GLOBAL ECONOMY

GRETCHEN B. MILLENA
CENTER FOR GENDER AND DEVELOPMENT
BICOL UNIVERSITY
LEARNING OUTCOMES

 Discuss economic globalization

 Identify the global actors/international
financial institutions and explains their roles
in the creation of a global economy
 Discuss international trade, the concept of
comparative advantage, and the benefits and
drawbacks free trade
 Identify the actors that facilitate economic
globalization.
DIMENSION OF GLOBALIZATION

ECONOMIC GLOBALIZATION
CULTURAL
POLITICAL GLOBALIZATION
WHAT IS ECONOMIC
GLOBALIZATION?

 ECONOMIC GLOBALIZATION is a
historical process, the result of human innovation
and technological progress.
 It refers to increasing integration of economies
around the world, particularly through the
movement of goods, services, and capital across
borders.
 The term sometimes also refers to the movement
of people (labor) and knowledge (technology)
across international borders. (IMF, 2008)
cont…

 This is a phenomenon of expansion that

causes profound changes on the world stage.
 It revolves around trade, the flow of
investment, financial capital, division of labor
and specialization
Integration of Economies

 Made possible by:

 Technology
 Communication networks
 Internet access
 Growth of economic cooperation – trading blocs
(EU, NAFTA, etc.)
 Collapse of ‘communism’
 Movement to free trade
Why trade?

All trade is voluntary.

People trade because they believe

that they will be better off by
trading.
Law of Absolute Advantage

“The natural advantages which one country has

over another in producing particular
commodities are sometimes so great that it is
acknowledged by all the world to be in vain to
struggle with them.”
Adam Smith in “Wealth of Nations” Book IV, Chapter 2
Law of Comparative Advantage

 David Ricardo extended the ideas of Adam

Smith
 Nations could benefit from trade based on
comparative advantage, not just absolute
advantage
 Comparative advantage refers to a country’s
ability to produce a good at a lower
opportunity cost than another country
Sources of Comparative Advantage

 Differences in technology
 Differences in climate
 Differences in factor endowments
 Factors of production – land, labor and capital
 Factor intensity – the factor that is used
intensively in production
 Heckscher-Ohlin model
 Imagine an island with only two trees but lots of boats. The
islanders produce two goods, coconuts and fish.
A nearby island has many trees, but it has very few boats.
Initially, there is no contact between the islands. However, a new
navigational device will soon allow shipments between the islands.
What will happen?
 Only two trees → expensive domestic
coconuts before trade
 Imported foreign coconuts are cheap
 Domestic price of coconuts ↓ with trade

 Lots of boats → cheap domestic fish

before trade
 New export markets for fish increases
demand
 Domestic price of fish ↑ with trade
 Who cares about the price of coconuts?
 People who own trees (land)
 People who climb trees (labor)

 Who cares about the price of fish?

 People who own boats (capital)
 People who sail and fish (labor)
Who could object?

Domestic price is higher than world price.

Country begins to import and domestic price falls.

Domestic consumers benefit.

Domestic producers are harmed.
Who could object?

Domestic price is lower than world price.

Country begins to export and domestic price rises.

Domestic producers benefit.

Domestic consumers are harmed.
Trade versus Aid?
 Benefits of Trade:
 Increased choice
 Greater potential for growth
 Increase international economies of scale
 Greater employment opportunities
 Disadvantages of trade:
 Increase in gap between the rich and the poor
 Dominance of global trade by the rich, northern hemisphere
countries
 Lack of opportunities for the poor to be able to have access to
markets
 Exploitation of workers and growers
Barriers to Trade
Tariff

 Tax on imported goods or services

 Reasons for tariffs
 Raise tax revenues
 Reduce consumption of the imported good or
service
 Effect – Price of import rises, “cheaper”
domestic goods become more attractive
Quota

 Limits the amount of an imported good

allowed into the country
 Supply is decreased and price increases
 Voluntary Export Restrictions (VER’s) are
similar
Export Subsidy

 Government financial assistance to a firm that

allows a firm to sell its product at a reduced
price
 Benefits and harms
 Consumers (both at home and abroad) benefit from
lower prices
 Foreign producers are harmed because of lower
world prices
 Taxpayers in the producing country pay the subsidy
Product Standards

 A type of “hidden” trade barrier

 Types of standards
 Product safety
 Content
 Packaging
Trade Agreements

 General Agreement on Trade and Tariffs

(GATT) and World Trade Organization (WTO)
 Regional trade agreements
GATT

 “Provisional”
agreement (1948 –
1994)
 Dramatic tariff
reductions were
negotiated in a series
of trade rounds
 Grew from 23 to 123
countries
WTO

 WTO created in the

Uruguay trade
 Established in Geneva
in 1995
 153 member countries
 GATT was updated and
still forms the legal
framework for WTO
negotiations on the
goods trade
What is the WTO?

