UNIT II.

THE GLOBAL ECONOMY

Overview
This unit will provide you a deeper understanding of how economic globalization takes
place in our society. Nonetheless, this unit will enlighten you of the possible realities when it comes
to the role of each and every institution in our economic system. the different forms of economic
integration will also be included in this unit to help you decide on the advantages and
disadvantages of a specific economic integration.

Learning Objectives
At the end of the unit, I am able to:
1. define economic globalizatio
globalization;
2. identify the actors that facilitate economic globalization;
3. define
ine the modern world
world-system; and
4. articulate a stance on global economic integration.

Setting Up
Name: __________________________________________________ Date:____________
Course/Year/Section:
ion: ________________________________
Directions: According to Immanuel Wallerstein the modern world system is composed of nations
under the category of Core, Semi--Periphery, and periphery. In this regard, identify
dentify the 5 nations
for each category: Periphery, Semi
Semi-Periphery, and Core.
Lesson Proper
GLOBAL ECONOMY

Local products of the Philippines such as Marikina Shoes, DatuPuti Vinegar, Philippine Dried
Fish, and other products are usually available not only here in the Phili
Philippines
ppines but also in other
countries such as in America and Canada. However, the question arises as to how is this possible? If
one wonders how it happens, you should also be curious about how your countrymen can wear
branded shoes and other garments such as Nike, Louis Vuitton, and Uniqlo. The accumulation,
importation, and exportation of goods and commodities from one country to other countries and
vice-versa
versa is best explained by the economic globalization.
Economic Globalization refers to the increasing interde
interdependence
pendence of world economies as a
result of the growing scale of cross
cross-border
border trade of commodities and services, flow of international
capital and wide and rapid spread of technologies ((Shangquan, 2000).. The given example above
was only a part of economic globalization
lobalization as the scope of economic globalization is not only limited
in goods as it also involves, capital, labor, migration and anything that is related to goods and
services.
From the viewpoint of the International Monetary Fund, Economic Globalization
Globalizat is a
historical process that was the outcome of human evolution from traditional and primitive
technology to the present technological advancement. It refers to the increasing integration of
economies around the world, mainly through the movement of go goods,
ods, services, and capital across
borders. The term sometimes also applies to the change of people (labor) and knowledge
(technology) across international borders (Staff, I. M. F., 2008). From these explanations, it makes
sense that advancements in technol
technology
ogy allow foreign transactions to make the acquisition of
imported goods possible.
Interconnected Dimensions of Economic Globalization

1. Goods and Services: Goods are tangible objects that satisfy people's wants. Services are
actions, such as haircuts and car repair, which also satisfy people's wants.
 2. Capital: It is the total assets a company needs to stay solvent. A company’s capital assets are
significant because organizations use capital assets to create wealth
3. Communication and Technology: Advances in Communication and technology has allowed
the integration of economies worldwide through increases in trade, investment flows, and
technology transfer.
4. Market Exchange: it is an economic system in which goods and services are produced,
distributed, and exchanged by the forces of price, supply, and demand.

ECONOMIES ASSOCIATED WITH ECONOMIC GLOBALIZATION

PROTECTIONISM: Protectionism refers to government policies that restrict international trade by

imposing tariffs, quotas, product standards, and subsidies.
Reason for the implementation of strict policies
a. Its goal is to improve the domestic economy by forcing its citizen either direct or indirect to
purchase local products instead of imported products.
b. For safety and quality concerns of both imported and exported products
Primary policy tools
a. Tariffs: These are charges to importing countries in the form of either money or goods that
will serve as a payment for allowing its international products to be sold in the local market.
It is usually documented in the custom of a particular government. These Import tariffs are
the reasons forthe increase of international product prices. It also raises revenues of the
government and protects domestic products from foreign competition due to the price hike
of imported goods.
b. Import Quotas: This is a kind of tariffs that lessen the number of products that can be
imported for a certain period of time. The implementation of import quotas helps the
government protects its domestic businesses by allowing its local businesses to cover the
shortfall of certain products. Thus, it helps the local market to increase its production that
will lead to the increase of numbers of goods that can be sold in the market
c. Product Standards: This is a kind of barrier that imposes strict standards in imported
products which may make it difficult for different importing countries to bring their goods
in the local market.Thus, the restriction of a particular product can lead to a higher volume
of product production domestically.
d. Government Subsidies: This is a strategy of the national government by which incentives
and cash payments are distributed to domestic businesses to encourage them to expand
their market globally by increasing international export. Thus, the government may
strengthen its local market.
Advantages of Protectionism:
a. Taxes imposed on exporter countries may increase government revenues.
b. Strict and rigid policies may protect domestic product
c. Encourages the exportation of national products which may expand their products globally.
Disadvantages of protectionism:
 a. Protectionism policies often time support other countries to make their own protection
policy as well. Hence, it inhibits the exportation of each other products that may result in
less profit
TRADE LIBERALIZATION: It is the process of removing or reducing the barriers or restrictions in
the exchange for goods between and among nations.With the reduction of barriers such as tariffs
and import quotas in the process of exchanging goods and services, it significantly reduces the cost
of goods sold by the importing countries Thereby, allowing an increase of exchange between and
among countries. Thus, the proponents of trade liberalization believe that reduction of barriers
ultimately lessen consumer costs while increasing efficiency, and fostering the growth of the
economy.
Advantages of Trade Liberalization
a. As it promotes free trade between and among countries, the cost ofimporting nations in
bringing their goods to other countries is most likely to be lessened. This event may likely
result in lower consumer prices due to lower fees of importing nation and an increase in
competition among local and international businesses.
b. Promotes efficient use and allocation of world resources
c. Increases Capital Flow
d. Allows developing countries access to the heavily protected markets of the developed world
thus helping promote development
e. It encourages specialization among countries by maximizing their capabilities whether to
manufacture goods or provide services. This scenario is related to the concept of
comparative advantage wherein one specializes in which they can gain the most profitable.
f. It can lead to a higher efficiency of producers.
g. It can attract foreign investment
Disadvantages of Trade Liberalization
a. It can affect local businesses and their domestic product.
b. The possible risk may be experienced if the products or raw materials coming from other
countries have a lower environmental standard.
c. Developing nations may be threatened to back out in the global market as they are forced to
compete in the same marketwith other nations possessing stronger economies.
d. Countries with lower educational standards may struggle to adapt to a changing economic
environment.
e. It can exploit the natural resources due to the competition and shallow environmental
policies in a country.
f. It can lead to structured unemployment whereby countries and companies who cannot
compete with others may lose gain and have less profit that may result in layoff.
The effect of Trade Liberalization to its stakeholder as explained in the table:

