inclusion, governance and
 Institution building as key elements of poverty reduction
 The Bank is also helping countries to strengthen and sustain the
fundamental conditions that help to attract and retain private
investment.
 They are investing in human resources, infrastructure and
environmental protection which enhance the attractiveness and
productivity of private investment

INTERNATIONAL MONETARY FUND

- IMF is a cooperative institution that 182 countries have voluntarily joined
because they see the advantage of consulting with one another on this
forum to maintain a stable system of buying and selling their currencies
- Its policies and activities are guided by its Charter known as the Articles of
Agreement.
- IMF lends money to members having trouble meeting financial
obligations to other members, but only on the condition that they
undertake economic reforms to eliminate these difficulties for their own
good and that of the entire membership.
-Contrary to widespread perception, the IMF has no effective authority over
the domestic economic policies of its members
- There are several major accomplishments to the credit of the International
Monetary System.
For example, it
• sustained a rapidly increasing volume of trade and
investment;
• displayed flexibility in adapting to changes in international
commerce; • proved to be efficient (even when there were
decreasing percentages of reserves to trade);
• proved to be hardy (it survived a number of pre-1971 crises,
speculative and otherwise, and the down-and-up swings of
several business cycles);
• allowed for a growing degree or international cooperation;
• established a capacity to accommodate reforms and
improvements

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- To an extent, the fund served as an international central bank to help

countries during periods of temporary balance of payments difficulties by
protecting their rates of exchange. Because of that, countries did not need
to resort to exchange controls and other barriers to restrict world trade

Purpose of IMF
 To promote international monetary cooperation through a permanent
institution that provides the machinery for consultation and
collaboration on international monetary problems
 To facilitate the expansion and balanced growth of international
trade and to contribute, thereby, to the promotion and maintenance
of high levels of employment and real income and to the
development of the productive resources of all members as primary
objectives of economic policy
 To promote exchange stability, to maintain orderly exchange
arrangements among members and to avoid competitive exchange
depreciation
 To assist in the establishment of a multilateral system of payments
in respect of current transactions between members and in the
elimination of foreign exchange restrictions which hamper the growth
of world trade
 To give confidence to members by making the general resources of
the Fund temporarily available to them under adequate safeguards,
thus providing them with opportunity to correct maladjustment in
their balance of payments without resorting to measures destructive
to national or international prosperity
 In accordance with the above, to shorten the duration and lessen the
degree of disequilibrium in the international balances of payments of
members

HOW CAN IFIS HELP IN ECONOMIC GLOBALIZATION?

- They focus on long-term investment projects, institution-
building, and on social, environmental, and poverty issues
- strengthen economic governance
- safeguard the stability and integrity of the international financial system
as a global public good- encouraging true national ownership of reforms by
streamlining the conditions attached to IMF-supported programs.
- recognizes and values the role of civil society organizations
- ensuring the stability of the international financial system
- helping individual countries take advantage of the investment
opportunities offered by international capital markets, while reducing
their vulnerability to adverse shocks or changes in investor sentiment.
- Trade liberalization- Reducing debt burdens- Setting the stage for the 2030
development agenda

GLOBAL CORPORATIONS
Definition of Corporation

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A corporation is an artificial being created by operation of law,

having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence (Batas Pambansa
Blg. 68 the Corporation Code of The Philippines, Section 2 – Corporation
defined).

According to Investopedia, a corporation is a legal entity that is

separate and distinct from its owners. Corporations enjoy most of the rights
and responsibilities that an individual possesses; that is, a corporation has
the right to enter into contracts, loan and borrow money, sue and be sued,
hire employees, own assets and pay taxes.

A global company is generally referred to as a multinational

corporation (MNC). An MNC is a company that operates in two or more
countries, leveraging the global environment to approach varying markets in
attaining revenue generation. These international operations are pursued as
a result of the strategic potential provided by technological developments,
making new markets a more convenient and profitable pursuit both in
sourcing production and pursuing growth.

The Effects of Globalization on Multinational Corporations

Multinational corporations are agents of globalization. At the same time,
many multinational corporations are also affected by globalization in ways
they may or may not like. This reality stems from the fact that multinational
corporations have many subsidiaries, some of which benefit from
globalization and others that do not (Button & Thompson, 2018).

1. Access to New Markets. Globalization gives businesses access to markets

that would have been difficult to reach in the past. Because of the internet,
customers from anywhere in the world can order products from companies
anywhere else in the world, and have those products delivered by airplane
in just a few weeks. This is naturally a tremendous advantage to businesses,
which stand to increase their potential customer base by millions by
reaching out to foreign buyers.

