THE GLOBALIZATION

OF ECONOMIC
RELATIONS
ECONOMIC GLOBALIZATION
A historical process, the result of human innovation and technological progress. It refers to the increasing integration of
economies around the world, particularly through movements gods, services and capital across borders. The term sometimes
refers to the movement of people (labor) and knowledge (technology) across international borders. (IMF,2008)
 INTERCONNECTED DIMENSIONS
OF ECONOMIC GLOBALIZATION

The Globalization of Trade of Goods and Services

When a country exports more than it imports, it runs a trade surplus. When a country imports more than it exports, it runs a
trade deficit. The large trade deficits in the middle and late 1980’s sparked political controversy that still persist today.

THE GLOBALIZATION OF FINANCIAL AND CAPITAL MARKETS

• A country that enjoys an absolute advantage over another country in the production of a goods to use a fewer resources
than other country. Trade barriers also called obstacle to trade take many forms these are tariffs, export subsidies and
quotas that are forms of protection shielding some sector of the economy from foreign competition.
• A tariff is a tax on imports.
• Exports subsidies is a government payments made to domestic firms to encourage exports that can also act as a barrier to
trade.
Farm subsidies remains part of the international trade landscape today. The prevalence of farm subsidies in the developed
world became a major rallying point for less developed
countries as they strive to compete in the global marketplace.
• A quotas is a limit on the quantity of imports. It can be mandatory or voluntary and legislated or negotiated with foreign
governments. The best-known voluntary quota or “voluntary restraint”, was negotiated with Japanese government in
1981.
 THE GLOBALIZATION OF TECHNOLOGY AND
COMMUNICATION
Capital is not the only factor of production required to produce out put, labor is equally important. To be
productive, workforce must be healthy because health is not only issue but basic literacy as well as specialized
training in farm management.. Education has grown to become the largest category of government expenditure
in many developing nations. Technology transfer and communication become part of manpower training in
most agricultural countries because of beliefs that human resources are the ultimate determinant of economic
advance.

THE GLOBALIZATION OF PRODUCTION

Production is the process which inputs combined and transformed into output. Production technology relates inputs to
outputs. Specific quantities of inputs are needed to produce any given service or goods.
Outputs can be produced by a number of different techniques. In choosing the most appropriate technology, firm choose
the one that maximize the cost of production. In economy firm to choose with plentiful supply of inexpensive labor but
not much capital, the optimal method involved labor intensive techniques.
 DISTINCTION OF GLOBALIZATION FROM INTERNATIONALIZATIN

• Dicken (2004) distinguish economic globalization from internationalization. He states that the former is functional
integration between internationally dispersed activities while latte is about the extension of economic activities of
nation states across the borders. Economic globalization is more on qualitative transformation than just a quantitative
change.
• Reich (1991) agrees that globalization transforms the national economy into a global one because for him there will be no
national products or technologies, no national corporations, and no national industry.
• Ohmae (1995) is a hyperglobalist who declare that states ceased to exist as primary economic organization units in the
wake of global market.
• Boyer and Drache (1996) admit that globalization is reducing the role of the nation state as an effective manager of the
national economy and state is a main shelter from the perverse effects of a free market economy. It is misleading to
assume that globalization has brought down the nation state and policies to obsolete or irrelevant status; as
governments acts as the midwives of globalization.
• Milner and Keohane (1996) they support the above notions and admit that national economic policies and structure of
domestic institutions o states are not uniformly influenced by globalization.
• Feenstra (1998) is a business analyst constantly evolving economic integration become more intensive, production
disintegrates due to the outsourcing activity of multinationals.
• Geriffi (1999) according to him this move induced to develop the concept of global commodity chains, an idea reflects
upon the increasing importance of global buyers in a world of dispersed production.
 THE WORD TRADE ORGANIZATION AND GATT

