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Economic and Globalization

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31 views10 pages

Economic and Globalization

J
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Definition of Terms

Economic globalization refers to the growing interdependence of the world


economies as a result of the increasing scale of trade in goods and services
across the world.

World system is a world economy integrated through a market instead of


political center.

Market integration is a phenomenon where the market is experiencing


patterns of prices of products.

International Financial Institutions (IFIs) refer to institutions mainly


mandated to create an efficient foreign exchange system, to prevent
currency devaluation, and to promote economic growth.

Economic Globalization
Economic globalization refers to the growing interdependence of the world
economies as a result of the increasing scale of trade in goods and services across the
world, the influx of foreign capital, and the pervasive and radical dissemination. It
also refers to the international movement of capital, goods and services.

There is a growing link of world economies as an outcome of the expansion


of economies of scale through international trade, international finance, and global
investment. The advancement of communication and technology allowed
international transactions more possible from the capital to market exchange of
goods and services.

The increasing integration in the global economy would contribute to nation’s


wealth, however, economic globalization remains an uneven process wherein
countries, corporations, and individuals receive unequal benefits.

Most developed countries frequently decline to lift policies to protect their


products which may be overwhelmed by the imports from developing countries.
Government policies may restrict international trade by imposing quotas, tariffs, and
product standards. These protectionist measures aims to augment domestic
economy to urge citizens to patronize local products rather than imported products.
In this case, poorer countries have difficulty in coping with protectionist measures
from powerful countries.

Japan’s economic muscle on its resistance of rice importation to protect its


farming industry is an example of this protectionist policy. The United States
likewise mandated consumers and sugar-dependent businesses to pay higher taxes
rather than getting cheaper sugar from Central America plantations to protect its
sugar industry.

On the other hand, countries may also remove or reduce the barriers or
restriction for trade liberalization. The reduction of barriers such as tariffs and
important quotas to facilitate exchange of goods and services which would lessen
consumer costs while increasing efficiency and promoting economic growth. Trade
liberalization would also increase competition among local and international
businesses which would also lessen consumer prices. This would also allow
developing countries to access markets across the developed world attracting
foreign investments.

However, trade liberalization posits immense risk to local businesses and its
products. Powerful countries may also take advantage of the vulnerabilities of the
underdeveloped and developing countries as to its policies and standards. Countries
and companies who cannot compete in the trade liberalization may lose gain and
have less profit in the long run.

Reflect! What is economic globalization? How globalized is your home?

Global Economy and Market Integration


The inequalities among nations can be best further explained using the World
Systems Theory of Immanuel Wallerstein. This theory argues that capitalist
countries have contributed to the distorted development and inequalities in global
economy.

A world system, according to Wallerstein, is a world economy integrated


through a market instead of political center. The world system is divided into a three-
tier geographically and culturally different structure – core countries, semi-
periphery countries, and the periphery countries which are interdependent to each
other.

Core countries are industrialized nations with skilled labor force which
produce manufactured goods,
however, with limited resources.
It has strong central government
and a large tax based. On the
other hand, the semi-periphery
countries are middle income and
industrializing countries moving
towards becoming core nations.
Periphery countries are the least
economically diverse and least
industrialized nations which need
investment, however, with
enough resources.

The core countries fill its insufficient raw resources to manufacture goods
from the exports of semi-periphery and periphery countries. Non-core countries
exports raw materials since they are incapable of transforming these into goods. The
exported raw resources to the core nations coming from semi-periphery and
periphery nations are cheap, however, the manufactured goods from the core
nations exported to semi-periphery and periphery are high profit consumption
goods.

Countries that are not as rich as the core countries usually depend on these
powerful, wealthy, and industrialized countries. The incapacity of the semi-
periphery and periphery nations to manufacture their raw resources into goods and
the capability of the core nations to utilize its skilled labor force and the exported
raw resources has perpetrated inequalities among these countries. The power of the
core countries to control global market has perpetrated growing inequalities
exploiting the periphery countries where rich is getting richer and the poor is getting
poorer.

The economic globalization has paved the way for the integration of markets.
Market integration facilitates the transfer of price signals from one market to another
which allows the stability of prices of the global market. It is a phenomenon where
the market is experiencing patterns of prices of products.
Local corporations and the international financial institutions (IFIs) have
crucial roles in the promotion of market integration to generate price stability. Loans,
credits, and grants are the common programs implemented by the IFIs to generate
economic and social growth to countries. It also provides advisory and technical
assistance for the sustainability of the programs.

Reflect! Is global economy and market integration beneficial to states? How


can states mitigate the negative impacts of economic globalization?

