Page 1 of 12

The Global Economy

MODULE 2

OVERVIEW
Although globalization has led to more developed economies converging, many argue that the welfare gap
between the more and less developed economies is widening. 'Global economics' explores how
globalization has changed the world economy and takes into account the costs and advantages of free trade
– it also analyzes the main issues facing the global economy in the 21st century, and offers an overview of
the financial crisis and the emergence of large trading blocs. But globalization has helped powerful
multinationals to circumvent taxes through the use of complex tax structures.

LEARNING OUTCOMES

At the end of this module, you are expected to:

1. Define Economic Globalization
2. Identify the factors that facilitate economic globalization
3. Define modern world system
4. Articulate a stance on global economic integration

LEARNING EXPERIENCES & SELF-ASSESSMENT ACTIVITIES (SAA)

ACTIVITY
Follow the Product
The product that we consume and use such as food, clothing, and gadgets are part of our way of life.
Globalization allows for a worldwide exchange of these commodities and exposure to different cultures as
well. This activity will allow you to investigate the origin and spread of products and sold in our country.
You will also be able to know the countries involved in the production, distribution, and consumption of
the products being sold and consumed in the country. The following are steps to accomplish this activity:
Pick one of the following products being sold in the Philippines, then choose a specific foreign
brand of the product you picked. (ex. Coffee – Starbucks)
a. Coffee
b. Sport car
c. Laptop
d. Hamburger
e. Wristwatch
f. Shoes

_____________________________- _____________________________

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 2 of 12

ANALYSIS
Do some research in following your product.
a. List down the (three) 3 main ingredients or raw materials in manufacturing the chosen product.
Identify the corresponding country from which each ingredient or raw material came from.
Ingredients/Materials Country

b. Identify at least (three) 3 counties involved in the manufacturing of the chosen product. Indicate
the corresponding service the country does for the product. (ex. Costa Rica – planting of coffee
beans)
Countries Service

c. Aside from the Philippines, list other three (3) countries in which the product is being sold.
1.
2.
3.
d. Write statements about the creation of the product (it can be about communications or
transportations).
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 3 of 12

ABSTRACTION
The United Nations (UN) tried to address the different problems in the world. Their efforts were
guided by the eight (8) Millennium Development Goals, which they created in the 1990s. Among these 8
goals, the eradication of extreme poverty and hunger ranked as the first. The other seven goals include:
achieving universal primary education, promoting gender equality and women empowerment, reducing
child mortality, improving maternal health, combating disease like HIV/AIDS and malaria, ensuring
environmental sustainability, and having global partnership for development. The UN tried to achieve them
in year 2015.
Since there are different standards of living around the world, we can expect different meaning
attached to it. In the Philippines. A person is officially living in poverty if he makes less than 100,534 per
year, around 275 pesos a day. This is called the poverty line or poverty threshold. Most people who have
been lifted out of extreme poverty are still poor and being poor comes with serious problems, from disease
to lack of water. Income inequality is rampant and one in seven people still live without electricity. So why
extreme poverty falling? The answer to this is really complicated. A set of factors like better access to
education, humanitarian aid, and the policies of international organization like the UN have made
difference. However, the greatest contributor is economic globalization. The world’s economic have
become more interconnected and free trade has driven the growth of many developing economies.
The Globalization of World Economics

International Monetary Fund (IMF) - is an

organization of 189 countries, working to foster global
monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable
economic growth, and reduce poverty around the world.
Created in 1945, the IMF is governed by and accountable to
the 189 countries that make up its near-global membership.
The IMF's primary purpose is to ensure the stability of the
international monetary system—the system of exchange rates
and international payments that enables countries (and their
citizens) to transact with each other. The Fund's mandate was
updated in 2012 to include all macroeconomic and financial
sector issues that bear on global stability.

The IMF regards economic globalization as a historical process representing the result of human
innovation and technological progress. It is characterized by the increasing integration of economies around
the world through the movement of goods, services, and capital across borders. These changes are the
products of people, organizations, institutions, and technologies. As with all other processes of
globalization, there is a qualitative and subjective element to this definition. Even the IMF and ordinary
people grapple with the difficulty of arriving at precise definitions of globalization, they usually agree that
a drastic economic change is occurring throughout the world. According to the IMF, the value of trade
(goods and services) as a percentage of world Gross Domestic Product (GDP) increased from 42.1% in
1980 to 62.1% in 2007. Increased trade also means that investments are moving all over the world at faster
speeds. According to United Nations Conference on Trade and Development (UNCTAD), the amount of
foreign direct investments flowing across the world was US$ 57 billion in 1982. By 2015 that number was
1.76$ trillion. These figures represent a dramatic increase in global trade in the span of just a few decades.
It has happened not even after one human lifespan.

