Commission on Higher Education

Polangui Community College

Polangui, Albay

MODULE 3

GE 3
The Contemporary World

JOELP.P.CAMORAL
CAMORAL
JOEL
Instructor
Instructor
 THE GLOBAL ECONOMY

INTRODUCTION

This module will introduce you to the concept of economic globalization and the important actors that
facilitate the interdependence of world economies.

LEARNING OUTCOMES

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

1. Difine economic globalization
2. Analyze the actors that facilitate economic globalization, and
3. Articulate a stance on global economic integration.

How did you find the 2nd module?

I hope you learned something and find it easy
This time we shall go deeper on the definition of globalization
But before we go on with the discussion Let’s have first define the following term that may be mentioned
in the discussion

KEY CONCEPTS

Economic Globalization refers to the expanding interdependence of world economies.

Bretton Wood System-refers to the international monetary arrangement, agreed upon by the allied nations in 1944
in Bretton Woods, USA that created the IMF and World Bank and that set up a system of fixed exchange rates with
the US dollar as the international rescue currency.

IMF (Intenational Monetary Fund)- an international organization consisting of 189 countries working together to
foster global monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth and reduce poverty.

WTO (World Trade Organization)- an intergovernmental organization that regulates trade.

World Bank- an international financial institution that provides loans to countries of the world for capital projects.
It comprises 2 institutions; the International Bank for reconstruction and Development and the International
Development Association (IDA)

Steger’s (2014) definition of globalization as the expansion and intensification of social relations and conciousness
across world time and space implies that there are various forms of connectivity. Globalization is a multidimentional
phenomenon, creating economic, political, cultural, and even technological forms of connectivity. This section
focuses on the economic dimension.
Economic Globalization refers to the expanding interdependence of world economies. Sahngquan (2000) attributes
ths to the growing scale of cross-border trade commodities and services, flow of international capital, and wide and
rapid spread of technology. In the Philippines, cross-border trading can be best illustrated by the country’s trading
partnership with China, The United States, and Australia. Moreover, the flow of international capital can be observed
in foreign direct investments (FDI), a type of investment in which a company establishes a business in another
country for production of goods or services and still takes part in the management of that business. A good example
of this is Toyota Motor Philippines Corporation which is a subsidiary of Toyota Motor Corporation based in Toyota,
Japan. This flow of international capital can also be observed in foreign portfolio investments, trade flows, external
assistance and external commercial borrowings, and private loan flows.

In 2008, the International Monetary Fund (IMF) defined economic globalization as a historical process, the result of
human innovation and technological progress. “It refers to the increasing integration of economies around the
world, particularly through the movement of goods, services, and capital across borders” (IMF,2008). Economic
globalization can be traced from the time when there was economic movement in Asia, Africa, and Europe through
the Silk Roard, a network of trade routes that connected the East, partisularly China and the West. Historically, these
routes also led to the discovery of the Philippine island when Portuguese and Spanish envoys were in serach, which
then spawned colonization. In the contemporary period, foreign expartriates come to the country to manage their
company’s foreign subsidiaries. Likewise, the Philippines sends thousands of skilled workers to the Middle East as
construction workers, seaferers, and nurses.

Benczes (2014) identifies four interconnected dimensions of economy, namely: (1) globalization of trade of goods
and services; (2) globalization of financial and capital markets; (3) globalization of technology and communication;
and (4) globalization of production. The first dimension of economic interconectiveness is demonstrated in the
establishment of the World Trade Organization (WTO) that eases trade among countries. WTO, established in 1995,
“ensure that trade flow as smoothly, predictably, and freely as possible” (WTO,2012). Another indicator is the
emergence of China as a major supllier and exporter of manufactured goods that has affected the world economy.
China-made products or parts are sent to the United States. Too meet this demand, China creates more jobs for its
citizens. Another good example of economic globalization of trade and service skills are the common reasons. The
second dimension is evident in the liberalization of financial and capital markets. This is seen in crosss- listing of
shares on one or more foreign stock exchange, cross-hedging and diversification of portfolio, and round the clock
trading worldwide (National Research Council, 1995). The third dimension emphasizes that various transactions and
iteractivities that transpire instantly due to the internet and communication technology. Moreover, the fourth
dimension is best illustrated by the existence of multinational corporations ( MNCs) and transnational corporations
(TNCs). The Coca-Cola Company is an example of an MNC. Based in Atlanta, georgia, USA, the company only
manufacture syrup concentrates and sells them to various botllers that hold exclusive territories in different
countries including the Philippines. Toyota Motor Corporation is also an MNC. Through its subsidiaries in Japan and
in the other parts of the world, it has been selling millions of vehicles every year since 1998.

