THE

CONTEMPORARY
WORLD
Module 3: Global Economy
 Introduction
What is included in the “global economy”?
Those who organize and sustain it such as
states and governments, international
organizations and associations; those who
play a role in it like capitalists and
investors, international financial
institutions (IFIs), production managers,
consumers and labor; those marginal but
connected to it.
 Introduction
This lesson tackles about economic
globalization and identifies the global
actors/international financial
institutions and explains their roles in
the creation of a global economy. The
lesson also focuses on international
trade, the concept of comparative
advantage, and the benefits and
drawbacks of free trade.
 Intended Learning Outcomes (ILOs)
• Discuss economic globalization.
• Identify the global actors/international
financial institutions and explains their
roles in the creation of a global economy.
• Discuss international trade, the concept of
comparative advantage, and the benefits
and drawbacks free trade.
• Identify the actors that facilitate economic
globalization.
The International Economy and
Globalization

from International Economics

by Robert J. Carbaugh
In today’s world, no nation
exists in economic
isolation.
All aspects of a nation’s
economy linked to the
economies of its trading
partners.
This linkage takes the form of
international movements of
goods and services, labor,
business enterprise, investment
funds, and technology.
The high degree of economic
interdependence among
today’s economies reflects the
historical evolution of the
world’s economic and political
order.
 1945
(US)
1950’s
(EU)
1960’s
(MNC)
1970’s (world oil
market)
21st Century (creation
of EURO)
 Recognizing that world
economic interdependence
is complex and its effects
uneven, the economic
community has made
efforts toward international
cooperation.
Over the past 50 years, the world’s
market economies have become
increasingly integrated. Exports
and imports as a share of national
output have risen for most
industrial nations, while foreign
investment and international
lending have expanded.
This closer linkage of economies
can be mutually advantageous for
trading nations. It permits
producers in each nation to take
advantage of specialization and
efficiencies of large-scale
production.
A nation can consume a wider
variety of products at a cost
less than that which could be
achieved in the absence of
trade. Despite these
advantages, demands have
grown for protection against
imports.
 Protectionist pressures have
been strongest during periods
of rising unemployment
caused by economic recession.
Thus, economic interdependence has
become a complex issue in recent
times, often resulting in strong and
uneven impacts among nations and
among sectors within a given nation.
Business, labor, investors, and
consumers all feel the repercussions
of changing economic conditions and
trade policies in other nations.
International Trade
from Edexcel Economics
by Quintin Brewer
 Globalization has led to
a phenomenal increase in
world trade. One measure is to
consider exports as a
proportion of world GDP.
However, the pattern of
world trade has also been
greatly affected by the
entry of China as a
major manufacturer.
The basis of free trade
law:
the law of comparative
advantage
• The law states that, even if one
country has an absolute
advantage in the production of
all goods, it can still benefit
from specialization and trade, if
it specializes in the production
of goods in which it has a
comparative advantage.
A country has a comparative
advantage in producing a
product if the opportunity cost
of producing it is less than its
potential trading partner.
 You should note that, if
opportunity costs were the
same, then there would be no
benefit from specialization and
trade.
 Limits of free trade:
the case for protectionism
a)To protect infant industries
b)To protect geriatric industries
c)To ensure employment protection
d)To prevent dumping
e)To correct a balance of payments
deficit on current account
e) To restrict imports from counties
whose health and safety
regulations and environmental
regulations are less stringent
f) For strategic reasons
g) To raise tax revenues
h) In retaliation
 Global Actors
• International Economic and Financial
Organizations
• International Governmental Organizations
• Media
• Multilateral Development Banks
• Nation-States
• Non-Governmental Organizations (NGOs)
• Trans-National Corporations (TNCs)
• United Nations (UN) System