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 4 of 12

Apart from sheer magnitude of commerce, we should also note the increased speed and frequency
of trading. These days, supercomputers can execute millions of stock purchases and sales between different
cities in a matter of seconds through a process called high-frequency trading. Even the items beings sold
and traded are changing drastically. Ten years ago, buying books or music indicates acquiring physical
items. Today, however, a book can be digitally downloaded to be read with an e-reader, and music album
refers to the 15 songs in mp3 format you can purchase and download in some music applications like iTunes
and Spotify.
International Trading System
There are two types of economies associated with economic globalization, protectionism and trade
liberalization. Protectionism means a policy of systematic government intervention in foreign trade with
the objective of encouraging domestic production. This encouragement involves giving preferential
treatment to domestic producers and discriminating against foreign competitors. Trade protectionism
usually comes in the form of quotas and tariffs. Tariffs are required fees on imports and exports. For
instance, a pen costs 1$ in USA and in Hong Kong, it would be given five-dollar tariff, then would become
6$ in Hong Kong. This policy was practiced during the mercantilist era, from sixteenth to seventeenth
centuries until the early years of the Industrial Revolution. The Great Depression of 1929 marked the peak
of protectionism. Until today, protectionism exists in the world economy despite of growth of trade
liberalization. Countries such as China, Japan, and the US are being accused of practicing protectionism.
World War II heavily influenced the shifting of the dominant economic policy from protectionism
to trade liberalization or free trade. Trade Liberalization refers to the opening up of markets to foreign
imports and entails the abolishment or reduction by governments of tariff and nontariff barriers (quotas,
standards, etc.) that limit trade in goods or services across countries. Free trade agreements and
technological advances in transportation and communication mean goods and services move around the
world more easily than ever. Let us take mobile phones as an example. Mobile phones seem to have food
consequences for everything including poverty. Mobile phones are single most transformative technology
when it comes to the developing world. Phones give people access to banking and payment systems and
better access to education and information. Economists call this leapfrogging, the idea that countries can
skip straight to more efficient and cost-effective technologies that were not available in the past.
International trade has also created new opportunities for people to sell their products and labor in a global
marketplace.
International trading systems
are not new, the oldest international
trade route was the Silk Road – a
network of pathways in the ancient
world that spanned from China to
what is now the Middle East and to
Europe. It was called as such because
one of the most profitable products
traded through this network was silk,
which was highly prized specially in
the area that is now the Middle East
was well as in the Europe. Traders
used Silk Road regularly from 130
BCE when the Chinese Han dynasty
opened trade to the West until 1453
when Ottoman Empire closed it. However, while the Silk Road is international, it was not truly global

