The Globalization of

Economy
Learning Objectives

 Define economic globalization

 Identify the actors/drivers that facilitate
economic globalization
 Articulate a stance on global economic
integration.
What is economic globalization?

 - is a historical process, the result of human

innovation and technological progress.
 - increasing integration of economies around
the world, particularly through the movement of
goods, services, and capital across borders.
 - movement of people (labor) and knowledge
(technology) across international borders.
• (IMF, 2018)
What is economic globalization?

 The phenomenon can thus have several

interconnected dimensions, such as
 (1) the globalization of trade of goods and
services;
 (2) the globalization of financial and capital
markets;
 (3) the globalization of technology and
communication; and
 (4) the globalization of production.
Glimpses from the global economy

 What is a global market?

 Let us look at a few
examples.
Glimpses from the global economy

 1. The
proliferation of
the Internet and
the emergence
of market places
like ebay
Glimpses from the global economy

 2.Tramp shipping, international

shipping industry, a certain market
segment in which vessels that operate
do not trade regularly between certain
fixed ports.
Glimpses from the global economy

 3. The market for foreign

exchange is the largest market in
the world in terms of turnover.
Globalization

 Globalization has been around

since the 15th century when
European exploration &
colonization created global
empires & markets, but most
historians and economists
agree that today is special by
the extent of interdependence
and the speed by which it has
occurred.
Drivers of Globalization

• Two factors underlie

globalization
▫ 1.“Decline in barriers to the free
flow of goods, services, and capital”
that has occurred since the end of
World War II
▫ 2. Technological change
Declining Trade and Investment
Barriers

• During the 1920s and ‘30s, many nations

erected formidable barriers to international
trade and foreign direct investment

• Advanced industrial nations of the West

committed themselves after World War II
to removing barriers to the free flow of
goods, services, and capital between
nations.
Average Tariff Rates on
Manufactured Products
Effects of Lowering Trade Barriers
 The Role of Technology

 Lowering of trade barriers

made globalization
possible;
 Technology has made it a
transforming movement
• “World Wide Web” has
exploded in last 20 years
- Computers can move money
around the world = “finance
capital”
- Silicon Valley is 9th largest
economy in world!
Why it is called Silicon Valley?

 A region on the San Francisco Peninsula in

California where the miniaturized electronics
industry is centered, so called because most of
the devices built there are made of
semiconductors such as silicon.
 What companies are located in
Silicon Valley?

 The Biggest Companies in

Silicon Valley (AAPL, GOOGL)
 Apple. Apple is one of the most
successful companies in the entire
world and is headquartered in
Cupertino, California. ...
 Google. ...
 Facebook. ...
 Wells Fargo. ...
 Visa. ...
 Chevron.
Internet Usage Growth
Globalization is acceleration of
trends of the last 10,000 years

 People lived for 250,000 years in hunter-

gatherer bands
 Rise of agriculture 10,000 years ago led to
rise of empires and nation-states
 Science and ‘enlightenment’ after 1600
produced global trade and empires
 Free trade and tech after 1945 produced
present-day globalization.
Economic Globalization
Economic Globalization
Economic Globalization
 How do global
corporations function?
 The contemporary global
corporation is simultaneously and
commonly referred to either as
a multinational corporation (MNC), a
transnational corporation (TNC) ,
an international company, or a global
company.
 International
companies are
importers and
exporters, typically
without investment
outside of their home
country
How do global corporations function?
 Multinational companies
have investment in other
countries, but do not have
coordinated product
offerings in
each country. They
are more focused on
adapting their products and
services to each individual
local market.
 Global companies have
invested in and are
present in many
countries. They
typically market their
products and services
to each individual local
market.
Transnational companies
are more complex
organizations which have
invested in foreign
operations, have a central
corporate facility but give
decision- making, research
and development (R&D)
and marketing powers to
each individual foreign
market
More recent ones are:
APEC (Asia Pacific Economic Cooperation) 1989
AU (African Union) 2002
EAEU (Eurasian Economic Union) 2015
 BREXIT- United Kingdom of Great Britain
and Northern Ireland (UK) formally
withdrew from the EU in March 2017.
 Its currency Sterling Pound now has a
higher value than the Euro and US Dollar
in terms of peso exchange
 Pound- 66
 Euro- 56
 USD- 51
Making Globalization Work for
Africa
Unequal Resource Distribution
Limited Income Opportunities
Limited Education
Opportunities
Slavery
Child Labor
THANK YOU !
The Modern World System
 Wallerstein’s World System
Theory

 Wallerstein has argued that international

trade has led to the creation of a
capitalist world economy in which a
social system based on wealth and
power differentials extends beyond
individual states.
 Wallerstein’s World System
Theory

 The world system is arranged according to

influence: core (most dominant), to semi-
periphery, to periphery (least dominant).

– The core consists of the strongest and most

powerful nations in which technologically
advanced, capital-intensive products are
produced and exported to the semi-periphery
and the periphery.
 Wallerstein’s World System
Theory

– The semi-periphery consists of industrialized

Third World nations that lack the power and
economic dominance of the core nations (Brazil
is a semi-periphery nation).