The most fitting definition of economic globalization is thatof Szentes’ (2003): the process of making the world
economy an organic system by extending transnational economic processes and relations to more and more
countries and by deepening the economic interdependencies among them. “This implies that the world economy is
no longer controlled by the nation-states, but must be seen from a global context- the reliance and integration of
world economies. To illustrate, the price movements of imported fuels in the Philippines are affected not only by
the national Tax Reform for Acceleration and Inclusion’s (TRAIN Law) excise tax on fuels, but also affected by the
global market and the international economy’s interest rates like the European Union (EU) and the United States
Federal Gvernment’s interest rates. It cannot be discounted that global corporations directly affect the inflow of US
dollars in the Philippines.

After recognizing the definition of economic globalization, it is important to discuss the different agents that bring
about the interdependencies of global economies. There are different views on who or what the actors are that
facilitates economic globalization. On one hand, some scholars believe that it is still the nations-stae but different
leevls. Boyer and Drache (1996) state that the role of nation-states as manager of the national economy is being
redefined by globalization. Although such is the case, nation-states still acts as buffer to negative effects of
globalization. In support, Brodie (1996) cals the government as the “midwives” of globalization. It means that nation-
states are still relevant despite assuming a global perspective and acts as mediators between the effects of
globalization and the national economy. Government policies and regulations either permit or deny the smooth
connection among world economies. In the looming trade war between China and the United States, each
government imposes high tariffs on goods and services. Thus this trade war does not only affect their economies but
also the rest of the world. On the other hand, some experts claim that the actors are now the global corporations.
Ohmae (1995) argues that the nation-states has ceased to exist as primary economic organization unit in the global
market. Filipino consumers, for instance, prefer to consume and avail global products and services like H & M, Uniqlo,
Accenture, Amazon, Alibaba,and FedEx. As a result of transforming the national economy into a global one, Reich
(1999) posits that national products, technologies, corporations, and industries become obsolete. San Miguel
Corporation and JollibeeFoods Corporation are good illustrations of this effect. These two Filipino companies have
expanded outside their home contry as they are present in Europe, US, and the rest of Asia. According to Gereffi
(2005), such TNCs are the main driving force of economic globalization accounting for two-thirds of the world
exports. Forbes list down from 63 countries that together account for $35 trillion in revenue, $2.4 trillion in profit, $
162 trilion of assets and have a combined markets value of $44 trillion (Schaefer, 2016)

An international structure for money, power, and interest was created in order to set a system in the financial and
economic relations in the modern day. The establishment of an international monetary system refers to
ineternationally agreed rules, conventions, and institutions for facilitating international trade, investments and flow
of capital among nation-states. Historically, there ae three global IMS- gold standard the Bretton Woods System,
and the European Monetary System (EMS). The gold standard functions as a fixed exchange rate regime, with gold
as the only international reserve and participating countries determine the gold content of national currencies
(Benczes,2014). In the Bretton Wood Systems, the US dollar was the only convertible currency. Thus, it was agreed
by 44 countries to adopt the gold exchange standard. Also, two financial institutions were established: the
International Bank for Reconstruction and Development (IBRD). And the IMF. The former, now known as the World
Bank, is responsible for post-war reconstructions. The latter aims to promote international financial cooperation and
strengthen international trade. Another form integration is the establishment the EMS. It came about after the
collapse of the Bretton Wood System. EMS was successful in the stablization process of exchange rates. It then,
prompted the foundation of a new European Economic and Monetary Union. (EMU). National currencies wer
abandoned and mamber states delegated monetary policy onto a supranational level administered by the European
central Bank (European Commission, 2008). The development of international trade and trade policy is also a form
of such economic integration. Trade patterns must not be stagnant. Flow of goods must be vonluntary but restricting
it might affect the relationship between and among states.