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 5 of 12

because it had do ocean routes that could reach the American continents. So when the full economic
globalization begin? According to historians Dennis O. Flynn and Arturo Giraldez, the age of globalization
began when “all important populated continents began to exchange products continuously, both with each
other directly and indirectly via other continents, and in values sufficient to generate crucial impacts on all
trading partners”, this traces back to 1571 with establishment of the galleon trade that connected Manila in
Philippines and in Acapulo in Mexico. This was the first time that the Americas were directly connected to
to Asian trading routes. For Filipinos, it is crucial to note that economic globalization began on country’s
shores. The galleon trade was part of age of Mercantilism. From 16th century to 18th century, countries,
primarily in Europe competed with one another to sell more goods as means to boost their country’s income
(called monetary reserves later on). To defend their products from competitors who sold goods more
cheaply, these regimes (mainly monarchies) imposed high tariffs, forbade colonies to trade with other
nations, restricted trade routes, and subsidized its exports. Mercantilism was thus also a system of global
trade with multiple restrictions.
A more open trade system emerged in 1867 when,
following the lead of United Kingdom, United States and
other European nations adopted the Gold Standard at an
international monetary conference in Paris. Broadly, its goal
was to create a common system that would allow for more
efficient trade and prevent the isolationism of the mercantilist
era. The countries thus established a common basis for
currency prices and a fixed exchange rate system – all based
on the value of gold. Despite facilitating simple trade, the
gold standard was still a very restrictive system, as it
completed countries to back their currencies with fixed gold reserves. During World War I, when countries
depleted their gold reserve to fund their armies, many were forced to abandon the gold standard. Since
European countries had low gold reserves, they adopted flowing currencies that were no longer redeemable
in gold.
Returning to a pure standard became more difficult as the global economic crisis called the Great
Depression started during 1920s and extended up to 1930s, further emptying government coffers. This
depression was the worst and longest recession ever experienced by the Western world. Some economists
argued that it was largely caused by the gold standard, since it limited the amount of circulating money and,
therefore, reduced demand and consumption. If governments could only spend money that was equivalent
to gold, its capacity to print money and increase money supply was severely curtailed. The United States
recovery really began when, having abandoned the gold standard, the US government was able to free up
money to spend in reviving economy. At the height of World War II, other major industrialized countries
followed suit. Through more indirect versions of gold standard were used until as late as 1970s, the world
never returned to the gold standard of the early 20th century. Today, the world economy operates based on
what are called Fiat Currencies – currencies that are not backed by precious metals and whose values are
determined by their cost relative to other currencies. This system allows governments to freely and actively
manage their economies by increasing or decreasing the amount of money in circulation as they see fit.
Around this time, a new form of economic thinking was beginning to challenge the Keynesian
Orthodoxy, the concept that optimal economic performance could be achieved—and
economic slumps prevented—by influencing aggregate demand through activist stabilization and
economic intervention policies by the government. Economists argued that the government’s practice of
pouring money to their economies has caused inflation by increasing demand for goods without necessarily

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 6 of 12

increasing supply. More profoundly, they argued that government intervention in economies distort the
proper functioning of the market.
Economists used the economic turmoil to challenge the consensus around Keynes’s ideas. What
emerged was a new form of economic thinking that critics labelled as Neoliberalism. From 1980s onward,
neoliberalism become the codified strategy of United States Treasury Department, the World Bank, the
IMF, and eventually the World Trade Organization (WTO). The policies they forwarded came to be called
the Washington Consensus.
The Bretton Woods System

Beginning in 1944, the Bretton Woods system played a major role in shaping the global economy
in the post-war period. This column describes how although it was successful in bringing about exemplary
and stable economic performance in the 1950s and 1960s, familiar confidence and liquidity problems, as
well as inflationary pressure and central bankers’ responses to it, ensured that Bretton Woods was short-
lived. Nonetheless, legacies of the system, like the dollar standard, remain with us and will likely be with
us for some time to come. The compromise created an adjustable peg system based on the US dollar
convertible into gold at $35 per ounce along with capital controls. The compromise gave members
both exchange rate stability and the independence for their monetary authorities to maintain full
employment. The IMF, based on the principle of a credit union, whereby members could withdraw
more than their original gold quotas, was established to provide relief for temporary current
account shortfalls. It took close to 15 years to get the Bretton Woods system fully operating. As it
evolved into a gold dollar standard, the three big problems of the interwar gold exchange standard
re-emerged: adjustment, confidence, and liquidity problems.

The Washington Consensus

It is dominated global economic policies from 1980s until the early 2000s. Its advocates pushed for
minimal government spending to reduce government debt. They also called for the privatization of
government-controlled services like water, power, communications, and transport, believing that the free
market can produce the best results. Finally, they pressured governments, particularly in developing world,
to reduce tariffs and open up their economies, arguing that it is the quickest way to progress. Advocates of
the Washington Consensus conceded that, along the way, certain industries would be affected and die, but
they considered this “shocked therapy” necessary for long-term economic growth.
The appeal of neoliberalism was in its simplicity. Its advocates like US President Ronald Raegan
and British Prime Minister Margaret Thatcher justified their reduction in government spending by
comparing national economy to households. Thatcher, in particular, promoted an image of herself as a
mother, who reined in overspending to reduce the national debt. The problem with household analogy is
that governments are not households. For one, governments can print money, while households cannot.
Moreover, the constant taxation systems of governments provide them steady flow of income that allows
them to pay and refinance debts steadily.
Despite the initial success of neoliberal politicians like Thatcher and Raegan, the defects of
Washington Consensus became immediately palpable. A good early example is that of pot-communist
Russia. After Communism had collapsed in the 1990s, the IMF called for the immediate privatization of all
government industries from corrupts bureaucrats and pass them on to the more dynamic and independent
private investors. What happened, however, was that only individuals and groups who had accumulated
wealth under the previous communists’ order had the money to purchase these industries. In some cases,
economic elites relied on easy access to government funds to take over the industries. This practice has
entrenched an oligarchy that still dominates the Russian economy to this every day.