In 1997 GATT celebrated the 5th year and1947 they have 23 nations signed the General Agreements on tariffs and Trade
(GATT) .
GATT was intended to be multilateral, global initiative and negotiators succeed in liberalizing world merchandise trade and
123 nations agreed to promote trade among others.
GATT was based in three principles ; equal, nondiscriminatory trade treatment for all member nations , the reduction of
tariffs by multilateral negotiation and the elimination of import quotas.
PREFERENTIAL TRADE AGGREEMENTS
Multilateral initiative of GATT countries in each world region are seeking lower barriers to trade within their regions. When
countries entered into preference agreement GATT notify this. In 1947 there were 85 agreements notified while 77 new
agreements have been added since 1992.
FREE TRADE AREAS
It is a form when two or more countries agree to abolish all internal barriers to trade. A
countries belong to free trade area can maintain independent trae policies with respect to
non-FTA countries. A system of certificate of origin is used to avoid traediversion in favor of
low-tariff members. The system discourages importing goods into other member with the
lower tariff for transhipment within the area with high external tariffs, customs inspector
police to borders between members.
CUSTOM UNION
 Customs Union is a type of TRADE BLOC composed of free trade area with a common external
tariff.
 The most famous example of a customs union is the European Union (EU) .
 January 1,1996, EU and turkey boost two-way trade above the current annual level of $20 billion.

COMMON MARKET
 The next step in the spectrum of economic integration.
 The common market allows for free movements of factors of production,including labor,capital, and
information example include the Central American Intergration System (CAIS), The Common
Market of the South (TCMS), the Andean Community and the Association of South East
Asian Nations (ASEAN).
 North American Free Trade Agreement (NAFTA).North America represents a distinctive regional
market.
 The US is a home to more global industry leader.
 1988 US and Canada signed a free trade agreement (U.S, CANADA)
Canada takes 20% of US exports and US buys nearly a 80% of CANADA’s exports
 Table 4.2 US Goods
Table 4.1 US Goods
Imports Trading
Exports Trading Partners Partners
● Trading Partner ● PERCENT ● Trading Partner ● PERCENT
(Export) (Export)

● Canada ● 174.8
● Canada ● 154.1
● Japan ● 121.9
● Mexico ● 79.8
● Mexico ● 94.7
● Japan ● 57.8
● China ● 71.1
● Germany ● 49.8
● UK ● 34.7
● UK ● 39.0 ● Taiwan ● 33.1

● Netherlands ● 19.0 ● Germany ● 26.2

● Taiwan ● 18.1 ● France ● 24.0

● France ● 17.7 ● South Korea ● 23.9

● South Korea ● 16.5 ● Singapore ● 18.3

ANDEAN COMMUNITY
Formerly the Andean Pact was formed in 1969 to accelerate development of member states Bolivia, Colombia, Ecuador, Peru, and Venezuela
Through economic and social integration.
Members agreed to lower tariffs.
1988 the group members decided to get fresh start.
Beginning in 1992 Andean Pact signatories agreed to form a Latin America ‘s first operating sub-regional free trade zone
End of 1992, financial, and fiscal incentives , and export subsidies.
COMMON MARKET OF THE SOUTH (Mercosur)
March 1991,the government of Argentina, Brazil, Paraguay, Uruguay signed the Asunsion Treaty to form the Common Market in the South (in
Spanish, Mercado Camun del Sur, or Mercosur).
August 5,1994, the president of 4 countries agreed to begin phasing in tariff reform on January 1, 1995.
June 25, 1996, Chile’s president signed an agreement making Chile an associate member of Mercosur effective
October 1,Chile choose not to become a full member.
ASIA-PACIFIC
Refers to the regions of East or Northeast Asia, Southeast Asia, the Pacific Islands, and South Asia.
The region accounted for approximately 1/3 of global income since 1997.
Japan’s presence looms large in the Asia-Pacific region.
South Korea, Taiwan, Singapore, and Hong Kong are sometimes collectively referred to as “tigers” or newly industrializing economies (NIEs).
Another 4 countries –Thailand ,Malaysia, Indonesia, and China – were getting close to the point industrial take off prior to the onset of the “Asian
flu” in july 1997.
 
