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Economic Globalization

ECONOMIC GLOBALIZATION  It refers to the increasing


is the increasing integration of economies around
the world, particularly through
economic integration the movement of goods, services,
and interdependence of and capital across borders. The
term sometimes also refers to
national, regional, and the movement of people (labor)
local economies across the and knowledge (technology)
world through an across international borders.
intensification of cross- (IMF, 2008)
border movement of goods,
services, technologies and two main elements
capital.
 the mobility of goods, services,
capital, technology, and people in
• economic globalization is a the world economy as a whole;
historical process, the and
result of human innovation  a given country’s integration into
and technological the world economy.
progress.
Reasons and Agents of Economic
Globalization
Primary Agents of
Globalization is not new. Globalization
(in the past)
• Early travel

FOUR MAIN REASONS


• soldiers
• sailors
 conquest (the desire to • traders and
control other countries);
 prosperity (the search for a • explorers
better life);
 exploration (the desire to
discover new lands); and
 trade (the desire to sell
goods profitably).
Waves of Economic Globalization
Certain milestone indicating leaps in economic globalization

 The Silk Road linking China to Middle East to Roman


Empire in the Middle Ages (Han Dynasty)

The Silk Road or Silk Route was an ancient network of trade routes that were for
centuries central to cultural interaction through regions of the Asian continent
connecting the East and West and stretching from the Korean peninsula and Japan
to the Mediterranean Sea.

 Islamic Golden Age (8th to 13th century): Muslim


traders established some globalization of crops,
trade, technology. Cultural revolution in the Middle
East
Waves of Economic Migration
Leaps and retrogressions in economic globalization

• 1492 – 1800: Colonization period – increased trade in Europe, extraction


of minerals and exotic spices in colonies, setting up of plantations, slavery,
forced trade with colonies, British and East India Companies, migration to
Americas

The Dutch East India Company becoming the world’s first multinational
privately-held company, in which ownership was divided into shares.

• 1800 – 1914: Industrial Revolution, massive technological progress,


railroads, mass migration to Americas, corporations looking for markets
worldwide (setback during WWI)

• 1914 – 1946: Two World Wars, Great Depression – setback in globalization


Latest Waves of Globalization
1970 – 1990
 Increasing trade • Foreign direct investment
liberalization (FDI) is an investment made
 Capital movements by a company or individual
across borders (at first in one country in business
FDIs and loans) interests in another country,
 Multilateral institutions in the form of either
pushing for trade and establishing business
financial liberalization – operations or acquiring
to open up goods and business assets in the other
financial markets country, such as ownership
or controlling interest in a
foreign company.
Latest Waves of Globalization
1970 – 1990
 Multilateral institutions • The Bretton Woods System
(IMF, WB, DB) and (1944 – 1973) was a
national policy makers remarkable achievement of
use market ideology to global coordination. It
effect market established the U.S. dollar
liberalization, as the global currency,
deregulation and taking the world off of the
privatization, as well as gold standard. It created the
trade and financial World Bank and the
liberalization International Monetary
 Latin American debt Fund. These two global
crisis (1981 – 1983) – organizations would
severe debt crisis in the monitor the new system.
Third World
Latest Waves of Globalization
1990 – present (Globalization mostly
premeditated):
 World Trade Organizations (WTO)
 Regional trade formations: EU, NAFTA, AFTA,
ASEAN + 3, AEC etc.
 China entry into global economy
 Bilateral trade and investment agreements
 Tequila and Asian financial crises (1990s)
 Argentinian debt default (1999 – 2001)
 Global Financial Crisis (2008 – 2009)
Factors facilitating economic
globalization among countries
For trade and finance (capital):
• Improved transportation systems
• Improved technology, information and telecommunications
• Increased surpluses and capital searching for markets (corporations
and MNCs)
• Economic policies aimed at opening up trade and capital account
liberalization (opening up flow and capital and money going in and
out of country)
For labor or personal flows:
• Lack of economic opportunities in poorer countries driving people
to look for employment abroad
• Improved transportation, cross border arrangements, and info
system
Strong initiative to open up global
markets to trade and investments
• Since 1948, the General Agreement on Tariffs and Trade (GATT), had
gathered countries in getting them to continuously open up their
economies to the trade of goods, and later, services.
• The GATT meetings eventually led to the creation of the World
Trade Organization in 1995
• Since 1970s, the developed countries and multilateral institutions
(IMF, WB, ADB) had been aggressively pushing developing countries
 To open up their economy to world imports
 To promote their exports
 In 1980s up to now, persuading emerging markets to open
up capital and finance accounts
As a result of the explosion of trade and
technology, the current rate of globalization is
unprecedented. Author and journalist Thomas
Friedman stated that today’s globalization is
unique because what was once accomplished
only by corporations is now being done by
individuals, allowing them to reach around the
world “farther, faster, cheaper, and deeper.”
Examples

