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The Contemporary World Reviewer
The Contemporary World Reviewer
1. The rapid growing of information in all types In the 17th and 18th century global economy
of productive activities exists only in trade and exchange rather than
production as the world export to World GDP
2. Marketization (A restructuring process that did not reached 1 to 2 percent
enables state enterprises to operate as market-
oriented firms by changing the legal In the 19th century the advent of globalization
environment in whichthey operate and can be approaching its modern form is
achieved through reduction of state subsidies, witnessed. A short period before World War I is
organizational restructuring of management referred to as golden age of globalization
such as corporatization,decentralization, and characterized by relative peace, free trade,
privatization. financial and economic stability. Growth in
international exchange of goods accelerated in
Dimensions of Economic Globalization the second quarter of the 19th century. Global
economy in the 19th and 20th centuries grew
1. The globalization of trade of goods and by an average of nearly 4 percent per annum,
services which is roughly twice as high as growth in the
national incomes of the developed economies
2. The globalization of financial and capital since the late 19th century.
markets
International Monetary Systems and Gold
3. The globalization of technology and Standard
communication
International monetary system (IMS) - refers to
4. The globalization of production a system that forms rules and standards for
facilitating international trade among the
Difference between Economic nations. It helps in reallocating the capital and
Globalization from Internationalization: investment from one nation to another. It is the
global network of the government and financial
Economic globalization is a functional institutions that determine the exchange rate of
integration between internationally dispersed different currencies for international trade.
activities which means that it is a qualitative
transformation rather than a quantitative change Evolution of the International Monetary System
while internationalization is an extension of
economic activities between internationally Gold Standard (1870-1971) - with the help of
dispersed activities. gold and silver, trade was carried without any
institutional support. Monetary system during
Origin of Economic Globalization that time was decentralized while market
based and money played a minor role in
Economic globalization is a process that international trade in contrast to gold
creates an organic system of the world
economy.
Bretton Woods System (1971) – the aim of International trade- is the exchange of goods,
which is to create a stabilized international services and capital across national borders. It
currency system and ensure a monetary is a multi-million dollar activity, central to the
stability for all the nations. Gross Domestic Product (GDP) of many
countries, and it is the only way for many people
Flexible Exchage Rate Regime (Today) in many countries to acquire resources
European Monetary Integration Trade policies on the other hand refer to the
regulations and agreement of foreign countries.
European monetary integration refers to a 30- It defines standards, goals, rules, and
year long process that began at the end of the regulations that pertain to trade relation
1960s as a form of monetary cooperation between countries.
intended to reduce the excessive influence of
the US dollar on domestic exchange rates, and
led, through various attempts, to the creation of Focuses of Trade Policy in International Trade
a Monetary Union and a common currency. This
Union brings many benefits to Member States. Tariffs - These are taxes or duties paid for a
particular class of imports or exports. Imposing
The European Monetary System (EMS) - on the taxes on imported and exported goods is a right
other hand is a 1979 arrangement between of every country.
several European countries which links their
currencies in an attempt to stabilize the Trade barriers - Theses are measures that
exchange rate. This system was succeeded by governments or public authorities introduce to
the European Economic and Monetary Union make imported goods or services less
(EMU), an institution of the European Union competitive than locally produced goods
(EU), which established a common currency and services.
called the euro.
Safety - This ensures that imported products in
The European Monetary System originated in the country are of high quality. Inspection
an attempt to stabilize inflation and stop large regulations laid down by public officials ensure
exchange rate fluctuations between European the safety and quality standards of imported
countries. Then, in June 1998, the European products.
Central Bank was established and, in January
1999, a unified currency, the euro, was born Types of Trade Policies
and came to be used by most EU member
countries National Trade Policy - This safeguards the best
interest of its trade and citizen.
The European Financial Stability Mechanism
(EFSM) - is a permanent fund created by the Bilateral Trade Policy - To regulate the trade
European Union (EU) to provide emergency and business relations between two nations,
assistance to member states within the Union. this policy is formed. Under the trade
It raises money through the financial markets, agreement the national trade policies of both
and is guaranteed by the European the nations and their negotiations are
Commission. Fund raised through the markets, considered while bilateral trade policy is
use the budget of the European Union as being formulated.
collateral. The European Financial Stability
Facility (EFSF) on the other hand, is an International Trade Policy - This defines the
organization created by the European Union to international trade policy under their charter like
provide assistance to member states with the International economic organizations, such
unstable economies. as Organization for Economic Cooperation and
Development (OECD), World Trade Organization
International Trade and Trade Policies (WTO) and International Monetary Fund
(IMF).The best interests of both developed and
developing nations are upheld by the policies. Financial Market Integration - It is an open
market economy between countries facilitated
Trade Policy and International Economy - In by a common currency and the elimination of
most developed countries where open market technical, regulatory and tax differences to
economy prevails, the international economic encourage free flow of capital and investment
organizations support free trade policies. In the across borders. It occurs when lending rates in
case of developing nations partially-shielded several different markets begin to move in
trade practices are preferred to protect their tandem with one another.
local trade industries.