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 7 of 12

The Global Financial Crisis and the Challenge to Neoliberalism

Russia’s was just one example of how the “shock therapy” of neoliberalism did not lead to the ideal
outcomes predicted by the economists who believed in perfectly free markets. The greatest recent
repudiation of this thinking was the recent global financial crisis of 2008-2009. Neoliberalism came under
significant strain during the global financial crisis of 2007-2008 when the world experienced the economic
downturn since the Great Depression. The crisis can be traced back to the 1980s when the United States
systematically removed various banking and investment restrictions.
The scaling back of regulations continues until the 2000s, paving the way for a brewing crisis. In
their attempt to promote the free market government authorities failed to regulate bad investments occurring
in the US housing market. Taking advantage of “cheap housing loans,” American began building houses
that were beyond their financial capacities. To mitigate the risk of these loans, banks that were lending
house owners’ money pooled these mortgage payments and sold them as “mortgage-backed securities”
(MBSs). One MBS would be a combination of multiple mortgages that they assumed would pay a steady
rate. Since there was so much surplus money circulating, the demand for MBSs increased as investors
clamoured for more investment opportunities. In their haste to issue these loans, however, the banks became
less discriminating. They began extending loans to families and individuals with dubious credit records –
people who were unlikely to pay their loans back. These high-risk mortgages became known as sub-prime
mortgages.
Financial experts wrongly assumed that, even if many of the borrowers were individuals and
families who would struggle to pay, a majority would not default. Moreover, banks thought that since there
were so many mortgages in just one MBS, a few failures would not ruin the entirely of the investment.
Banks also assumed that housing prices would continue to increase. Therefore, even if homeowners
defaulted on their loans, these banks could simple reacquire the homes and sell them at a higher price,
turning a profit.
These series of interconnections allowed for a global multiplier effect that sent ripples around the
world. For example, Iceland’s banks heavily depended on foreign capital, so when the crisis hit them, they
failed to refinance their loans. As a result of this credit crunch, three of Iceland’s top commercial bank
defaulted. From 2007-2008, Iceland’s debt increased more than seven-fold. Until now, countries like Spain
and Greece are heavily indebted (almost like Third-world countries), and debt relief has come at a high
price. Greece in particular has been forced by Germany and IMF to cut back on its social and public
spending. Affecting services like pensions, healthcare and various forms of social security, these cuts have
been felt most acutely by the poor. Moreover, the reduction of government spending has slowed down
growth and ensures high level of employment.
The United States recovered relatively quickly thanks to a large Keynesian-style stimulus package
that President Barack Obama pushed for in his first months in office. The same cannot be said for many
other countries. In Europe, the continuing economic crisis has sparked a political upheaval. Recently, far-
right parties like Marine Le Pen’s Front National in France have risen in prominence by unfairly blaming
immigrants for their woes, claiming that they steal jobs and leech off welfare. These movements blend
popular resentment with utter hatred and racism.

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 8 of 12

Three Stages of Global Economic Recovery

It’s time to discard the notion that the
shape of a single alphabet—be it the letter “V,”
“U,” or “L”—can represent the profile of the
coming recovery. Instead, it might be more
instructive to think about what lies ahead as a
three-stage recovery, each with its own set of key
themes, bringing about different kinds of
opportunities and risks.

