Lesson 2- The Global Economy

Objectives
At the end of the lesson, the students will be able to:

 define economic globalization.

 identify the actors that facilitate Economic globalization.
 define the modern world system.
 articulate a stance on global economic integration.

Countries trade with each other due to the lack of resources and cannot satisfy their own needs and
wants. As the countries developed their resources and they trade it for the resources they need. Many
years ago, when the other countries travelled a distance to trade, as it is very evident that international
trade plays significant role in the development of industrialized world. Imports of goods and services
happen maybe for better or cheaper quality, appealing goods or no alternatives exist. In this lesson, we
will begin with economic globalization and global factors that facilitate the economic globalization.
United Nations define economic globalization as “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. It 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. The rapid growing significance of information in all types of
productive activities and marketization are the two major driving forces for economic globalization.”

According to Dennis O. Flynn and Arturo Giraldez, “Global trade emerged when 10 all heavily
populated continents began to exchange products continuously-both with each other directly and
indirectly via other continents- and 2) did so in values sufficient to generate sting impacts on all trading
partners.”

In economic globalization, companies seek the greatest possibility of efficient and maximized profits
that will involve many regions and localities to “global production.” Many believe that the new
technology will allow the intense movement of information, goods, services and people can create an
environment of “new economy”-increasing the networks in global production, free trade and capital. The
interconnections of various components of production, where the stages in production takes place in
different location depends on the favorable conditions such as cheap labor, raw material, skilled labor and
market consumer.

Free trade will be necessary condition for the development of production networks. Minimizing
trade barriers and ensure smooth movement resources, goods and services. The engine of globalization
which allows the use of technological advances and differences between regions. Technology that can
bring innovations for economic development and growth. Technological change and
deregulation/liberalization enabled the development of financial markets (capital moves freely) to the
extent that the financial markets began to dominate the global economy( the majority share of the volume
of past transactions comprises the speculative investment).
Global Factors

MULTINATIONAL CORPORATIONS

The multinational corporation is a business organization whose activities are located in more than
two countries and is the organizational form that defines foreign direct investment. This form consists of a
country location where the firm is incorporated and of the establishment of branches or subsidiaries in
foreign countries. (A.A. Lazaruz, 2001 p.10197)

THE INTERNATIONAL MONETARY FUND

The IMF founded at the Bretton Woods Conference in 1944, is the official organization for securing
international monetary cooperation. It has done useful work in various fields, such as research and the
publication of statistics and the tendering of monetary advice to less-developed countries. It has also
conducted valuable contributions with the more developed countries.

NORTH ATLANTIC TREATY ORGANIZATION

NATO is based on the North Atlantic Treaty, which provides the organization a framework. The
treaty provides that an armed attack against one or more of NATO’s member nations shall be considered
an attack against them all. NATO is headquartered in Brussels, Belgium. The organization was formed in
1049. Many nations joined NATO-even Iceland, the only member without a military force. The
organization was originally formed out of the fear that the Soviet Union would ally militarily with Eastern
European nations, i.e. the Warsaw Pact, and thus become a threat to Western Europe and the United
States.

WORLD TRADE ORGANIZATION (WTO), INTERNATIONAL MONETARY FUND (IMF),

and the WORLD BANK (WB)

The World Trade Organization (WTO), the International Monetary Fund (IMF), and the World
Bank (WB) are the three institutions that underwrite the basic rules and regulations of economic,
monetary, and trade relations between countries. Many developing nations have loosened trade rules
under pressure from the IMF and the World Bank.

The domestic financial markets in these countries have not been developed and do not have
appropriate laws in place to enable domestic financial institutions to stand up to foreign competition. The
administrative setup, judicial systems, and law-enforcing agencies generally cannot guarantee the social
discipline and politically stability that are necessary in order to support a growth-friendly atmosphere.

As a result, most multinational corporations are investing in certain geographic locations only. In the
1990s, most foreign investment was in high-income countries and a few geographic locations in the South
like East Asia and Latin America. According to the World Banks’s 2002 Development Indictors, there are
63 countries considered to be low-income countries. The share of these low-income countries in which
foreign countries are making direct investments is very small; it rose from o.5 percent in 1990 to only 1.6
percent in 2000.

