BSA-1203

Cotemporary World
Lesson 2
 Learning
Outcomes:
 Define economic globalization
 Identify the actors that facilitate economic
globalization
 Narrate a short history of global market
integration in the 12th century
 Articulate your stance on global economic
integration
 Introduction
• Economic Globalization
- A historical process
representing the result
of human innovation
and technological
process
• Direct investment: US
$ 1.7 billion in 33 years
• High-frequency trading
International
Trade Systems
 Silk Road
 Mercantilism
 Open Trade System
 Gold Standard
 Exchange Rate System
 Floating Currency
 Great Depression
 Fiat Money
This is Not New
 Silk Road
A network of pathways in the ancient world that
spanned from China to what is now Middle East and
to Europe
Silk is one of the most profitable products through
this network
It was used by the Chinese traders of Han Dynasty
in 130 BCE to open trade to the West until 1453
BCE
It was international but it was not truly “global”
 When did full economic globalization begin?

Dennis O, Flynn and Arturo Giraldez

 Historians
 “All important populated continents began to exchange
continuously – both with each other directly and
indirectly via other continents – and values sufficient to
generate crucial impacts on all trading partners”
 In 1571 with the establishment of the galleon trade that
Manila in the Philippines and Acapulco in Mexico
 Mercantilism
 Galleon Trade
 16th century to the 18th countries, primarily in Europe,
competed with one another to as a means to boost their
country’s income “monetary reserve”
 To defend against the competitor who sold goods more
cheaply, regimes imposed :
 High tariff
 Forbade colonies to trade with other nations
 Restricted trade routes
 Subsidized its export
 System of global trade with multiple restriction
 Open Trade
System
1867: United States & other European
nations adopted the gold standard

Allow for more efficient trade and

prevent isolationism of the
mercantilism
Gold Standard: Based at an international
monetary conference in Paris
Exchange rate system: Common basis for
currency prices & All based on the value of
gold
Floating Currencies
During WWI, when countries depleted their
gold reserves to fund their armies, many
were forced to abandon the gold standard
Currencies that were no longer redeemable
in gold
 Great Depression
 Returning to a pure standard became more difficult as the global
economic crisis started during the 1920s and extended up to the
1930s
 Worst and longest recession ever experienced by the Western
world
 Caused by the gold standard since it limited the amount of
circulating money and therefore, reduced demand and
consumption
 Barry Eichengreen, the recovery of United State began when, they
abandon the gold standard, the US government was able to free
up money to spend on reviving the economy
 At the height of WWII, other major industrialized countries followed
the suit
 Fiat Currencies

At late 1970s, more indirect version of the gold

standard were used
At the early 20th century, the world never return to
the gold standard
Currencies that are not backed by precious metals
and whose values is determined by their cost
relative to the other currencies
Allows the government to freely and actively
manage their economies
Bretton Woods System
• 1944 – United Nations
Monetary and Financial
Conference – John
Maynard Keynes
• Global Keynesianism
• Prevent catastrophes of
the early decades of the
century from reoccurring
and affecting
international ties
 Financial GATT
Institution  General Agreement on
 International Bank for Tariffs and Trade
Reconstruction and  To reduce tariffs and
Development (IBRD, other hindrances to free
or World Bank) trade
 International Monetary
Fund (IMF)
Global Financial Crisis
 Neoliberalism
• Used to refer to an
economic system in
which the “free” • A policy model of social
market is extended to
studies and economics
every part of our
public and personal that transfers control of
worlds economic factors to the
private sector from the
public sector
 Brief History
EVENTS THAT CREATED NEOLIBERALISM
Early 1970s Rise of Oil Prices & the
Crashing of Stock Market in 1973-1974
Friedrich Hayek & Milton Friedman,
especially Friedman, challenge Keynesian
orthodoxy
WORLD TRADE ORGANIZATION (WTO)
Founded in 1995 to continue tariff reduction
under the GATT

Washington Consensus
Dominated from 1980s until early 2000s
Privatization of government-controlled
services
Defects became immediately palpable
and the good early example is the post-
communist Russia
Great Depression
mortgage-backed securities
 1929 to 1939 (MBSs)
 Worst economic
downturn  Many mortgages in just one MBS, a
 Began after stock few failures would not ruin the
market crash of investment
October 1929  Families could not pay off their loans
 Sent Wall Street into a  The crisis spread beyond United
panic and wiped out States
millions of investors  The US recovered relatively quickly
because of a large Keynesian-style
stimulus package that President
Consequence of
Barack Obama pushed in his first
Financialization
months in the office

Neoliberalism

 2008 global financial

crisis
 At Present
“The global financial crisis will take decades to resolve.”
• Exports make national economies grow
• Trade liberalization altered dynamics of global
economy
• Developed countries are often protectionist
• Race to the bottom
• International economic integration is a central tenet
of globalization
• Much of globalization is anchored on changes in the
economy