With the nation-states, global corporations, and international monetary system as actors of economic globalization,
the world is now confronted with a number of ongoing debates as to whether economic globalization unites or
divides the wolrd. Benczes 92014) believes that economic globalization foster universal economic growth and
development. For one, globalization allows a worldwide distribution of incomes. Australia, for instance, cannot
provide all the raw materials they need for certai products or services, so it needs other nation-states to produce or
provide these materials. Also, economic globalizationreduces poverty (WorldBank, 2001). As foreign countries are
in need of workforce and human capital. Filipino nurses become overseas workers; they go to Europe and other
foreign countries to support their families in the Philippines. Lastly, globalization creates mutual dependence
between developing and developed countries (Arrighi,2005). Some developing countries rely on developed
countries for employment and income while the latter relies on the former for raw materials and services like labor.

On the other hand, some observers of economic globalization believe that it divides the world further. First, one
might observe that the sources of gooods and services are exploited. Since, these economically poor nation-states
depend on indutrialized countries for employment and income, these inductrialized contries compensate their labor
from natural resources of poor nation-states as another form of explitation. Some even destroy nature without doing
anything to rehabilitate it. Second, economic globalization does not benefit all nations (World Bank, 2002). There is
an uneven experience among natios. Workers in TNCs are paid less compared to their counterparts in the companies’
home countries. This shows how cheap labor is in the Philippines. Third, Wallerstien (2005) claimsthat capitalism
created the different levels of wages in the economic arena of world systems. It further divides the world for it leads
to inequality according to expertise, experience, and skills.

In conclusion, economic globalization affects all nations and citizens through the increasing integration of economies
around the borderless world. Its important players are the nation-states, global corporations, and the international
monetary systems. Though some people believe that economic globalization brings unity of all economic
movements, others believe that globalization futhers the separation among nation-states around the world.

ACTIVITY: The influences of Economic Globalization

Instructions: Dress the human outline with the apparel and accessories that you are currently
wearing. Draw at least 10 items and label them. Then, write your own definition of Economic
Globalization.

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ACTIVITY: Economic Globalization: Unity or Division?

1. Discuss whether economic globalization is something that unites or furtehr divides the world.
2. What is your position on Global economic Integration.
 ACTIVITY: Metacognitive Reading Report

Instructions: Read the referenced articleand complete the statements that follow.

https://www.researchgate.net/publication/311785267_Integration_Processes_in_the_Global_Economy
_Current_State_and_Prospects_the_Cases_of_the_European_Union_ASEAN_Economic_Community_an
d_NAFTA

Witkowska, J. (2016). Integration process in the global economy: Current state and prospects: The Cases
of the European Union, ASEAN economic community, and NAFTA. Comprehensive Economic Research,
19 (4), 47-65.

1. The three things that I significantly learned from the readings are….
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2. The three things that are still unclear to are…
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3. The Three questions that I want to ask about the readings are…
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LET’S EVALUATE
Direction: Write agree if you think the statement is correct; otherwise write disagree.

1. Economic globalization includes borderless exchange of goods and services.

2. Mc Donalds is a transnational Corporation.
3. Uniliver is a multinational corporation
4. Economic globalization can refer to the increasing integration of economies around the
wolrd.
 ASSIGNMENT

1. Define Market integration, Capitalism,& Socialism

2. Deffirentiate World Bank to International Monetary Fund, Asian Development Bank to
African Development Bank.