 A negotiating forum
 A set of rules (international agreements)
 GATT
 GATS (General Agreement on Trade in Services)
 TRIPS (Agreement on Trade-Related Aspects of
Intellectual Property Rights)
 A place to settle trade disputes
Regional Trade Agreements

 Examples include
 North American Free Trade Agreement
 Association of Southeast Asian Nations
 Common Market of the South (MERCOSUR)
 European Union
FREE TRADE AREAS

 A free trade area (FTA) this is the most basic

form of economic cooperation.
 Formed when two or more countries agree to abolish
all internal barriers to trade among themselves.
 Countries that belong the free trade area can do and
maintain independent trade policies with respect to
non-FTA countries.
 A system of certificates of origin is used to avoid
trade diversion in favor of low-tariff members.
 Example is NAFTA
CUSTOMS UNION
A custom union represents the logical
evolution of a free trade area.
 In addition to eliminating internal barriers to
trade, members of a customs union establish
common external barriers.
 The primary difference from the free trade is
that members agree treat trade with
nonmember countries in a similar manner
COMMON MARKET
A Common Market is the next step in
the spectrum of economic integration.
 In addition to the removal of internal barriers
to trade and the establishment of common
external barriers, the common market allows
for free movements of factors of production,
including labor, capital and information.
 Workers wont need visa or work permit to
work in another member country
 Example is COMESA
ECONOMIC UNION

 This created when countries enter into an

economic agreement to remove barriers to
trade and adopt a common economic policies
 Example European Union (EU)
The North American Free Trade is
an agreement signed by Canada,
Mexico, and the United States,
creating a trilateral trade bloc in
North America. The agreement
came into force on January 1,
1994. It superseded the 1988
Canada–United States Free Trade
Agreement between the U.S. and
Canada, and is set to be replaced
by the 2018 United States–
Mexico–Canada Agreement.
ANDEAN COMMUNITY
The Andean Community (Spanish:
Comunidad Andina, CAN) is a
customs union comprising the
South American countries of
Bolivia, Colombia, Ecuador, and
Peru.
The trade bloc was called the
Andean Pact until 1996 and came
into existence when the Cartagena
Agreement was signed in 1969.
Its headquarters are in Lima, Peru.
COMMON MARKET OF THE SOUTH
(MERCOSUR)
 Mercosur, officially Southern Common
Market (Portuguese: Mercado Comum
do Sul or Mercosul; Guarani: Ñemby
Ñemuha) is a South American trade
bloc established by the Treaty of
Asunción in 1991 and Protocol of Ouro
Preto in 1994.
 Its full members are Argentina, Brazil,
Paraguay and Uruguay. Venezuela is a
full member but has been suspended
since December 1, 2016. Associate
countries are Bolivia, Chile, Colombia,
Ecuador, Guyana, Peru and Suriname.
Observer countries are New Zealand
and Mexico.
 ASIA-
PACIFIC
ASSOCIATION OF SOUTHEAST ASIAN
NATION ASEAN
 It is a geo-political and economic
organization of ten countries located in
Southeast Asia, which was formed on 8
August 1967 by Indonesia, Malaysia, the
Philippines, Singapore and Thailand.
Since then, membership has expanded to
include Brunei, Burma (Myanmar),
Cambodia, Laos, and Vietnam.
 Its aims include accelerating economic
growth, social progress, cultural
development among its members,
protection of regional peace and
stability, and opportunities for member
countries to discuss differences
peacefully
THE EUROPEAN UNION
 The European Union has
established a single market across
the territory of all its members
representing 512 million citizens.
 As a political entity the European
Union is represented in the World
Trade Organization (WTO). EU
member states own the estimated
second largest after the United
States(US$93.6 trillion) net wealth
in the world, equal to 25%
(US$70.8 trillion) of the $280
trillion global wealth.
THE MIDDLE EAST
  A common market was launched on 1 January
2008 with plans to realize a fully integrated
single market.
 It eased the movement of goods and services.
However, implementation lagged behind after
the 2009 financial crisis. The creation of a
customs union began in 2003 and was
completed and fully operational on 1 January
2015. In January 2015, the common market was
also further integrated, allowing full equality
among GCC citizens to work in the government
THE GULF and private sectors, social insurance and
retirement coverage, real estate ownership,
COOPERATION capital movement, access to education, health
and other social services in all member states.
COUNCIL However, some barriers remained in the free
movement of goods and services.
 ECONOMIC COMMUNITY OF
WEST AFRICAN STATES

