GE 3 (The Contemporary World)

THE GLOBAL ECONOMY

Global Economy -is the study of the behavior and decisions of entire economies.
Macroeconomics -the study of the behavior and decisions of entire economies.
Globalization -a modern term used to describe the changes in societies and the world economy that result from
dramatically increased international trade and cultural exchange.

WHY DO NATIONS TRADE?

Two basic reasons, each of which contributes to their gain from trade.
First, countries trade because they are different from each other.
-Nations, like individuals, can benefit from their differences by reaching an arrangement in which each does the
things it does relatively well.
Second, countries trade to achieve economies of scale in production.
-That is, if each country produces only a limited range of goods, it can produce each of these goods at a larger scale
and hence more efficiently than if it tried to produce everything.

~Paul Krugman, International Economics

“In the real world, patterns of international trade reflect the interaction of both these motives.”

Trade Barriers -restricting a foreign product's access to a country's borders.

Types of Trade Barriers
Import Quota Voluntary Export Restraint Tariff Informal Barriers Government Licensing Government Health and
Restrictions Safety Requirements
Effects of Trade Barriers - trade obstacles have the effect of reducing supply and has two predictable effects:
-Increased cost of imported goods -Wars in trade

 Protectionism -the use of trade barriers to protect industries from foreign competition.
Positives effects -Protect jobs, Protect infant industries, Enhance national security
Negatives effects -Limits LDC’s ability to compete on a global scale, Reduces global living standard, Limits attempts
for international peace

 INTERNATIONAL AGREEMENTS
World Trade Organization (1995)~ The only international organization dealing with the global rules of trade
between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
European Union (1951/1999)~ A regional economic agreement among 27 countries across the European
continent.
NAFTA- North American Free Trade Agreement (1994)~ This agreement removed most barriers to trade and
investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural
trade between the United States and Mexico were eliminated. The agreement was phased in from and has
increased trade by over 200% since it was enacted.

ISSUES IN DEVELOPMENT
Rapid population growth
There are many more births than deaths.
Population…continued
Why are there more babies being born? Children may be needed to help earn money, Lack of contraceptive devices
may lead to unwanted pregnancies and babies. The local or national culture or government may encourage large
families, Parents may be fearful of infant mortality (children dying very young). Better medical facilities could be
increasing the lives of mothers and therefore increasing their chances of having larger families. Why are there
fewer deaths now? Better birthing facilities, More widely available medicines and medical expertise. A general
improvement in diet and nutrition in many countries
Resource Distribution
The physical terrain of several regions in Africa, Asia, and Latin America makes development more challenging. In
the world, just 10% of the land is arable, or ideal for growing crops.
Lack of Physical Capital
The lack of economic activity typical of LDCs is due in part to a lack of physical capital. Subsistence agriculture
provides little opportunity for individuals or families to save.
Lack of Human Capital Health and Nutrition
Proper food and nutrition are necessary for physical and mental growth and development. Inadequate nutrition is
called malnutrition. Education and Training To be able to use technology and move beyond mere subsistence, a
nation must have an educated work force. Brain Drain. The scientists, engineers, teachers, and entrepreneurs of
LDCs are often enticed to the benefits of living in a developed nation. The loss of educated citizens to the
developed world is called “brain drain.”
Political Instability
Political instability plagues less developed nations with civil wars and social unrest acting to prevent the necessary
social stability required for sustained development.
Corruption
~ Peter Eigen
“Corruption is a major cause of poverty as well as a barrier to overcoming it. The two scourges feed off each other,
locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real
difference in freeing people from poverty.”
~ David Nussbaum
“Corruption isn’t a natural disaster: it is the cold, calculated theft of opportunity from the men, women and
children who are least able to protect themselves. Leaders must go beyond lip service and make good on their
promises to provide the commitment and resources to improve governance, transparency and accountability.”

World Bank
The World Bank is a vital source of financial and technical assistance to developing countries around the world.
Their mission is to fight poverty with passion and professionalism for lasting results and to help people help
themselves. It is not a bank in the common sense; it is made up of 186 member countries. They provide low-
interest loans, interest-free credits and grants to developing countries. The World Bank, established in 1944, is
headquartered in Washington, D.C.
The three pillars of the World Bank:
•Results
•Reform
•Resources

International Monetary Fund

Started in 1944 at the Bretton Woods Conference. The IMF is an organization of 186 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. Creates structural adjustment programs
(SAP) in less developed nations across the globe.