The first half of the 20 th century was marked by two world wars that caused enormous physical and
economic destruction in Europe and a Great Depression that wrought economic devastation in both
Europe and the United States. These events kindled a desire to create a new international monetary
system that would stabilize currency exchange rates without backing currencies entirely with gold; to
reduce the frequency and severity of balance-of-payment deficits ( which occur when more foreign
currency leaves a country than enters it); and to eliminate destructive mercantilist trade policies such as
competitive devaluations and foreign exchange restrictions- all while substantially preserving each
country’s ability to pursue independent economic policies. Multilateral discussions led to the UN
Monetary and Financial Conference in Bretton Woods, New Hampshire, US, in July 1944. Delegates
representing 44 countries drafted the Articles of Agreement for a proposed International Monetary Fund
that would supervise the new international monetary system.

The framers of the New Bretton Woods monetary regime hoped to promote world trade, investment,
and economic growth by maintaining convertible currencies at stable exchange rates. Countries with
temporary, moderate balance-of-payment deficits were expected to finance their deficits by borrowing
foreign currencies from the IMF rather than by imposing exchange controls, devaluations, or deflationary
economic policies that could spread their economic problems to other countries. After ratification by 29
countries, the Articles of Agreement entered into force on December 27, 1945. The fund’s board of
governors convened the following year in Savannah, Georgia, U.S., to adopt bylaws and to elect the
IMF’s first executive directors. The governors decided to locate the organization’s permanent
headquarters in Washington, D.C., where its 12 original executive directors first met in May 1946. The
IMF’s financial operations began the following year.

In other words, the fast globalization of the world’s economies in recent years is largely based on the
rapid development of science and technologies, has resulted from the environment in which market
economic system has been fast spreading throughout the world, and has developed on the basis of
increasing cross- border division of labor that has been penetrating down to the level of production chains
within enterprises of different countries.

Additional Readings:

1. The Modern World-System – Aldama, Prince The Contemporary world, pp 41-42.

2. Economic Globalization and the Global Trade- Aldama, Prince The Contemporary Worls,
pp.23-34.
3. Economic Globalization- Aldama, Prince The Contemporary World, pp. 29-34.

Process Questions:

1. Do you think that the Philippines is harmed as other countries transfer their activities to us
through outsourcing?
2. In what ways do international organizations help our country’s economy?
3. Does the position of rich countries as giants in the economic chain threaten the status of less
developed countries in the global markets?
4. In the Philippines, how much do you think are we involved in the modern-world system? What
do you think are the advantages and disadvantages of being a part of such?
5. How can we “upgrade” our economy given the strength of the global economy, especially the
giant economies like the United States and Japan?
6. How do we examine economic globalization considering our colonial history?
Exercises/ Drill: (#2- The Global Economy)

Activity 1: A New Economic Map of the World

In order for you to visualize Immanuel Wallerstein’s idea of the modern-world system, this activity
will involve a construction of a “new” map of the world. The foundation of constructing this map is the
three hierarchies of areas in the modern-world system discussed.

1. Identify whether the following countries fall under core, periphery, or semi-periphery category.
2. Print the map of each country.( A quarter of a bond paper is enough for the size of the map)
3. Group the maps according to the category of the country in which they belong. Paste the map in
a Manila paper.
4. Put the core countries at the center. Surround the core countries with the states under the semi-
periphery. Place the peripheral countries as the outer ring of the map.
5. Compare the map you created with the original world map.

Activity 2: Global economy in which we live

After the discussion the students will bring the following:

 Bring a favorite item of clothing to school and make a chart to show where their favorite
clothing articles are produced.
 Take a home survey to identify the country of origin of other common goods and use
collected data to make a chart, graph or map to illustrate the global economy in which we
live.

Home Survey (On Line)

Direction: Take a home survey with your favorite item of clothing and goods. Use a chart, graph or map
to identify the country of origin of other common goods.