The union was established on 28 May 1975, with the

signing of the Treaty of Lagos, with its stated mission to
promote economic integration across the region. A
revised version of the treaty was agreed and signed on 24
July 1993 in Cotonou. Considered one of the pillar regional
blocs of the continent-wide African Economic Community
(AEC), the states goal of ECOWAS is to achieve "collective
self sufficiency" for its member states by creating a single
large trade bloc by building a full economic and trading
union.
SOUTH AFRICAN DEVELOPMENT
COMMUNITY (SADC)
 The SADC Free Trade Area was established in August
2008, after the implementation of the SADC Protocol
on Trade in 2000 laid the foundation for its
formation. Its original members were Botswana,
Lesotho, Madagascar, Mauritius, Mozambique,
Namibia, South Africa, Swaziland, Tanzania,
Zambia and Zimbabwe, with Malawi and
Seychelles joining later.
 Angola and the Democratic Republic of Congo are
not yet participating.
 The SADC Union, scheduled to be established by
2010 according to SADC's Regional Indicative
Strategic Development Plan (RISDP), is unlikely to
become reality in the near future. This is because the
European Union's Economic Partnership Agreements
(EPA) with their inherent extra-regional freetrade
regimes provided for several SADC members more
benefits than deeper regional market integration
within the framework of a SADC-Customs Union.
ORGANIZATION OF THE PETROLEUM
EXPORTING COUNTRIES (OPEC)
The formation of OPEC marked a turning point toward national
sovereignty over natural resources, and OPEC decisions have
come to play a prominent role in the global oil market and
international relations. The effect can be particularly strong
when wars or civil disorders lead to extended interruptions in
supply. In the 1970s, restrictions in oil production led to a
dramatic rise in oil prices and in the revenue and wealth of
OPEC, with long-lasting and far-reaching consequences for the
global economy. In the 1980s, OPEC began setting production
targets for its member nations; generally, when the targets are
reduced, oil prices increase. This has occurred most recently
from the organization's 2008 and 2016 decisions to trim
oversupply.
THE
MCDONALDIZATI
ON
OF
SOCIETY
BASIC ORGANIZATIONAL
PRINCIPLES
 EFFICIENCY
 Ray Kroc, the marketing genius behind McDonald’s
set out with one goal: to serve a hamburger, French
fries, and milkshake to a customer in 50 seconds or
less. In the restaurant, most customers bus their own
trays, or better still, drive away from pick-up window
taking whatever mess they make with them.
Efficiency is a value virtually without criticism in
our society. We tend to think that anything done
quickly is, for that reason alone, good.
BASIC ORGANIZATIONAL
PRINCIPLES
 CALCULABILITY
 The first McDonald’s operating manual declared the weight
of a regular raw hamburger to be 1.6 ounces, its size to be
3.875 inches across and its fat content to 19%. A slice of
cheese weighs exactly half an ounce, and French fries are
cut precisely 9/32 of an inch thick. Think about how many
objects around the home, the workplace, or on the
campus are designed and mass-produced uniformly
according to a standard plan. Not just our environment but
our life experiences-from traveling the nation’s interests to
sitting at home viewing television-are now more
deliberately planned than ever before.
BASIC ORGANIZATIONAL
PRINCIPLES
 UNIFORMITY AND PREDICTABILITY
 An individual can walk into a McDonalds’s
restaurant almost anywhere and buy the same
sandwiches, drinks, and desserts prepared in
precisely the same way. Uniformity results from
a highly rational system that specifies every
action and leaves nothing to chance.
BASIC ORGANIZATIONAL
PRINCIPLES
 CONTROL THROUGH AUTOMATION
 The most unreliable element in the McDonald’s system
is human beings. People, after all, have good and bad
days, sometimes let their minds wander, or decide to
try something a different way. To minimize the
unpredictable human element, McDonald’s has
automated their equipment to cook food at a fixed
temperature for a set lengths of time. Even the cash
register at a McDonald’s is keyed to picture of the
items, so that ringing up a customers orders is as
simple as possible.
References
Economic Globalization @ https://
www.igi-global.com/dictionary/economic-globalization/61002