– The periphery consists of nations whose

economic activities are less mechanized and are
primarily concerned with exporting raw
materials and agricultural goods to the core and
semi-periphery.
 Causes of the Industrial Revolution.

 The Industrial Revolution transformed Europe

from a domestic (home handicraft) system to a
capitalist industrial system.
 Industrialization initially produced goods that were
already widely used and in great demand (cotton
products, iron, and pottery).
 Manufacturing shifted from homes to factories
where production was large scale and cheap.
 Industrialization fueled a new kind of urban growth
in which factories clustered together in regions
where coal and labor were cheap.
 England and France

 The Industrial Revolution began in England but

not in France.
 The French did not have to transform their
domestic manufacturing system in order to
increase production because it could draw on a
larger labor force.
 England, however, was already operating at
maximum production so that in order to increase
yields innovation was necessary.
 Max Weber argued that the
pervasiveness of Protestant beliefs in
values contributed to the spread and
success of industrialization in
England, while Catholicism inhibited
industrialization in France.
 Industrial Stratification

 Although initially, industrialization in

England raised the overall standard of
living, factory owners soon began to
recruit cheap labor from among the
poorest populations.
 Marx saw this trend as an expression of
a fundamental capitalist opposition: the
bourgeoisie (capitalists) versus the
proletariat (propertyless workers).
 Industrial Stratification

 According to Marx, the bourgeoisie owned the

means of production and promoted
industrialization to maintain their position,
consequently intensifying the dispossession of
the workers (a process called
proletarianization).
 Weber argued that Marx’s model was
oversimplified and developed a model with
three main factors contributing to
socioeconomic stratification: wealth, power,
and prestige.
 Industrial Stratification

 Class consciousness (Marx) is the recognition of a

commonalty of interest and identification with the other
members of one’s economic stratum.
 With considerable modification, it is recognized that a
combination of the Marxian and Weberian models may be
used to describe the modern capitalist world.
 The distinction, core-semi-periphery-periphery, is used to
describe a worldwide division of labor and capital
ownership, but it is pointed out that the growing middle
class and the existence of peripheries within core nations
complicate the issue beyond the vision of Marx or Weber.
 Poverty on the Periphery

 With the expansion of capitalism into the

periphery, most of the local landowners
have been displaced from their land by
large landowners who in turn hired the
displaced people at low wages to work the
land they once owned.
 Bangladesh is a good example of this in
which British colonialism increased
stratification, as only a few landowners
own most of the land.
 The World System Today

 World system theory argues that the present-

day interconnectedness of the world has
generated a global culture, wherein the trends
of complementarity and specialization are being
manifested at an international level.
 The World System Today
 The modern world system is the product of
European imperialism and colonialism.
– Imperialism refers to a policy of extending rule
of a nation or empire over foreign nations and of
taking and holding foreign colonies.
– Colonialism refers to the political, social,
economic, and cultural domination of a territory
and its people by a foreign power for an
extended period of time.
 The spread of industrialization and
overconsumption has taken place from the core to
the periphery.
 Economic Integration

1. Three levels of economic integration

 The econ integration has been a
predominant feature of the
contemporary global economy. The
econ integration brings together
countries based on collaboration,
flexibility, risk and cost, shared interest
and objectives. The econ integration
has led to a relocation of resources
across sectors and space.
 Economic Integration

 Global: trade liberalization by GATT or

WTO
– The General Agreement on Tariffs and
Trade (GATT) was first signed in 1947.
This agreement was designed to provide an
international forum that encouraged free
trade between member states by regulating
and reducing tariffs on traded goods and by
providing a common mechanism for
resolving trade disputes.
The World Trade Organization (WTO)
came into being in January 1,1995.
– It is the successor to the GATT. Now it is
the only global international organization
dealing with the rules of trade between
nations. At its heart are the WTO
agreements, negotiated and signed by the
bulk of the world’s trading nations and
ratified in their parliaments. The goal is to
help producers of goods and services,
exporters, and importers conduct their
business.
– Location-Geneva, Switzerland
– Members—153 countries
 Economic Integration

 Regional: preferential treatment of

member countries in the group
– NAFTA
 Bilateral: preferential treatment
between two countries
FORMS OF ECONOMIC INTEGRATION

 Preferential Trading Agreement

 Free Trade Area
 Customs Union
 Common Market
 Economic Union (Harmonization or
integration of monetary /fiscal policies)
 Economic effects of economic integration

 Econ integration brings significant benefits,

more efficient allocation of resources
 Static effects: Short-term effects
– Better use of existing resources
– Trade creation: production shifts to more
efficient member countries from inefficient
domestic or outside countries.
 Specialization, comparative advantage
 Economic effects of economic integration

 Dynamic effects: Long-term effects

– Cost reduction due to economies of scale
– Cost reduction due to increased
competition.
– Both producers and consumers benefit
from more efficient allocation of
resources as a result of integration