Actors of Global Economy and Market Integration


A. International Financial Institutions
The new world paradigm was put forward in a meeting at the Mount
Washington Hotel in Bretton Woods, New Hampshire with H.D. White and J.M.
Keynes, the US and English representatives respectively. The Bretton Woods
Agreement was established during the post-world wars by the Western Allied
powers in July 1944. Its aim is to create institutions to prevent the recurrences of the
conditions which led to World War II, to create an efficient foreign exchange system,
to prevent currency devaluation, and to promote economic growth.

The agreement established International Financial Institutions (IFIs) which


plays an essential role in the smooth functioning of global economy and to address
concerns regarding economic crisis that the world has experienced during post-
world war period. IFI’s goal is to foster social and economic development in
transitioning and developing countries through financial and advisory assistance.

The World Bank was created to rebuild the war-ravaged economies of Asia
and Europe. The IBRD has evolved into one of the most significant lender of foreign
aid to the world especially to developing nations. It provides loan with low interest,
credits with zero interest, and developmental grants to boost economic growth.
Moreover, it provides strategic advice and financial assistance to countries ravaged
by previous world wars in order to end extreme poverty and promote overall
prosperity. The World Bank has four other organizations which help the
organization to achieve its goal. These were:
1. International Bank for Reconstruction and Development (IBRD) helps
middle-income countries to facilitate debt financing.
2. International Development Association (IDA) provides low-income
countries with interest-free loans.
3. International Finance Corporations offers investment financing and
financial advisory services to private sectors and to developing countries.
4. International Center for Settlement of Investment Disputes helps in
mediating and arbitrating disputes regarding international investment.

On the other hand, the International Monetary Fund (IMF) was created to
uphold the Bretton Woods system - a fixed exchange rate system. Its main function
is to safeguard the stability of the world’s monetary system. It is composed of 189
member countries that collaborate and cooperate to achieve global monetary
cooperation, financial stability, international trade, and economic growth.

However, International Trade Organization (ITO), another organization


developed in the Bretton Woods agreement was not endorsed by the US Congress.
Its principal purpose of liberalizing world trade delegated to the General Agreement
on Tariffs and Trade (GATT). GATT was signed into law on January 1 1948 with 23
member countries. The goal of GATT is to monitor the economic recovery through
elimination of international trade barriers throughout the post-war period. The
organization promoted for the reduction and removal of tariffs and quotas.

However, the GATT was replaced by World Trade Organization (WTO) in


1995. WTO is composed of 164 member countries. It resolves disputes between and
among its member countries and supervises the trade among nations. Its goal is to
guarantee that there is a predictable and smooth flow of trade in the global economy.
While GATT focused the reduction of tariff, WTO focuses more on the non-tariff
barriers for trade but WTO was criticized in countering trade barriers only for
developed countries.

B. International/Regional Organization and Alliances

International financial institutions (IFIs) play a significant role in the social


and economic development programs of emerging or emerging economies in many
parts of the world during the post-World War period. Two geopolitical events
marked the post-World War II period – Cold War and the period of decolonization.
The birth of relatively young and developing countries has prompted for an
economic structure to achieve developmental goals.

Aside from IFIs, the establishment of international and regional organization


and alliances have also helped countries for economic recovery, growth, and
development during the post-World War II period.
The Organization for Economic Cooperation and Development (OECD) is an
international entity that aims to establish better policies for prosperity, opportunity,
and wellbeing of citizens. It is comprised of 35 member states encompassing richest
countries in the world which are the major exporters of oil in the world including
Saudi Arabia, Ira, Kuwait, Iran, and Venezuela.

The Organization of Petroleum Exporting Countries (OPEC) founded at the


Baghdad Conference on September 10, 1960 by Venezuela, Iraq, Iran, Kuwait, and
Saudi Arabia aims to monitor and stabilize the price of Oil. It is a permanent
intergovernmental organization which is both beneficial and fair to both producers
and consumers.

The Association of Southeast Asian Nations (ASEAN) was founded by


Malaysia, Philippines, Indonesia, Thailand, and Singapore to promote stability in the
region and at the same time economic growth. The socio-cultural, political-security,
and economic factors are the pillars of the ASEAN community. The development of
these areas is the goals of the organization.

The Asia Pacific Economic Cooperation (APEC) with twenty-one members


over the four continents collaborate together to sustain economic growth through
open trade, economic reform, and investment. The decrease of barriers such as
import quotas and tariffs are the commitment of member countries to ensure
sustainability of growth and development.