Economic Globalization Today

The global financial crisis will take decades to resolve. The solutions proposed by certain
nationalists and leftist groups of closing national economies to world trade, however, will no longer work.
The world has become too integrated. Whatever one’s opinion about the Washington Consensus is, it is
undeniable that some form of international trade remains essential for countries to develop in the
contemporary world.
Exports not just the local selling of goods and services, makes national economies grow at present.
In the past, those that benefited the most from free trade were the advanced nations that were producing
and selling industrial and agricultural goods. The United States, Japan, and the member countries of the
European Union were responsible for 65 percent of Global exports, while the developing countries only
accounted for 29 percent. With more countries opened their economies to take advantage of increase free
trade, the share of percentage began to change. By 2011, developing countries like the Philippines, India,
China, Argentina, and Brazil accounted for 51 percent of global exports while the share of advanced nation
including the United States, had down to 45 percent. And yet, economic globalization remains an uneven
process, with some countries, corporations, and individuals benefiting a lot more than others. The series of
talks under the WTO have to unprecedented reduction in tariffs and other trade barriers, but these processes
have often been unfair.
First, developed countries are often protectionists, as they repeatedly refuse to lift polices that
safeguard their primary products that could otherwise be overwhelmed by imports from the developing
world. The best example of this double standard is Japan’s determined refusal to allow rice imports into the
country to protect its farming sector. Japan’s justification is that rice is “sacred”. Ultimately, it is its
economic muscle as the third largest economy that allows it to resist pressures to open its agricultural sector.
The United States likewise fiercely protects its sugar industry, forcing consumers and sugar-dependent
businesses to pay higher prices instead of getting cheaper sugar plantations in of Central America.
Faced with these blatantly protectionist measures from powerful countries and blocs, poorer
countries can do little to make economic globalization more just. Trade imbalances, therefore, characterized
economic relations between developed and developing countries. Nevertheless, much of globalization is
anchored on changes in the economy. The globalization in politics is likewise largely contingent on trade
relations. These days, many events of foreign affairs are conducted to cement trading relations between and
among states.

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 9 of 12

APPLICATION
Global Economic Institutions
a. Research the origins and history of an international company or economic organization (ex. Asian
Development Bank, McDonald’s, etc.). Gather as much information as you can during the tour.
b. Map the international connections it has created.
c. Identify the major country-leaders of this institution.
d. Locate the Philippines in this map of the interconnections.
e. Write the summary of your researches on the box.

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 10 of 12

KEY POINTS

✓ International Monetary Fund (IMF) - is an organization of 189 countries, working to foster global
monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty around the world.
✓ Economic globalization as a historical process representing the result of human innovation and
technological progress. It is characterized by the increasing integration of economies around the
world through the movement of goods, services, and capital across borders.
✓ Protectionism means a policy of systematic government intervention in foreign trade with the
objective of encouraging domestic production.
✓ Trade Liberalization refers to the opening up of markets to foreign imports and entails the
abolishment or reduction by governments of tariff and nontariff barriers.
✓ Bretton Woods system played a major role in shaping the global economy in the post-war period.
This column describes how although it was successful in bringing about exemplary and stable
economic performance in the 1950s and 1960s, familiar confidence and liquidity problems, as
well as inflationary pressure and central bankers’ responses to it, ensured that Bretton Woods was
short-lived.

SELF-ASSESSMENT ACTIVITIES (SAA) ANSWER KEY

Coffee – Starbucks (sample only)

a. (three) 3 main ingredients or raw materials in manufacturing the chosen product and country
from which each ingredient or raw material came from.
Ingredients/Materials Country
Arabica Beans Ethiopia
Espresso Roast USA

Milk USA

LOOKING AHEAD

Congratulations for making it till the end of this module! If you aced the assessments, I am happy for you.
If you have not reached your desired level of competence, just keep going! Remember that an expert was
once a beginner. The next topic will be Market Integration. Happy learning!

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 11 of 12

REFERENCES

Aldama, K.R.A. (2018). Defining Globalization. The Contemporary World. Rex Bookstore.
Claudio L.E. & Abinales, P.N. (2018). What is Globalization. The Contemporary World. C&E
Publishing, Inc.
Bordo M., (2017). The Operation and Demise of Bretton Woods System. VOXeu CEPR.
https://voxeu.org/article/operation-and-demise-bretton-woods-system
Bresser-Pereira, L.C. (2010). The global financial crisis, neoclassical economics, and the neoliberal years
of capitalism. Revue de la régulation. https://journals.openedition.org/regulation/7729
Donald, F. (2020). The three stages of the global economic recovery. Manulife Investment Management.
https://www.manulifeim.com/institutional/global/en/viewpoints/market-outlook/three-stages-global-
economic-recovery
The IMF at a galance (2019). https://www.imf.org/en/About

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)
 Page 12 of 12

END OF MODULE ASSESEMENT

MODULE 2. The Global Economy

Name: ______________________________________________ Course & Year: ___________________

Address: ____________________________________________ Contact No. _____________________

Answer the following questions:

a. What is Economic Globalization?
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
b. How do you describe our modern world system of economics?
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
c. How do economic forces facilitate the deepening of globalization?
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

OSMEÑA COLLEGES
Module prepared by: R.R. L. Fernandez, LPT, MAEd (CAR)