Item Price Country Manufacturer

Questions:
1. Which country has the largest products that has been produced in your possession?
2. What are the reasons why the country cited is leading in the mass production of products?
3. Give the advantages and disadvantages of mass production that is controlled by one country?

GE 102 – Contemporary World

Name:___________________________ Course/Year/Section:_____________
 Work Sheet # 2- The Global Economy
Evaluation:
Direction: Name the different global actors and their functions

Organizations Date founded Functions

International Monetary Bretton Woods Conference in Securing international
Fund (IMF) 1944 monetary cooperation

Test II. Essay.

Direction: Answer each question briefly.

1. Give the definition of economic globalization according to the United Nations.

2. What are the actors that facilitate economic globalization? Say something about it.

3. What do mean by the modern world system?

4. Describe the three institutions that underwrite the basic rules and regulations of economic,

monetary, and trade relations between countries.

Lesson 3- Market Integration
Objectives:
At the end of the lesson, the students will be able to:

 Define market integration

 Discuss the global market integration
 Explain the role of globalization in the integration of market

Market integration is the fusing of markets into one. Global market integration means that price
differences between countries are eliminated as all markets become one. One way to the progress of
globalization is to look at trends how prices converge or become similar across countries. The time
when the costs of trading across the country fall and that is the time the other firm will take advantage of
price differences, other countries may enter the market of the other country. Trading cost fall when new
product invented or developed becomes cheaper and also, some cost are man-made like when they
impose a barriers for trade.
In one market a commodity has single price such as the price of rice would be the same inEast
Pangasinan and West Pangasinan if these areas were part of the same market. If the price of rice in West
Pangasinan was higher, sellers of rice would move from the east to the west and prices would equalize.
The price of rice in one place to other might be different, though, and high transport costs and other kinds
of expenses might mean that it would be uneconomical for other sellers to move their stocks to other
place if prices were higher there. And for other markets, the price changes for a long periods of time.
Integration
By the end of the 20th century globalization across most markets had returned to the levels seen just
before World War 1. Today, markets are more integrated than ever as transportation costs have continued
to fall and most tariffs been scrapped altogether.
One vision of the future of globalization involves the elimination of other kind’s barriers to trade
caused by institutional differences between countries. Markets are embedded in institutions such as
property rights, legal systems, and regulatory regimes. Difference in institutions between countries create
trading costs in the same way that tariffs or distance do. For example, there may be different laws in
Kenya, China about what happens when a buyer fails to pay. This might make it hard for a Chinese
exporter to recover what it is owed in the event of a dispute, which could make the firm reluctant to enter
the Kenyan market. Despite the removal of tariffs the world is far from being a single market. Borders
still matter because of these kinds of institutional incompatibilities. Complete integration requires the
ironing out of legal and regulatory difference to create a single institutional space.
Some economists argue that this process is underway and inevitable, end that global markets drive
the harmonization of institutions across countries. Consider a multinational firm choosing a country in
which to locate its factory. In order to attract the firm’s investment, a government might cut business tax
rates and loosen regulatory requirements. Other competing countries follow suit. The resulting lower tax
revenues make countries less able to finance welfare stated and educational programs. All policy
decisions become oriented towards maximizing integration with global markets. No goods or service
would be provided that are incompatible with this.
This economic interest also became part of a political strategy that transformed people into
individual political economic subjects. In order to establish, maintain and expand their domination the
new states will make systematic use of scientific knowledge with the aim of assessing and influencing the
behavior of their subject. And they will do this assuming that people’s behavior is mainly motivated by
interest. Government now consciously wants to deal with the interests of individuals in order to serve its
own interest. Political economics will not only consist of observing people’s self-interested behavior, it
will also promote it. The main issue in the politics of states will be to figure out ways to anticipate what
might happen in order to influence economic expansion. The new politics will not only go together with
reflection about the interest of the state but also implies that those in power have to think differently
about their individual roles in relation to and about the way their personal motivations fits with the
interest of the majority.
According to Smith, it was no longer a question of teaching mankind what must be done with
reference to the next world, but rather to understand what the human being actually is and what can be
done in this world with humans as they actually are. The social contract and the workings of society
should be studied on the basis of natural human (Bouchet: Adam Smith: Then & Now)