millions eat Kentucky Fried Chicken


drink Pepsi
drive Hondas
listen to music on Sony mp3 players, and
play sports wearing Reebok sneakers.
Nowadays  Technology firms employ
programmers in India to
 Many companies write programming code.
outsource their
manufacturing operations  Telecommunication
to developing nations. companies place call
centers in the Philippines
For example, American and to handle customer
European clothing service.
companies employ
workers in Indonesia to
produce their products to
be sold back home.
effects of globalization
Positive Effects
Improved standards of living and quality of
life

Example : China

As a result of opening its markets to the world,


China’s economy can claim an increase in per
capita personal income from $1,420 in 1980 to
$4,120 by 1999. In 1980, Americans earned 12.5
times as much as the Chinese per capita. By 1999,
they were only earning 7.4 times as much.
Globalization can create new
opportunities, new ideas, and open new
markets that an entrepreneur may have
not had in their home country.
Free trade enables companies from the
rich industrialized countries to invest in
poorer countries

Providing jobs to local citizens

Many multinational corporations now reduce labor


costs by outsourcing portions of their business operations to
countries such as India and China.

Improvements to infrastructure
It creates greater opportunities for firms in
less industrialized countries to tap into more
and larger markets around the world

This can lead to more access to capital


flows, technology, human capital, cheaper
imports and larger export markets

It allows businesses in less industrialized


countries to become part of international
production networks and supply chains that are
the main conduits of trade
Negative Effects

Poverty in the Third World

Job losses in industrialized countries


“Anti-globalists” contend that it operates
only in the interests of the rich nations
and multinational corporations. They argue
that such corporations exploit workers in
the developing world, subjecting them to
poor working conditions in “sweat shops,”
and paying them salaries that they would
not be allowed to get away with back home.
They contend that the multinational
profits are repatriated and little is
invested in the communities whose labor
and resources they consume.
The growth of international trade is exacerbating
income inequalities, both between and within
industrialized and less industrialized nations

Global commerce is increasingly dominated by


transnational corporations which seek to
maximize profits without regard for the
development needs of individual countries or the
local populations

The volume and volatility of capital flows increases


the risks of banking and currency crises, especially
in countries with weak financial institutions
Guide Questions
1. Explain the impact of economic
globalization to
a. development
b. employment
c. environment

(Philippine context)
Asian Crisis

The Asian financial crisis, also called the


"Asian Contagion," was a series of currency
devaluations and other events that spread
through many Asian markets beginning in the
summer of 1997
Tequila Crisis
• The Tequila Crisis or Mexican peso crisis was a
currency crisis sparked by the Mexican
government's sudden devaluation of the peso
against the U.S. dollar in December 1994,
which became one of the first international
financial crises ignited by capital flight
ASEAN Economic Community
• The AEC is the realization of the region’s end
goal of economic integration. It envisions
ASEAN as a single market and production
base, a highly competitive region, with
equitable economic development, and fully
integrated into the global economy.
AFTA
The ASEAN Free Trade Area (AFTA) is a trade
bloc agreement by the Association of
Southeast Asian Nations supporting local
manufacturing in all ASEAN countries.

The AFTA agreement was signed on 28


January 1992 in Singapore.
Global Financial Crisis

The financial crisis of 2007–2008, also known


as the global financial crisis and the 2008
financial crisis, is considered by many
economists to have been the worst financial
crisis since the Great Depression of the 1930s.
Foreign Direct Investment (FDI)
Latin American Debt Crisis (1981 – 1983)

The Latin American debt crisis was a financial


crisis that originated in the early 1980s (and
for some countries starting in the 1970s),
often known as the "lost decade", when Latin
American countries reached a point where
their foreign debt exceeded their earning
power and they were not able to repay it.
GATT
• General Agreement on Tariffs and Trade
(GATT), set of multilateral trade agreements
aimed at the abolition of quotas and the
reduction of tariff duties among the
contracting nations.
The Bretton Woods System