World Trade Organization

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade
between nations. Established on January 1, 1995 and is headquartered Geneva, Switzerland.
It is made up of 153 countries Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations 
◦ Globalization- is the word used to describe the growing interdependence of the world's economies,
cultures, and populations, brought about by cross-border trade in goods and services, technology, and
flows of investment, people, and information.
◦ Expansion- refers both to the creation of new social networks and to the proliferation of established ties
across conventional political, economic, cultural, and geographical boundaries (Steger, 2013)
◦ Intensification- specifies the expansion, extension, and acceleration of social networks (Steger, 2013)
◦ Globalism- a widespread belief among the powerful people that global economic market integration
benefits everyone, as it spreads freedom and democracy throughout the world (Steger, 2005)
◦ Regionalization- the process of dividing an area into smaller segments called regions
 ◦ Globalization- is the word used to describe the growing interdependence of the world's economies,
cultures, and populations, brought about by cross-border trade in goods and services, technology, and
flows of investment, people, and information.

◦ Expansion- refers both to the creation of new social networks and to the proliferation of established ties
across conventional political, economic, cultural, and geographical boundaries (Steger, 2013)

◦ Intensification- specifies the expansion, extension, and acceleration of social networks (Steger, 2013)

◦ Globalism- a widespread belief among the powerful people that global economic market integration
benefits everyone, as it spreads freedom and democracy throughout the world (Steger, 2005)

◦ Regionalization- the process of dividing an area into smaller segments called regions

INTRODUCTION TO GLOBALIZATION
The term "globalization" has become popular in modern politics. There are numerous advantages and
disadvantages of interdependence. What exactly does globalization include, and when did it start?
What is Globalization?
People realized they needed a term to capture the overwhelming quantity of changes taking place around
them in the final decades of the 20th century. The companies for which people worked were making more
purchases and sales abroad. Representatives from many diverse cultures were increasingly coming together in
international organizations. As technology facilitated faster travel and communication, ideas were being shared
quickly. These networks were expanding and taking up more space, but they were also becoming busier and more
active. It was now more quicker than ever before to communicate and receive information or go to distant
locations. Even stranger relationships than those with their own neighbors were sometimes observed, according to
some observers. How is it possible to describe all of these changes? You came close if you said "a hot mess," but
experts and media ultimately decided on globalization.
Globalization is a broad phrase that describes how the globe has become more interconnected over time on
an economic, political, social, and cultural level. In this broad sense, its origins can be traced back to the period of
agrarian societies, when empires built and trade networks developed. After the Columbian Exchange, these
linkages really intensified and extended to every corner of the globe. The lives of people everywhere changed
when people, plants, goods, diseases, and ideas were spread across all world zones. This was mostly positive in
several areas. For instance, life expectancy improved when more caloric food was introduced. The impacts, known
as the dependence cycle, were more detrimental in other areas, such as slavery and the exploitation of the land
and resources for profit elsewhere.
After the Industrial Revolution, the world became even more interconnected, and some scholars say that
globalization really began in this period. In this sense, globalization is about people around the world becoming so
connected that local life is shaped by what is happening in other parts of the world. This challenges our definition
of community in some ways. Through the Industrial Revolution, local-global connections like this began to be
established. Advances in communication and transportation allowed for more travel and idea sharing (collective
learning). Other parts of the world were ruled by imperialist powers. When you take into account enslavement, the
erasure of indigenous cultures, and the depletion of resources, the legacy of this colonization was undoubtedly
detrimental in many ways. However, there were other repercussions that people choose to view positively, such as
the development of new technologies like railways and telegraph lines that allowed for greater global connectivity
of people and ideas.
World War II further widened our interconnectedness. In reality, these significant wars demonstrated to
the world the benefits and drawbacks of collaboration across international networks. With World War I, its deadlier
aftermath, and the Great Depression, there was a global catastrophe. The Nazi regime was overthrown, for
example, thanks to international cooperation. Numerous international organizations were established following
World War II to aid in establishing world peace, stability, and economic success. You will learn more about
international organizations later in this class, including the United Nations, NATO, the World Bank, and the
International Monetary Fund.
WHAT IS MARKET INTEGRATION?
• Market integration has a number of positive societal effects, including enhancing competition in the financial
services industry and expanding the range of investment choices and financial services available to consumers.
•Market integration is a word that is used to describe a process in which marketplaces for goods and services that
are connected in some way begin to exhibit comparable patterns of price growth or decline.
•The phrase can also be used to describe a circumstance in which the costs of comparable goods and services
offered in a specific area start to move in a pattern that is similar to one another. The integration may occasionally
be done on purpose, as a result of a government putting in place certain policies to influence the course of the
economy. Other times, market integration may be the result of factors like changes in supply and demand that
have an impact across multiple markets.