The European Union follows political and economic union where 28 member
states have a single currency which is Euro. This economic and political policy
delivered peace and stability, and prosperity to the region for more than five
decades. The EU remains to its commitment on the promotion of the standard of
living of the people, transparent and democratic institutions. The EU is considered
as the largest trade block in the world providing the biggest exporters of services
and goods and is also considered to be the largest market on import.

The North American Free Trade Agreement (NAFTA) founded by America,


Canada, and Mexico in 1994 aims to reduce the trade and investment barriers in the
production and manufacturing sector, investment, agricultural sector, and other
services. The NAFTA highlights intellectual property rights, rights of workers and
the environment. The goal of NAFTA is for small businesses to thrive on the
lowering of trade barriers.

Finally, international financial institutions, international and regional


alliances have a primordial role in the economic and social development programs
of developing and underdeveloped countries. They are instrumental in the
functionality of the global economy which is reliant on global corporations.

C. Global Corporations
The growth of global corporation is a manifestation of globalized market
integration. The Transnational Corporations (TNCs) and Multinational Corporation
(MNCs) propagated across the world and are no longer limited to their home
countries.

Global corporations are considered as one of the important players in


economic integration as it aids for economic development and are potent entities in
a country. There is an expansion of power and influence to other countries which
can influence local and global laws.

Types of Global Corporations


Multinational companies (MNC) operate in more than one country. MNCs
receive a large income from foreign operations and are commonly controlled from
the home country. MNCs invest directly in foreign nations and respond to the local
preferences rather than homogenous products. Decision making is made by their
headquarters from their mother country and it has to take effect in all subsidiaries
globally. However, MNCs face restrictions when it comes to local markets since
management is in centralized system.

Transnational companies (TNC) are businesses with separate divisions and


operate with significant amount of independence in their markets unlike MNCs.
TNCs invest in numerous countries, wherein, decision making is delegated mainly
to local operations and does not have subsidiaries in other countries. TNCs are free
to make decisions based on the trends in the local markets.

Global corporations remain a potent tool towards economic globalization and


market integration. It boosts economic growth bringing massive capital and
investments, innovations and technological advancements, and the maximum
utilization of country’s resources. Moreover, it makes home countries rich through
the influx of revenues, and inflow of foreign exchange. It also promotes cooperation
among nations which allows partnership and it promotes bilateral trade which is
beneficial to both countries and to the global economy.

Global Corporations remain to be the major beneficiaries of the global


commerce gaining more profits from their lucrative businesses. However, the fragile
governance of developing countries may lure foreign investments who seek high
profit margins at the lower cost possible. Predatory global corporations may take
advantage of loose tax and environmental laws of vulnerable countries which would
result to social and environmental problems undermining the underprivileged
sector of the society.

Reflect! Are the actions of the globalization actors a form of intervention


towards state affairs?
Assessment
A. Read about the history of Coca-cola about their journey to their expansion.
Answer the given questions below.

The Coca-Cola Company


The Coca-Cola company was founded in the United States in 1886. The
company set up bottling plants in Canada in 1906. In 1928, it introduced the soft
drink Coca-Cola at the Olympic Games which were held in Amsterdam. In the 1940s,
the company began to set up bottling plants in countries around the world.

Coca-Cola is popular because it has been advertised as a brand of soft


drink connected with fun, friends and good times. Its international image was
successfully promoted by a 1971 commercial, where a group of young people from
all over the world gathered on a hilltop in Italy to sing "I'd Like to Buy the World a
Coke." In 1978, the Coca-Cola Company was selected as the only non-Chinese
company allowed to sell packaged cold drinks in the People's Republic of China.

Today, the company produces nearly 400 brands in over 200 countries.
More than 70 percent of the company’s income comes from outside the United States.
Coca-Cola is an extraordinarily successful example of multinationalization (跨國化).
Its success raises the question of why and how it has been so successful. The
multinationalization of the Coca-Cola Company is also often used as an example to
illustrate the concept of economic globalization.

Note: The following website provides more detailed information about the history
of the company: http://heritage.coca-cola.com/

Answers the questions using correct, specific details from the 5 points
lessons in a clear, concise, and complete manner.

Answers the questions using the correct, albeit incomplete, specific 4 points
details from the lessons in a clear, concise and cohesive manner.

Answers the questions with only one related detail from the lesson 3 points

Answers the questions using specific but unrelated details. 2 points

Answers the questions without using any details from the lessons. 1 points
1. How was economic globalization illustrated in the Coca-cola company?
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2. How were the states and nations affected by expansion of international companies
such as Coca-cola?
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3. What are the factors that facilitated the integration in the global market of the
Coca-cola company? Explain.
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