2. Access to Labor at Cheaper Prices. Outsourcing and off-shoring allow

businesses to hire employees in foreign countries, where labor and real
estate costs may be lower than in the business' home country. While these
practices can have negative effects on workers looking for full-time jobs,
there is no doubt that they decrease costs, and therefore increase profits,
for businesses.

3. Minimize Costs through Partnership Formation. Companies affected by

globalization are able to form partnerships with organizations all around the
world. Many American, European, and Asian companies have corporate
partnerships that stretch across continents.

4. Opportunities for Tax Reduction. Globalization gives multinational

corporations the ability to seek out foreign countries for their investments
when their current country adopts a tax policy they find to be unfavorable.

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Countries with low corporate tax rates are sometimes called "tax havens," as
they allow corporations and individuals to lower their tax rates by moving
assets offshore.

5. Coordination Challenges. Multinational corporations may have a difficult

time coordinating activities in a globalized economy. A company that
operates in America, Japan and Europe, for example, will need to hire
employees who speak many different languages, and it may be difficult for
that company to make sure all employees are on the same page when only a
few of them speak the same language.

GLOBAL INTERSTATE SYSTEM

The modern world-system is structured politically as an interstate
system – a system of competing and allying states. Political scientists
commonly call this the international system, and it is the main focus of the
field of International Relations.

CONTEMPORARY GLOBAL GOVERNANCE

The term global governance is sometimes called as world governance.
Global is a movement towards political cooperation among transnational
actors, negotiating, and responses to problems that affect more than one
state or region.

The term “global governance” and “globalization” have come into

frequent use over the past two decades. Globalization- which we take to
refer not only to the intensification of global economic integration but also
the increasing volume and rapidity of flows of people, ideas, and cultures
across the traditional territorial boundaries of nation-state—is typically used
as a catch-all for describing the erosion of our ability to govern human
societies effectively and fairly. Global governance has both an aspirational
and analytic inflection, referencing the possibility of more just and
democratic ordering of an increasingly integrated world, as captured in the
following quotes:
The very language of global governance conjures up the possibility and the
desirability of effecting progressive change in global life through the establishment of a
normative consensus- a collective purpose…(Barnette and Duvall, 2005, p.1)

The idea that societies are capable of democratic self-control and self-realization
has until now been credibly realized only in the context of the nation-state…What would a
political response to the challenges of a post national constellation look like? (Harbenas,
2001, p.61)

The United Nations says that the rapid globalization over the recent
decades happens due to the rapid movement of science and technologies.
This mobility of people, capital, technology, goods and services
internationally is called economic globalization. United Nations, stated
economic globalization as the increasing interdependence of world
economies as a result of growing scale of cross-border trade of commodities
and services, flow of international capital and wide and rapid spread of
technologies. It reflects the continuing expansion and mutual integration of
market frontiers, and is an irreversible trend for the economic development

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in the whole world at the turn of the millennium. Thus, it includes

improvements in literacy, life expectancy and people well-being.

LEARNING ACTIVITY
1. Differentiate global economy from world economy.
2. What is the importance of international financial institution to
countries of the world?
3. What is the significance of global corporation?

Global economy or economic globalization is concerned on the globalization

of production, finance, markets, technology, organizational regimes,
institutions, corporations, and labor. While economic globalization has been
expanding since the emergence of trans-national trade, it has grown at an
increased rate due to an increase in communication and technological
advances under the framework of General Agreement on Tariffs and Trade
and World Trade Organization, which made countries gradually cut down
trade barriers and open up their current accounts and capital accounts.

SUMMATIVE TEST
TRUE OR FALSE. Write TRUE if the statement is correct and FALSE if it is incorrect.

__________ 1. There is a greater chance for the people in the developing

countries to economically succeed and increase their standard of
living.
__________ 2. Global economy refers to the international exchange of goods and
services that is expressed in monetary units of money.
__________ 3. Multinational corporations may have a difficult time coordinating
activities in a localized economy.
__________ 4. Globalization is the increasing interaction of people, states or
countries through the growth of the international flow of money,
ideas, and culture.
__________ 5. Multi-corporations are agents of globalization.
__________ 6. The term global governance is sometimes called as world
governance.
__________ 7. Companies and institutions go global to find political and economic
stability which is relatively good in other countries than the
country of origin.
__________ 8. Globalization gives businesses access to markets that would have
been difficult to reach in the past.
__________ 9. When prices among different location or related goods follow the

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same pattern over a long period of time, market integration exist.

__________ 10. The modern world-system is structured politically as an interstate
system – a system of competing and allying states.

GECC 107 – The Contemporary World Module I