The Association of Southeast Asian Nation (ASEAN)
Association,to flagship preferential trade agreement in the Asia Pacific area.
Was established in 1967 as an organization for economic, political, social and cultural cooperation among it’s
members.
The US ,Which at the time was ambroiled in the Vietnam War, played a role in ASEAN with the signing of the
Bangkok Declaration .
Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand were the ORIGINAL 6 MEMBERS
Vietnam became teh first communist nation in the group when it wa admitted to ASEAN in July 1995.
Combodia and Laos were admitted to the ASEAN at the organization’s 30 th anniversary meeting in July 1997
Burma (now Myanmar) joined 1998.
Two-way trade between the US and ASEAN totaled $83.8 billion in 1994.
In 1994,economic ministers from the member nations agreed to implement an ASEAN Free Trade Area (AFTA) by
2003 and it is now working .
In 1996, intra-ASEAN trade surpassed $70 billion.
In fewer than 3 decades Singapore has transformed itself from a British colony to a vibrant 240-square-mile industrial
power.
The manufacturing companies that have been attracted to Singapore read like a who’s who of global marketing and
include Hewlett-Packard, IBM, Philips, and Apple Computes; in all, 3,000 companies have operations or investment
in Singapore.
THE EUROPEAN UNIONS
 origins of the European Union can be traced back to the 1958 Treaty of Rome.
 6 Original members of the European Community- Belgium, France, Holland, Italy,
Luxembourg, and West Germany.
 In 1973,great Britain, Denmark, and Ireland were admitted,followed by Greece in
1981 and Spain and Portugal in 1986.
 Beginning in 1987 12 countries that were original members set about the difficult
task of creating a genuine single market in Goods, Services, and Capital.
MIDDLE EAST
The 14 countries of Middle East are; Afghanistan, Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman,
Qatar, Saudi Arabia, Syria, United Arab Emirates and the reunified Yemen. Persian and Arabs share the same
religion, beliefs, and Islamic traditions, making the population 95 percent Muslim and 5% Christian and Jewish.
Middle East does’nt have a single societal type wit a typical belief, behavior and traditions. Each capital and
major city in the middle east has a variety social groups that can differentiate and basis in religion, social class
education, and degree of wealth.
The Middle East is driven by the price of oil. Bahrain, Iraq , Iran, Kuwait, Oman, Qatar, UAE, and Kingdom of
Saudi Arabia have a high oil revenues that holds significant world oil reserves.
GULP COOPPERATION COUNCIL

It is a regional organization which established in 1981 in Riyadh in May 1981 by Bahrain, Kuwait, Oman, Saudi
Arabia, Qatar and the United Arab Emirates. The purpose of GCC is to achieve unity amongst its members
based on their common objectives and their similar political and cultural identities which rooted in Islamic
beliefs. GCC has a defense planning council that coordinates military cooperation between member countries.
The highest decision-making entity of GCC is a Supreme Council that the decision are adopted by unanimous
approval.
Some conversations sbjects should be avoided as they are
considered an invasion of privacy ( Harris & Moran,1991)
1. Avoid bringing up subjects of business before getting to know your Arab host. This is considered rude.
2. It is taboo to ask questions or make comments concern in a ma’s wife or female children.
3. Avoid pursuing the subjects of political or religion.
4. Avoid any discussion of Israel.
ECONOMIC COOPERATION OF WEST AFRICAN STATES
The Treaty of Lagos establishing Economic Cooperation of West African signed in May 1975 by 15 states with
the object of promoting trade, cooperation and self reliance in West Africa. The members are Benin, Burkina
Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mari, Nigeria, Nige, Senegal, Sierra Leone,
Mauritania and Togo. In 1980, the member countries agreed to establish a free trade for unprocessed agricultural
products and handicrafts. Tariffs on industrial goods were also abolished.
SOUTH AFRICAN DEVELOPMENT COMMUNITY
A mechanism in which the regions black-ruled states could promote trade, cooperation, and economic integration.
The members are Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Madagascar, Mauritius,
Mozambique, Namibia, South Africa, Seychelles, Swaziland, Tanzania, Zambia and Zimbabwe. The ultimate goa
is to fully developed customs union.
 ORGANIZATION OF THEPETROLEUM EXPORTING COUNTIES

It is an intergovernmental organization of oil-exporting developing nations that coordinates and unifies the
petroleum policies of its Member Countries and it seeks to ensure the stabilization of oil prices in the international
oil markets, with a view eliminating harmful and unnecessary fluctuations, given all the times to the interest of oil
producing nations. OPEC’s role is to secure an efficient, economic and regular supply of petroleum to consuming
nations and a fair return on capital to those investing in the petroleum industry. The organization comprises 15
members countries such as Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya,
Nigeria, State of Qatar, Kingdom of Saudi Arabia, United Arab Emirates and Venezuela.
THE BRETTON WOODS SYSTEM
In July 1944, delegates from 44 countries gathered in Bretton Woods, New Hampshire to start negotiations about a
new international monetary regime in the framework of the United Nations Monetary and Financial Conference. The
delegates of 44 countries maintained to agree on adopting an adjustable peg system, the gold exchange standard.
Delegates also agreed on the establishment of two international institutions. The International Banks for
Reconstruction and Development became responsible for post war reconstruction, while explicit mandate for
International Financial Cooperation and buttress international trade. The IMF expected to safeguard the smooth
functioning of the gold exchange standard by providing short-term financial assistance in case of temporary balance
of payment difficulties.
DEVELOPING COUNTRIES AND INTERNATIONAL TRADE