Additional Readings:
1. The Financial Institutions and economic organizations that made countries even closer together,
at least, when it comes to trade. The contemporary World by P. Aldama, pp. 45-48.
2. History of Global Integration. The Contemporary World by P. Aldama, pp. 48-52.
3. Global Corporations. The Contemporary World by P. Aldama, pp. 53-55
Process Questions:
1. What are the effects of the information revolution in today’s global market?
2. What are the effects of multinational corporations in the Philippine economy?
3. Analyze socialism and capitalism in relation with Philippine society. Which of these economic
systems would work in our country?
4. Analyze the “global” nature of multinational corporations. Do you think the positive effects of
multinational corporations outweigh the negative effects? Why or why not?
5. What do you think are the ways to lessen, if not eliminate the negative consequences of
multinational corporations?
Exercises/ Drill:
Activity 1. Weighing the Market
The history of global market brought positive and negative effects through time. At this point,
markets will be assessed 6hrough your own perspective provided that you already had a good grasp of the
different concepts in economic and financial globalization. This activity will help you understand the
benefit and harms of global economic processes, structures and technologies.
1. Listed below are the scenarios that have to do with the economy. Discuss the major impacts of
these scenarios, whether they are positive or negative for you, for the Filipinos, or for the
country.
 Scenario A: Agriculture is the main source of employment in your home province. The
government has recently decided to develop the farmlands into real estate and exclusive
subdivisions in order to attract foreign investors to the country.
Scenario B: You decided to purchase a new shirt through an online shop based in London.
Scenario C: The Philippine government is being pressured by the current economic crisis to
import rice from Taiwan and other nearby countries in the region.
Scenario D: A multinational corporation decided to close. Unfortunately, your father is one of
its many employees whose work has been terminated. However, he could
still be employed if he were to relocate to another country.
Scenario E: The global financial has affected the investment funds of your mother that she can
use for her retirement.
2. How do you decide for each scenario? What are the pros and cons that you list down before you
came up with the final judgment?

20GE 102 – Contemporary World

Name:___________________________ Course/Year/Section:____________________
Work sheet # 3 -Market Integration

Test I. Direction: Choose the correct answer from the given options.
A. Trade B. Culture C. Security D. Politics
_____1. Countries within the region create deals like cheaper tariffs to for easier import/export.
_____2. Countries within the region provide assistance in combating foreign-supported terrorist
groups.
_____3. Leaders of countries within the region often perform social visits to talk agreements despite
differences and show solidarity and support to those they are in agreement with.
_____4. Citizens of countries within the region are generally alike in appearance, temperament and
experiences which can help in easing negotiations.
_____5. The following are aspects of Bandung View except:
A. Tame the market corporations
B. Serve as the engine of development
C. Create states with little to no democratic participation in nearly all spheres of governance
D. Express the general will
_____6. Which among the following bodies of the United Nations does not deal with the issues like
international laws and disputes?
 A. General Assembly C. Security Council
B. Economic and Social Council D. International Court of Justice
____7. What do we call the line that shows the “ North-South Divide”?
A. Bentley Line C. Brandt Line
B. Barman Line D. Best Line
____8. Many of the countries in the Global South were former_______________.
A. Capitalists C. Monarchies
B. Colonies D. Democracies

_____9. Globalization has forced isolated countries to_________________ and to establish international
commerce policies.
A. interact with others C. compete with one another
B. secure ties with others D. attack each other
_____10. It is the branch or aspect of the United Nations that has the primary responsibility for
international peace and security.
A. Security Council C. General Assembly
B. Economic and Social Council D. International Court of Justice

Test: Essay. Answer briefly the following questions. (10 points each)
1. Define multinational corporations. Enumerate at least 5 examples and what do you think are the

ways to lessen, if not eliminate the negative consequences of multinational corporations?

2. What are the effects of the information revolution in today’s global market?

3. What are the effects of multinational corporations in the Philippine economy?

4. What is global market integration?