Markets are important determinants of food availability and food access. The extent to which markets make food
available and keep prices stable depends on whether markets are integrated with each other. Integrated markets
can be defined as markets in which prices for comparable goods do not behave independently. If markets are well
integrated, it can be assumed that market forces are working properly, meaning that price changes in one location
are consistently related to price changes in other locations and market agents are able to interact between
different markets. If markets are integrated, food will flow from surplus to deficit areas - and imports will flow from
port and border areas into the hinterland. High prices in deficit areas provide the incentive to traders to bring food
from surplus to deficit areas, making food available. As a result of these flows, prices should decline in deficit areas,
making food more accessible to households.

When markets are integrated, food flows among regions and prices fluctuate less, enhancing food security.
Knowledge about market integration is, therefore, essential for programming. The degree of market integration
will inform the analysis of food security, appropriate responses to a crisis, the extent of possible negative effects of
food aid and local procurement possibilities.
Here are some examples:
-Where markets are poorly integrated - and prices more volatile - vulnerable households will experience more
often high prices;
-Regarding response options, cash transfers can be a response option if markets are integrated, food is available
and prices are relatively stable;
-Local procurement is also highly dependent on market integration. WFP might be able to procure locally with no
detrimental effects on the market if food flows from other regions1 ; and
-In case of an emergency, the degree of market integration affects the estimates for the required amount of food
aid because traders might be able to meet part of the food needs of the disaster-affected people.

TYPES of MARKET INTEGRATION

There are three basic kinds of market integration:
1. Horizontal integration
2. Vertical integration
3. Conglomeration

Horizontal integration
•This happens when a company or agency seizes control over other companies or agencies carrying out
comparable marketing tasks at the same level in the marketing hierarchy.
•In this type of integration, some marketing agencies combine to form a union with a view to reducing their
effective number and the extent of actual competition in the market.
•It is advantageous for the members who join the group.

Examples of establishments in Horizontal Integration

-Facebook and Instagram
One of the most definitive examples of horizontal integration was the acquisition of Instagram by Facebook (now
Meta) in 2012 for a reported $1 billion. Both companies operated in the same industry (social media) and shared
similar production stages in their photo-sharing services.
-Disney-Pixar
Another notable example of a horizontal integration was Walt Disney Company's $7.4 billion acquisition of Pixar
Animation Studios in 2006.3 Disney began as an animation studio that targeted families and children. However, the
entertainment giant was facing market saturation with its current operations along with creative stagnation.
Advantages of Horizontal integration Disadvantages of Horizontal integration

VERTICAL INTEGRATION
Vertical integration is a tactic that enables a business to streamline operations by directly controlling different
stages of the manufacturing process as opposed to depending on suppliers or contractors from outside the
organization. When a business tries to expand across the supply chain or production process, vertical integration
happens. A corporation engages in vertical integration to become more self-reliant on other components of the
process rather than clinging to a specific point along the process. For instance, a manufacturing company might
want to obtain its own raw materials or sell to customers directly.

CONGLOMERATION
A conglomerate merger is a union of companies engaged in completely unrelated
commercial endeavors. These mergers usually take place between businesses from different
industry or from various places.
Conglomerate mergers can be either pure or mixed. While mixed conglomerate mergers
involve companies searching for product or market extensions, pure conglomerate mergers
involve companies with no shared interest.
Measurement of market integration
The measurement or assessment of the extent of market
integration is helpful in the formation of appropriate
policies for increasing the efficiency of marketing process.
The measurement or assessment of market integration
may be attempted at two levels.
1.) Integration among firms of a market.
2.) Integration among spatially separated markets.

