THE GLOBAL ECONOMY

Globalization
 worldwide
interconnectedness in all
aspects (political, technical,
cultural, and economic
 features) of contemporary
social life
 Multidimensional
phenomenon
 But the economic dimension
is one of the major driving
forces
Economic Globalization
 it is a historical process, the result of
human innovation and technological
progress.
 itis the increasing integration of
economies around the world through
the movement of goods, services, and
 capital across borders (transportation
and
communication revolution).
 Italso refers to the movement of people
(labor) & knowledge (technology) across
international borders.
IMF, 2008

Economic Globalization

A process making the world economy

an “organic system” by extending
transnational economic processes
and economic relations to more and
more countries and by deepening the
economic interdependence among them
(Szentes, 2003).
Attributes of Economic Globalization

 Theglobalization of trade of
goods and services;
 The globalization of financial
and capital markets;
 The globalization of technology
and communication; and
 The globalization of production
History of Economic
 Globalization
 Gillsand Thompson(2006) -
globalization started since Homo
sapiens began from migrating
from the African continent to
populate the rest of the world
 Frank and Gills (1993) -
considered the Silk Road
(Asia, Europe, Africa) the best
example for
archaic globalization (5,000
years ago)
History of Economic Globalization
  Adam Smith considered the
discovery of America by
Christopher Columbus in 1492
and the discovery of the
direct sea route to India by
Vasco de Gama in 1498 as the
two(2) greatest achievements
in human history
 British Industrial Revolution
spread to Continental Europe
and North America (1800s)
History of Economic Globalization
th
 17 – 18th century - economic nationalism
and monopolized trade such as the
 British (1600) and the Dutch (1602)
East India Companies did not favour
international economic integration
th
 19 century - transport revolution
The golden age of
globalization
(1870-1913) because of :
Relative peace
Free – trade
Financial and economic stability
Nation – State &
Economic Globalization
 For hyperglobalists, states ceased to exist as
 primary economic organization units in the
wake of a global market
 People consume highly standardized
global products and services produced
by global corporations in a borderless
world
 There will be no national products or
technologies, no national corporations,
no national industries
Nation – State &
Economic Globalization

 Neo - Liberals claim that nation –

states have lost an important
 element of economic sovereignty
 “Buy Taiwan, hold Italy and sell
France”, Thomas Friedman
compared countries to individual
stocks
 The major players of global
economy are the transnational
corporations or TNCs
TRANSNATIONAL CORPORATIONS are
constantly evolving as a result of outsourcing
activity
- Going out to find the source of
what you need
We live in an age of outsourcing.
Firms are subcontracting an
expanding set of activities. Some
have become “virtual”
manufacturers, owning designs for
so many products but making almost
nothing themselves.
 Example : AMERICAN CAR (WTO)
KOREA – assembly
JAPAN – components & advanced technology GERMANY –
design
TAIWAN & SINGAPORE – minor parts
UK – advertising and marketing services IRELAND/
BARBADOS – data process
 The Global Commodity
Chains
(Gereffi,1999)

TNCs gather
resources, transform
them into goods or
commodities and
 finally distribute
them to consumers
in the world market
Impact of Economic Globalization

World Bank
(WB,2002)
claims that
globalization
can indeed reduce
poverty but it definitely
 does not benefit all
nations.
Impact of Economic Globalization
 The World Systems Analysis
 Capitalism under economic
globalization creates
INEQUALITY.
 The ratio of the richest region’s
GDP per capita to the poorest
1000, 1 : 1
1500 , 1: 2
1820, 1 : 3
1871, 1: 5
WW I, 1: 9
 1950, 1: 15

DUTERTENOMICS

Based on the rule

of law Driven by
massive
infrastructure
spending Slogan of
“Build, build, build.”