Global Corporation - is a business that operates
The World Trade Organization (WTO) - deals in two or more countries. It also goes by the
with the global rules of trade between nations name "multinational company" . Several
with the main function of ensuring that trade advantages are offered by global expansion of
flows smoothly, predictably and freely. It is the business over running a strictly domestic
only global international organization dealing company
with the rules of trade between nations with
WTO agreements, negotiated and signed by the Historical Periods of Global Corporation - An
bulk of the world’s trading nations and ratified approach to the study of globalization that
in their parliaments at its heart. locates the phenomenon itself in early patterns
of trade and exchange is known as historical
Global Economy Outsourcing - Outsourcing is globalization.
an activity that requires search for a partner and
relation-specific investments that are governed The Finance Function in a Global Corporation -
by incomplete contracts and the extent of As corporations go global, capital markets open
international outsourcing depends on the up within them, giving companies a powerful
thickness of the domestic and foreign market mechanism for arbitrage across national
for input suppliers, the relative cost of searching financial markets. Chief financial officers (CFOs)
in each market, the relative cost of customizing must balance the opportunities with the
inputs and the nature of the contracting challenges of operating in multiple
environment in each country. environments in managing their internal
markets in building an advantage.
MARKET INTEGRATION
These three functions can be created by CFOs
Market integration - refers to how easily two or through exploiting their
more markets can trade with eachother. It internal capital markets:
occurs when prices among different locations or
related goods follow similarpatterns over a long 1. Financing - A group’s tax bill can be reduced
period of time. by the CFO like borrowing in countries
with high tax rates and lending to operations in
Types of Related Markets where Market countries with lower rates.
Integration Occurs: 2. Risk Management - Global firms can offset
natural currency exposures through worldwide
Stock Market Integration - This is a condition in operations instead of managing currency
which stock markets in different countries trend exposures through financial markets.
together and depict same expected risk 3. Capital budgeting - Getting smarter on
adjusted returns. Two markets are perfectly valuing investment opportunities CFOs can add
integrated if investors can pass from one value.
market to another without paying any extra
costs and if there are possibilities of arbitration Foreign Direct Investment Foreign Direct
which ensures the equivalence of stock prices Investment (FDI) - was of corporate origin. It is
on both markets.
a major driver of extended global corporate century, the accompanying rise in transnational
development. enterprises, and the resulting disparities
between easy flows of money and commodities
BRICS Economies - Brazil, Russia, India, across international boarders and the legal
China and South Africa (BRICS) - is an acronym barriers and logistical hurdles that keep most
for the combined economies of Brazil, Russia, workers tied to their home communities are
India, China and South Africa. BRIC, without associated with globalization. The belief that
South Africa, was originally coined in 2003 by globalization imposes a forced choice upon
Goldman Sachs, which speculates that by 2050 states either to conform to free market
these four economies will be the most principles or run the risk of being left behind is
dominant. South Africa was added to the termed into a phrase called “Golden
list on April 13, 2011 creating "BRICS Straitjacket” by Thomas Friedman, a
neoliberalism journalist and advocate, to
General Agreement on Trade in Services illustrate the forcing of states into policies that
(GATS) - is the first multilateral agreement suit the preferences of nvestment houses and
covering trade in services which was negotiated corporate executives (Electronic Herd) who
during the last round of multilateral trade swiftly move money and resources into
negotiations, called the Uruguay Round, and countries favored as adaptable to the demands
came into force in 1995. of international business and withdraw even
more rapidly from countries deemed
General Agreement on Tariffs and Trade - uncompetitive.
(GATT) that deals with trade in goods. The two
primary objectives of GATTS are to ensure that Further, countries are compared to individual
all signatories are treated equitably when stocks where the states and their
accessing foreign markets; and second, to government are rewarded and punished similar
promote progressive liberalization of trade and to buying and selling shares of individual
services. companies. States also have lost an important
element of economic sovereignty and that neo-
liberalism is beyond contestation. There are two
Globalization and the Nation- States - things that will happen if a country is in Golden
Globalization in the early years of the 21st Straitjacket: the economy grows and politics
century has not displaced the state. Max Weber, shrinks. It is a straitjacket because it narrows
a German social theorist define state as a the political and economic policy choices of
compulsory political organization with a those in power to relatively tight parameters.
centralized government that maintains a This is the reason of the difficulty of finding any
monopoly of the legitimate use of force within a real differences today between ruling and
certain territory. Hedley Bull, a 20th century opposition parties in those countries that have
international philosopher stated that states are put on the Golden Staitjacket
independent political communities each of
which possesses a government and asserts Neoliberalism - is the intensification of the
sovereignty in relation to a particular portion of influence and dominance of capital. It is the
the earth’s surface and a particular segment of elevation of capitalism as a mode of production
the human population. This means that into an ethic, a set of political imperatives, and
government and constitutions come and go but a cultural logic. It is a project to strengthen,
states readily endure. restore, or, in some cases, constitute anew the
power of economic elites. It values market
Nation on the other hand is an imagined political exchange as an ethic in itself capable of acting
community and imagined as both inherently as a guide to all human action and substituting
limited and sovereign for all previous held ethical beliefs. It
The State and the Economic Interdependence emphasizes the significance of contractual
- The rising momentum of global free-market relations in the marketplace.
capitalism in the final decades of the 20th
Economic sovereignty - on the other hand is the elimination of trade barriers, and the
power or national governments to make coordination of monetary and fiscal policies.
decisions independently of those made by other
governments. Seven Stages of Economic Integration
1. Preferential trading area (PTA)
There are four different concepts of 2. Free trade area
sovereignty: 3. Customs union
4. Common market
International Legal Sovereignty - It refers to 5. Economic union
the acceptance of a given state as a member of 6. Eonomic and monetary union
the international community. 7. Complete economic integration