Consumer, Worker, Companies and Consumer, Worker, Companies and

Countries who have benefited from the Countries who did not benefit from the
Trade Liberalization Trade Liberalization

1. Consumer: they get products at lowest 1. Consumer: they get products that are
and cheapest price cheap yet have the least and lowest quality

2. Worker: Low wage worker earned more 2. Worker: Low wage workers work in
hazardous environment

3. Countries: they are able to gain out of the 3. Countries: they did not gain as much as
trade for the cheaper price and sell it to a the countries who have bought their raw
higher price materials for a cheaper price.

4. Corporation who earned more profit 4. Corporation who lose

ose out to foreign
either due to increase in sale and low labor competition.
cost for manufacturing its good

Main Actors of Economic Globalization

WORLD SYSTEM THEORY

For Wallerstein, "a world--system

system is a social system that has boundaries, structures, member
groups, rules of legitimation,, and coherence. Its life is made up of the conflicting forces which hold it
together by tension and tear it apart as each group seeks eternally to remold it to its advantage. A
world-system
system is what Wallerstein terms a "world economy", integrated through the t market rather
than a political center, in which two or more regions are interdependent concerning necessities like
food, fuel, and protection, and two or more polities compete for domination without the emergence
of one single center forever. WorldWorld-system
em theory is, in many ways, an adaptation of the
dependency theory. Wallerstein draws heavily from the dependency theory, a neo-Marxist neo
explanation of development processes, famous in the developing world. Dependency theory focuses
on understanding the "periphery"
riphery" by looking at core
core-periphery
periphery relations, and it has flourished in
peripheral regions like Latin America.
Wallerstein proposes different categories, core, semisemi-periphery,
periphery, and periphery into which
all regions of the world can be placed. Of the thre
three,
e, two are of the uttermost importance: core and
periphery. These are geographically and culturally different, focusing on labor-intensive
labor
(Periphery), and the other on capital
capital-intensive production(core). The core-periphery
periphery relationship is
structural. Semi-peripheral
peripheral states act as a buffer zone between core and periphery and have a mix
of the kinds of activities and institutions that exist on them

ECONOMIC INTEGRATION

El-Agraa (1998) defines the term economic integration as the discriminatory removal of all
trade impediments between at least two participating countries and the establishment of certain
elements of coordination
dination and cooperation between them. In other words
words, Economic
Econom integration is
an arrangement among nations that typically includes the reduction or elimination of trade barriers
and the coordination of monetary and fiscal policies. Economic integration aims to reduce costs for
both consumers and producers and to increase trade between the countries involved in the
agreement.
Levels of Economic Integration

 Preferential trading area. Allow member countries to have access to some of their products.
Tariffs are not eliminated but it is lessened as compared to non-participating countries
 Free trade. It aimed to reduce the tariff significantly between or among partnered countries.
In regards to external countries which are not part of their agreement, each of them has its
own decision making in regards to the tariff they will impose on those external countries.
The general goal of free trade agreements is to develop economies of scale and comparative
advantages, which promotes economic efficiency.
 Custom union. It almost the same with free trade agreement as it aims to reduce and abolish
the tariff but it differs from free trade as the member country has common external tariffs
among member countries, implying that the same tariffs are applied to third countries; a
common trade regime is achieved.
 Common market. It is an integration by which member countries are able to move their
capital and services within their organization. This leads to the expansion of scale
economies and the maximization of comparative advantages. However, each national
market has its own regulations such as product standards.
 Economic union: This kind of economic integration is usually called as a single market for
several reasons. First and foremost, tariffs are eliminated within the member countries by
which they are able to exercise free trade between and among countries. Likewise, workers
from a member country of this organization can migrate and work to another member
country. At this level, some policies related to economic and political aspects are also
integrated such as the existence of a common currency to be used by each member country
like the Euro of European Union.
 Political union. It is a form of integration wherein member countries abide by the rules
presented by a common government in which the member country’s sovereignty is reduced
significantly. This integration can be found within the nation-state, such as federations
where there are a central government and regions (provinces, states, etc.) having a level of
autonomy.

References
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