 In 1964, United Nations Conference on Trade and Development (UNCTAD) was the first major change in the state of affairs of developing nations
into international trade.
 The aim of UNCTAD was to promote trade and cooperation between the developing and the developed nations. After 1964, these objectives were laid
down as follows:
1. Preferential access to advanced countries’ markets
2. Renegotiating debts
3. Establishing international commodity agreement
4. Providing transfer of technology and,
5. Increase aid substantially
 The Uruguay Round took place in 1986 and participated by 123 nations changed the behavior of developing countries as this was meant to be a grand
bargain between developed and developing countries.
 Some Key Trade Facts:
1. Trade deficit – occurs when imports exceed exports.
In 2012, U.S imports of goods exceeded U.S exports of goods by $735B.
1. Trade surplus – occurs when exports exceed imports.
In 2012, U.S exports of services exceeded U.S imports services by $196B.
1. Canada is the United States most important trading partner quantitatively.
2. In 2012, U.S has sizeable trade deficit with China.
3. China has become a major international trader with an estimated $2.05 trillion of exports in 2012.
4. International trade links world economies.
5. International trade is often at the center of debates over economic policy, both within the U.S and internationally.

6. International trade links world economies.

7. International trade is often at the center of debates over economic policy, both within the U.S and internationally.

8.
TRADE BARRIERS AND EXPORT SUBSIDIES
 Tariffs are excise taxes or “duties” on the dollar values or physical quantities of imported goods.
 Revenue Tariff is usually applied to a product that is not being produces domestically.
 Protective Tariff is implemented to shield domestic producers from foreign competition. These tariffs impede free
trade by increasing the prices of imported goods and therefore shifting sales towards domestic producers.
 Import quota – is a limit on the quantities or total values of specific items that are imported in some period.
 Export subsidy – consists of a government payment to a domestic product or export goods and is designed to aid
that producer.
 
 Table 4.10 The World’s Biggest Economies, 2018 (In
Trillion US$)

● Rank and Country ● 2017 ● 2018

1. United States ●
18 ●
20.4
1. China ● 11 ● 14
1. Japan ●
4.4 ●
5.1
1. Germany ●
3.4 ●
4.2
1. United Kingdom ●
2.9 ●
2.94
1. France ●
2.4 ●
2.93
1. India ●
2.1 ●
2.85
1. Italy
THE ‘MCDONALDINATION’ OF SOCIETY1.8
● ●
2.18
1. Brazil ●
1.8 ●
2.14
 McDonald’s can be found almost everywhere these days in the U.S, it is more than a restaurant – it has become a
1. Canada ●
1.6 ●
1.8
symbol of American’s way of life. One poll found that 98% of school children identify Ronald McDonald, making
him as well-known as Santa Claus.
 Our culture is becoming “McDonaldized” an awkward way of saying that many aspects of life are modeled on the
famous restaurant chain.
1. Parents buy toys at worldwide chain of stores
2. People drive in for ten minutes oil change
3.Face to face communication is sliding more and more toward voice mail, email and junk mail
4.More vacations take the form of resort and tour packages
5.Television presents news in the form of ten second sound bites
6.College admission officer size up students they have never met by glancing at their GPA and SAT scores
7.Professors assign ghost written textbooks and evaluate students with test mass-produced for them by publishing companies.
BASIC ORGANIZATIONAL PRINCIPLES
Efficiency – the marketing genius behind McDonald’s (Ray Kroc), set out with one goal; to serve hamburger, French fries, and milkshake to a customer in 50 seconds or less. Efficiency is a value virtually without
criticism in our society.
Calculability – the first McDonald’s operating manual declared the weight of a regular raw hamburger to be 1.6 oz, its size to be 3.875 inches across and its fat content to be 19%. A
GROUP IV

RIOJA, ANNA MILCA V.

OGAYON, JANVEE

PERALTA, MIGUEL

VILLAFUERTE, CHRISTIAN

LUMABI