REASONS FOR MARKET INTEGRATION

•To remove transaction costs
•Foster competition
•Provide better signals for optimal generation and consumption decisions
•Improve security of supply

DEGREE OF INTEGRATION
Ownership integration
This occurs when all the decisions and assets of a firm are completely assumed by another firm.
Example: a processing firm which buys a wholesale firm

Contract integration
This involves an agreement between two firms on certain decisions, while each firm retains its separate identity.
Example: tie up of a dhal mill with pulse traders for supply of pulse grains
 THE GLOBAL INTERSATE SYSTEM

What is global interstate system?

► It is the entire system of interpersonal relationships. The political framework of the contemporary world-system
is that of an interstate system, or a system of rival and cooperating states. The primary focus of the discipline of
International Relations is what political scientists generally refer to as the "international system.”

► The term "interstate system" is used in world-systems theory to refer to the network of interstate links that
emerged during the "long" 16th century, either concurrently with or as a result of the growth of the capitalist
world-system. According to the theory of the interstate system, each state is characterized by how it interacts with
other states or how it participates in the global economy. Divisions between states also contribute to the
segmentation of the world into a core, periphery, and semi-periphery.

► peripheral: Peripheral countries are dependent on core countries for capital and have underdeveloped industry.
► core: Describes dominant capitalist countries which exploit the peripheral countries for labor and raw materials.
► semi-peripheral: Countries that share characteristics of both core and periphery countries.

The importance of Global Interstate System in the following aspects:

► Political
-A harmonious, peaceful, and ordered world results from having a worldwide interstate system.
-It also makes it possible for disagreements between nations that are part of the same system to be settled more
quickly.
-Having a system like this also allows access to new technology, which can help the country develop into a modern
society.
-It not only strengthens international ties, but it also helps in aiding countries with their health sector issues.
-A good example of this is the Visiting Forces Agreement between the United States of America and the Philippines.

► Economic
-A global interstate system makes receiving financial aid easier. As an illustration, during the epidemic, our nation
had to borrow money from the World Bank to meet its demands, including providing financial relief to its citizens
(Ayuda).
-Another illustration of this is how, when vaccines first became available, we were able to acquire vaccines from
other nations that donated to us, including China, Japan, and many more.
-A further benefit of having a global interstate system is that when a country is engaging in inhumane or
wrongdoing, countries who are in agreement with the said country can impose sanctions on the country, which
although will hurt the economies of the other countries as well, could help. This is because agreements and policies
between countries make trade easier and less expensive.

STRENGTHS
► It will make travel less cheaper, faster and better.
WEAKNESSES
► Imposed long-term costs on the country
► Cut down on competition between shippers and passenger carriers.
► Rising consumption of gasoline led to air pollution and a dependence on oil that affected consumers and foreign
policy for generations to come.

INSTITUTIONS
Institution that govern international Relations
► UNITED NATION
United States President FRANKLIN ROOSEVELT coined the name united nations that was used in the declaration of
United Nation on 1 of January 1942. UN means allies to fight against the Axis Powers in the Second World War II.
Only 26 nation’s representatives pledge their governments to:
1. Each Government pledges itself to employ its full resources, military or economic, against those members of the
tripartite pact and its adherents with which such government is at war.
2. Each Government pledges itself to cooperate with the Governments signatory hereto and not to make a
separate armistice or peace with the enemies.

International Financial Institutions

► World Bank ► International Monetary Fund
► Asian Development Bank
► World Trade Organization
FREE TRADE
TRADE AGREEMENT
- Trade agreements are when two or more nations agree on the terms of trade between them. They determine the
tariffs and duties that countries impose on imports and exports. All trade agreements affect international trade.
IMPORTS
- Are goods and services produced in a foreign country and bought by domestic residents. That includes anything
shipped into the country even if it's by the foreign subsidiary of a domestic firm. If the consumer is inside the
country's boundaries and the provider is outside, then the good or service is an import.
EXPORTS
Exports are goods and services that are made in a country and sold outside its borders. That includes anything
shipped from a domestic company to its foreign affiliate or branch.

3 TYPES OF TRADE AGREEMENT

► UNILATERAL
It occurs when a country imposes trade restrictions and no other country
reciprocates.
A country can also unilaterally loosen trade restrictions, but that rarely happens.
75% 35% 10%
► BILATERAL
are between two countries. Both countries agree to loosen trade restrictions to expand business opportunities
between them. They lower tariffs and confer preferred trade status with each other.
► MULTILATERAL
are the most difficult to negotiate. These are among three countries or more. The greater the number of
participants, the more difficult the negotiations are. They are also more complex than bilateral agreements. Each
country has its own needs and requests.