Chapter 2, The Global Economy

Global Economy

• also known as the World Economy.

• There is international exchange of goods and services.
• There is free movement of goods, capital, services, technology, and information.

Global Economy or Economic Globalization

• Global economy is concerned with globalization of production, finance, markets,

technology, organizational regimes, institutions, corporations, and labor.

When people say we live in a global economy, they are talking about the
interdependence of nations. When we say interdependence, there is
connection, there is relation.

For example, banking and finance, which today has no local boundaries. If a giant
bank in one country collapses, banks in other countries also suffer. When we talk
about global economy in this context, we are referring to globalization.

There are three subcategories of globalization, the economic, the cultural, and the
political globalization.

• Global economy is expanding since the emergence of transnational trade and

increased exponentially due to the increased rate of communication and technology.
There is the advent of the internet.

• The global economy has become relevant for many businesses than before. In the
past, only large corporations could call themselves multinationals. But today, small
businesses can trade products with the other companies from any parts of the
world. The bottom line here, is that the advance of communication and technology
has changed many of basic features of global economy.

• okay so the creation of world trade organizations made countries cut down trade
barriers and open up their current accounts and capital accounts so ladies and
gentlemen when we say trade barriers it is something that prevents a foreign product
from freely entering into a certain country basically speaking there are restrictions on
international trade imposed by the government every time they import and export
 goods and services okay but because of the world trade organization or what we call
the value of the trade barriers by the way the WTO is the only international
organization dealing with the global rules of trade This is a function of the World Trade
Organization. Its main function is to ensure that trade flows as smoothly and freely
as possible.

Market integration

• If prices among different location or related goods follow the same pattern over a
long period of time, then market integration exists.

• When group of prices often move proportionally to each other, and when this relation
is very clear among different markets, then market is integrated. An example of
market integration, is the Coca -Cola Company. Okay, so let's have a brief story of
the Coca -Cola Company. This company started in 1886, and they maintained the
same price for a very long period of time, delivering to the militarists in the United
States until it reaches over 200 countries in the world. So this company, of course,
tried to market beverages at very low price in order for them to expand their business
in other countries. They also made sure that their price is marketable to the same
foreign countries. Because you know, different countries have different cultures, and
they also have different buying cultures, that is why they need to have a good strategy
in order to move and sell their goods or product from one country to another. That is
an example of market integration.

• Market integration is an indicator how much different markets are related to each
other. In today's global economy, more and more businesses are selling beyond their
borders. That is why, if you're a businessman, there is a need for you to have an
effective global marketing strategy. market.

The Role of International Financial Institutions in the creation of global economy

• International Financial Institutions (IFIs) are chartered by more than one country,
subject to international law, and are crucial for the creation of the global economy.

Examples of IFIs include:

1. International Monetary Fund (IMF)

2. The Multilateral Development Banks (MDB), and
 3. Regional development banks such as the World Bank, the African Development
Bank, the Asian Development Bank, the Inter American Development Bank, and the
European Bank for Reconstruction and Development.

IFIs have different objectives, such as fostering global monetary cooperation, fighting
poverty, promoting economic growth, and reducing poverty.

Global corporations, or multinational corporations, operate in more than one country and
maintain a strong headquarters in one country but have investments in multiple foreign
locations.

They strive to create economies of skill by selling the same products in multiple locations
with limited local customization.

THEORIES OF GLOBALIZATION

Homogeneity refers to the increasing sameness in the world as cultural inputs, economic
factors, and political orientations of societies expand to create common practices, same
economies and similar forms of government. Homogeneity in culture is often linked to
cultural imperialism. This means a given culture influences other culture. For an instance,
the dominant religion in our country is Christianity, which was brought to us by the Spaniards
in the year 1521. Another example is the Koreanization or the proliferation of Korean culture,
such as K -drama, the Kpop, and the dance, which influences so much the youth of today. In
economic terms, there is recognition of the spreading of neoliberalism, capitalism, and a
market economy in the world. The global economic crisis are also products of homogeneity
in economic globalization. In the end, rich countries become advantageous in world
economy at the expense of poor countries which leads to increased inequality among the
nations. The political realm also suffers homogenization if one takes into account the
emerging similar models of governance in the world, which means one political orientation
is growing in today's society. The global flow of media is often characterized as media
imperialism. The television, the music, books and movies are perceived as imposed on
developing countries by the West. Media imperialism undermines the existence of
alternative global media originating from developing country such as the Al Jazeera and the
Bollywood, as well as influence of local and regional media. The internet can be seen as an
arena for alternative media. Cultural imperialism denies the agency of viewers, but people
around the world often interpret the same medium. Example is movie, but in significantly
different way. Global media are dominated by a small number of large corporations. As Mac
Chisney in 1999 put it, This is being extended from the old media to the new media, such as
the Microsoft, Facebook, Twitter, Google and Apple iTunes. As a result, in the long run, the
Internet could end up being less diverse and competitive. The independent media center
associated with the alter-globalization movement helps to counter this trend. It
disseminates information to facilitate global participation of activists. Activists extend
activism to the Internet by hacking into computer programs to promote a particular cause.
Ritzer in 2008 claimed that, in general, the contemporary world is undergoing the process of
marginalization. It is the process by which Western societies are dominated by the principle
of fast food restaurants. Magdalization involves the global spread of rational systems, such
as efficiency, calculability, predictability and control. Ritzer in 2008 pointed out that this
process is extended to other businesses, sectors and geographical areas. Globalization, in
contrast with globalization, is a process wherein nations, corporations, etc. impose
themselves on geographical areas in order to gain profits, power, and so on. Ritzer in 2007
also espoused the idea that globalization can also be seen as a flow of nothing as opposed
to something, involving the spread of non -places, nonthings, nonpeople and nonservices.
On the other hand, heterogeneity pertains to the creation of various cultural practices, new
economies and political groups because of the interaction of elements from different
societies in the world.