THE STRUCTURES OF

GLOBALIZATION
 AGENDA AND OBJECTIVES

• Define economic globalization

• Explain the two major driving forces
of global economy
• Differentiate economic globalization
from internationalization
• Trace the origin of economic
globalization

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THE GLOBAL
ECONOMY

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 ECONOMIC GLOBALIZATION
• refers to the increasing interdependence of world
economies as a result of the growing scale of cross-
border trade of commodities and services, flow of
international capital and wide and rapid spread of
technologies.

• reflects the continuing expansion and mutual integration

of market frontiers, and is an irreversible trend for the
economic development in the whole world at the turn of
the millennium

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 TWO MAJOR DRIVING
FORCES FOR ECONOMIC
GLOBALIZATION

• The rapid growing of • Marketization

information in all types
of productive activities

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 DIMENSIONS OF ECONOMIC
GLOBALIZATION

1. The globalization of trade of goods and

services

2. The globalization of financial and capital

markets

3. The globalization of technology and

communication

4. The globalization of production

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 ECONOMIC
G L O B A L I Z AT I O N V S .
I N T E R N AT I O N A L I Z AT I O N

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 • Economic globalization is a
ECONOMIC functional integration between
GLOBALIZATION VS. internationally dispersed
INTERNATIONALIZATION activities.
• Economic globalization produces
its own major players in the form
of transnational corporations
(TNCs), the main driving forces of
economic globalization of the
last 100 years or roughly two-
thirds of world export.

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 • Internationalization is an
ECONOMIC extension of economic activities
GLOBALIZATION VS. between internationally
INTERNATIONALIZATION dispersed activities.

• Checkout this infographic:

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 ORIGIN OF
ECONOMIC
GLOBALIZATION

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 • 16th century
• The origin of modernity and
ORIGIN OF ECONOMIC globalization through long distance
GLOBALIZATION trade
• Silk Road, which started in western
China, reached the boundaries of
the Parthian empire, and
continued onwards towards Rome.
It also connected Asia, Africa, and
Europe.

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 • 17th century – 18th century
• Global economy exists only in
ORIGIN OF ECONOMIC trade and exchange rather than
GLOBALIZATION production as the world export to
World GDP did not reach 1 to 2
percent.

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 • 19th century
• The advent of globalization
ORIGIN OF ECONOMIC approaching its modern form is
GLOBALIZATION witnessed.
• A short period before World War I
is referred to as golden age of
globalization characterized by
relative peace, free trade, financial
and economic stability.
• Growth in international exchange
of goods accelerated in the second
quarter of the 19th century.

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 • 19th century and 20th century
• Global economy in the 19th and
ORIGIN OF ECONOMIC 20th centuries grew by an average
GLOBALIZATION of nearly 4 percent per annum,
which is roughly twice as high as
growth in the national incomes of
the developed economies since
the late 19th century.

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INTERNATIONAL
MONETARY
SYSTEMS AND
GOLD STANDARD

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 INTERNATIONAL
MONETARY SYSTEM
• refers to a system that forms
rules and standards for
facilitating international trade
among the nations

• helps in reallocating the capital

and investment from one nation
to another

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 INTERNATIONAL
MONETARY SYSTEM
• is the global network of the
government and financial
institutions that determine the
exchange rate of different
currencies for international
trade

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 INTERNATIONAL
MONETARY SYSTEM
• is a governing body that sets
rules and regulations by which
different nations exchange
currencies with each other

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EVOLUTION OF THE
INTERNATIONAL
MONETARY SYSTEM

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 EVOLUTION OF THE
INTERNATIONAL MONETARY
SYSTEM

• 1870 to 1914
• With the help of gold and
silver, trade was carried
without any institutional
support.
• Monetary system during
that time was decentralized.
• Money played a minor role
in international trade in
contrast to gold This Photo by Unknown Author is licensed under CC BY

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• Gold was believed to guarantee
a non-inflationary, stable
economic environment, a
means for accelerating
international trade.

• Gold standard functioned as a

fixed exchange rate regime,
with gold as the only This Photo by Unknown Author is licensed under CC BY-NC

international reserve.

