GLOBAL

ECONOMY
Learning Objectives
01 Define economic globalization

02 Explain the two major driving forces of

global economy

03 Differentiate economic globalization

from internationalization

04 Trace the origin of economic

globalization

https://www.youtube.com/watch?v=QYFG_u1D0dM
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.
 Economic
Globalization
• 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
Economic
Globalization
• It also refers to the movement
of people (labor)and knowledge
(technology) across
international borders.
• According to the International
Monetary Fund, economic
globalization is a historical
process, the result of human
innovation and technological
progress.
2 Major Driving Forces for Economic
Globalization:

1.The rapid growing of information in all

types of productive activities

2. Marketization - the act or process of

entering into, participating in, or
introducing a free market economy.
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
 Economic Globalization vs
Internationalization

ECONOMIC
GLOBALIZATION

Economic globalization ,is the growing Internationalization is a corporate

global integration not only of markets strategy that involves making products
but also of systems of finance, and services as adaptable as possible.
commerce, communication,
technology, and law that by pass
traditional national, cultural, ethnic,
and social boundaries.
Example of Internationalization:
Evolution of the
International
Monetary System
Evolution of International Monetary System (IMS)

Monetary system during that Major economic powers

time was decentralized while
market based and money played
a minor role in international
trade in contrast to gold.
1870 - 1914
were on gold standards but
could not maintain it and
failed because of the Great
depression
1929 - 1933
Evolution of International Monetary System (IMS)

730 representatives of 44 nations met at

Bretton Woods, United States to create a The floating exchange rate
new international monetary system called as system, also known as
the Bretton Woods system, the aim of which flexible exchange rate
is to create a stabilized international
currency system and ensure a monetary system was developed that
stability for all the nations was market based
1944 - 1971 1973
International Trade
Trade Policies
 International
Trade

the exchange of goods,

services and capital across
national borders
 Advantage
ü More affordable products for the
consumer
ü opportunity to be exposed to goods
and services not available in their
own countries
ü wealthy countries can use their
resources such as labor, technology,
or capital more efficiently
ü some countries may produce the
same good more efficiently and
therefore sell it more cheaply than
other countries
Disadvantage
 Some countries charge extra fee
on the shipped items – landed
cost
 Language barrier
 Limited customer service and
different time zones
 Returning products and refund
takes a longer process
 Changes in the government and
their policies causing delays
 International Trade
Comparative Advantage - so long as the two countries have
different relative efficiencies, the two countries can benefit from
trade. Comparative advantage holds that all countries will
always benefit from cooperation and participation in free trade
Specialization - countries as well as individual businesses can
maximize their welfare by specializing in the production of
those goods where they are most efficient and enjoy the largest
advantages over rivals. It happens if a country cannot efficiently
produce an item and obtain it by trading with another country
that can.
Trade
Policies

regulations and agreement of foreign countries

 Focuses of Trade Policy in International Trade

They are state-imposed restrictions on trading a

TRADE particular product or with a specific nation. Tariffs,
BARRIERS duties, subsidies, embargoes and quotas

These are taxes or duties paid for a

TARIFF particular class of imports or exports.

Ensures that imported products in the

SAFETY
country are of high quality
 Types of Trade Policy
International Trade
National Trade Policy Bilateral Trade Industry
Policy

This safeguards Regulate the trade The best interests of

the best interest of and business both developed and
its trade and relations between developing nations
citizen two nations. are upheld by the
policies
Protectionism
a defensive trade policy intended to eliminate the possibility of foreign
competition.

Free Trade
a largely theoretical policy under which governments impose absolutely no tariffs,
taxes, or duties on imports, or quotas on exports. For example, the North American
Free Trade Agreement (NAFTA), between the United States, Canada, and Mexico is
one of the best-known FTAs.

Outsourcing
A business practice in which services or job functions are farmed out to
a third party
 3 Essential Features of Modern Outsourcing
Strategy

1.Firms must search for partners with the

expertise that allows them to perform the
particular activities that are required.
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.
 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.
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 impinge on a firm’s
ability to induce a partner to invest in the relationship.