 The competitiveness of an economy

and the impact of
economic globalization depend on the capacity of the
nation - state for political intervention in
order to regulate TNCs, IGOs and other market
players.
  Nation –states are not influenced
uniformly by economic
globalization
INTERNATIONAL MONETARY SYSTEM (IMS)

 Rules , customs, instruments, facilities,

and organizations for effecting
international payments (Salvatore, 2007)
 Task : Facilitates cross-border transactions
involving trade and investment
 It
reflects economic power and interests, as
money or currency is inherently political, an
 integral part of high politics of diplomacy
 The Gold Standard
th
 19 century - UK, France, USA, Italy, Germany and other
European nations adopted the gold standard as a fixed
exchange rate regime up until 1930s.
 Gold – guarantee a non-inflationary, stable economic
environment, a means for accelerating international
trade.
 The Bretton Woods System
 Adopted the gold - dollar exchange standard. Various
currencies were fixed to the US dollar until 1971. Two
international institutions were established:
International
Banks for Reconstruction and
Development (IBRD)
International Monetary Fund (IMF)
 The Smithsonian Agreement (1971)
 Neitherthe devaluation of the US currency nor the dollar’s non
convertibility to gold managed to stabilize world finances.
 The Jamaica Accords (1976)
 Managed floating in exchange rate policy did not perform any
better.
 The Plaza Agreement (1985)
 G7 countries agreed on a substantial devaluation of the US
dollar.
 The Louvre Accord (1987)
 Defend the dollar from further devaluation on the markets.
10 Points of the
Washington Consensus (1990)
  Fiscal policy discipline
 Effective public spending
 Tax reform
 Competitive exchange rates
 Trade liberalization
 Financial market liberalization
 Liberalization of foreign direct investment
 Privatization
 Deregulation
 Security of property rights
 European Monetary Integration 
Germany, France, Italy,
Netherlands, Belgium and
Luxembourg created a common
 market where goods and services,
capital and labor moved freely
 European Economic
Community,1957  European Monetary
System, 1979  European
Exchange Rate Mechanism 
European Economic and
Monetary Union, 1992
European Central Bank,
1999
 EURO as a reserved currency

International Trade &

Trade Policies
 David Ricardo’s Comparative Advantage Theory
 Every single nation must have a relative advantage
in something irrespective of its initial condition.
 Most – Favored Nation (MFN) Principle states that
any negotiated reciprocal tariff reductions between
two parties should be extended to all other trading
partners without conditions.
International Trade & Trade
PoliciesGeneral Agreement on Tariffs and Trade (GATT)
 Kennedy Round (1962) - tariff cuts
 Tokyo Round (1970) – subsidies and procurement codes 
Uruguay Round (1986/1994) – multilateral trade negotiations
World Trade Organization (WTO) -1995 (industrialized
countries trade to developing countries, specifically on
 agriculture)
 Doha Round (2001) – to lower trade barriers, led to forming a
pressure group (Group of 20 or G20)
 United Nations Conference on Trade and Development (UNCTAD) -
to promote trade and cooperation between the developing and
developed nations

MARKET
GLOBALIZATION
Global
 Corporations

1. International Companies
2. Multinational
Companies 3. Global
Companies
4. Transnational Companies
1.
 International Companies

• These companies have no foreign direct investments (FDI) and

make their product or service only in their home country. In other
words, they are exporters and importers.
• They have no staff, warehouses, or sales offices in foreign
countries. The best examples of international companies, in the
strict sense, are exotic retail shops that sell imported products, or
small local manufacturers that export to neighboring countries.
2.
 Multinational Companies
• These companies cross the FDI threshold. They invest directly in foreign
assets, whether it's a lease contract on a building to house service
operations, a plant on foreign soil, or a foreign marketing campaign.
• Generally, though Multinational companies, however, have FDI only in a
limited number of countries, and they do not attempt to homogenize their
product offering throughout the countries they operate in -- they focus
much more on being responsive to local preferences than a global
company would.
 3. Global
Companies

• These
companies
 have investments in dozens of countries but maintain a strong
headquarters in one, usually their home country.
• Their mantra is economies of scale, and they'll homogenize
products as much as the market will allow in order to keep costs
low.
• Their marketing campaigns often span the globe with one
message (albeit in different languages) in an attempt to smooth
out differences in local tastes and preferences.
4.
 Transnational Companies

• These companies are often very complex and extremely difficult

to manage. They invest directly in dozens of countries and
experience strong pressures both for cost reduction and local
responsiveness.
• These companies may have a global headquarters, but they also
distribute decision-making power to various national
headquarters, and they have dedicated R&D activities for different
national markets.