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• After World War I, the use of gold
declined due to increased
expenditure and inflation which
were caused by war. Major
economic powers were on gold
standards but could not maintain it
and failed because of the Great
depression in 1931.

This Photo by Unknown Author is licensed under CC BY-SA

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• In 1944, 730 representatives of 44
nations met at Bretton Woods,
New Hampshire, United States to
create a new international
monetary system called as the
Bretton Woods system, the aim of
which is to create a stabilized
international currency system and
ensure a monetary stability for all
This Photo by Unknown Author is licensed under CC BY-NC-ND
the nations.

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• The Bretton Woods system
ended in 1971.

• In 1973, the floating

exchange rate system, also
known as flexible exchange
rate system was developed
that was market based.
This Photo by Unknown Author is licensed under CC BY-NC-ND

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 EUROPEAN
MONETARY
INTEGRATION

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• European monetary integration

• The European Monetary System

(EMS)

• The European Financial Stability

Mechanism (EFSM)

This Photo by Unknown Author is licensed under CC BY-SA-NC

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INTERNATIONAL
TRADE AND
TRADE POLICIES

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INTERNATIONAL TRADE

• International trade is the

exchange of goods, services and
capital across national borders.

This Photo by Unknown Author is licensed under CC BY-SA

Add a Footer 28
 TRADE POLICIES

• Trade policies refer to the

regulations and agreement of
foreign countries

This Photo by Unknown Author is licensed under CC BY-NC-ND

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 FOCUSES OF TRADE POLICY
IN INTERNATIONAL TRADE

• Tariffs

• Trade barriers

• Safety

This Photo by Unknown Author is licensed under CC BY-SA

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 TYPES OF TRADE
POLICIES

• National Trade Policy

• Bilateral Trade Policy

• International Trade Policy

This Photo by Unknown Author is licensed under CC BY-SA-NC

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 TRADE POLICY AND INTERNATIONAL ECONOMY

In most developed countries where open market economy prevails,

the international economic organizations support free trade policies. In
the case of developing nations partially-shielded trade practices are
preferred to protect their local trade industries. The following are
dependent on globalization: sound trade policies for market changes,
establishment of free and fair-trade practices and expansion of
possibilities for booming international trade.

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 THE WORLD
TRADE
ORGANIZATION

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 THE WORLD TRADE
ORGANIZATION
• It deals with the global rules of
trade between nations with the
main function of ensuring that
trade flows smoothly,
predictably and freely.

This Photo by Unknown Author is licensed under CC BY-SA

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 GLOBAL
ECONOMY
OUTSOURCING

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 GLOBAL ECONOMY
OUTSOURCING
Outsourcing is an activity that requires
search for a partner and relation-
specific investments. The extent of
international outsourcing depends on
the thickness of the domestic and
foreign market for input suppliers, the
relative cost of searching in each
market, among others.
This Photo by Unknown Author is licensed under CC BY

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 ESSENTIAL
FEATURES OF A MODERN
OUTSOURCING STRATEGY

1. Firms must search for partners

with the expertise that allows
them to perform the particular
activities that are required.

This Photo by Unknown Author is licensed under CC BY

Add a Footer 37
 ESSENTIAL
FEATURES OF A MODERN
OUTSOURCING STRATEGY

2. They must convince the potential

suppliers to customize products for
their own specific needs.

3. They must induce the necessary

relationship-specific investments in an

environment with incomplete

contracting. This Photo by Unknown Author is licensed under CC BY

Add a Footer 38
 POSSIBLE DETERMINANTS OF
THE LOCATION OF OUTSOURCING

1. Size of the country can affect

the “thickness” of its markets.

2. The technology for search

affects the cost and likelihood
of finding a suitable partner. This Photo by Unknown Author is licensed under CC BY-SA-NC

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 POSSIBLE DETERMINANTS OF
THE LOCATION OF OUTSOURCING

3. The technology for specializing

components determines the
willingness of a partner to undertake
the needed investment in a prototype.

4. The contracting environments can

This Photo by Unknown Author is licensed under CC BY-SA-NC
impinge on a firm’s ability to induce a
partner to invest in the relationship.

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THANK YOU

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