LESSON 2: THE GLOBAL ECONOMY

The Global economy alludes to different financial exercises among various

nations with either negative or beneficial outcomes. The idea of a world economy is
identified with regular day to day existence dependent on the interconnected idea of the
different countries around the world. Exchange interrelations are noteworthy pointers of
the worldwide economy. Thus, the growth of globalization of the world's economies to
a great extent is dependent on the advancement of science and technology.
Notwithstanding the drawbacks, globalization is still changing the world. Socially, it has
encouraged the trading of thoughts and societies, adding to a world view wherein
individuals are progressively open and lenient of each other.

OBJECTIVES:

At the end of this lesson you are expected to:

1. Define economic globalization;

2. Reflect on the various theories and perspectives explaining the practice of
international trade;
3. Collect information about a foreign product being sold in the Philippines.

HELPFUL POINTS

• Economic Globalization
The International Monetary Fund (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.
According to the United Nations (as cited by Shangquan, 2000), 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. 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.

• International Trade
The conclusion of World War ll signaled the beginning of trade facilitation around
the globe. Economies set rules and guidelines for international trade which led to the
formation of General Agreement on Tariffs and Trade (GATT). These trade rules were
developed through series of rounds or meetings of member ‘economies.
 International Trade (IT) is the process and system when goods, commodities,
services cross national economy, and boundaries in exchange for money or goods of
another country (Balaam and Veseth, 2008). Global trade has grown dramatically since
the post-cold war era as a result of increasing demand of goods and services of
countries. This global norm is a reflection of growing practice of internationalizing and
globalizing local products and services.

Trade Theories
There are two types of trade theories explaining international trade.
• ∙ Descriptive Theory. It deals with the natural order and movement of trade. it
describes the pattern of trade under the idea of laissez faire, a French term which
means "leave alone". It refers to the notion that individuals are the best economic
agents to solve the problems through invisible hand rather than the government
‘policies. Descriptive theory addresses the questions of which product to trade,
how much product to offer and produce, and which country to trade in the absence
of government restrictions. ∙
• Prescriptive Theory. This prescribes whether government, an important
economic institution, should interfere and restrict with the movement of goods and
services. This theory views government to have participation in deciding which
countries to alter the amount, composition and direction of goods. The pressing
question describing descriptive theory is ”Should the government control trade?”

Three Perspectives on International Trade

1. Economic Liberals
David Ricardo and Adam Smith were known critics of late-eighteenth century on the
abuses of mercantilism in England. Their liberal ideas and contribution in understanding
global trade are still relevant until today. For Ricardo, his influential work Law of
Comparative Advantage explains that free trade efficiency is attainable if two countries
can produce more goods and trade products separately. The advantage of this theory
in international trade is deriving from the principle of specialization and division of labor
(Nau, 2009). Countries have different resources and talents; they are better in
performing in that economic activity than other economic activities

2. Mercantilism
An economic theory emerged from about 1500-1800. This period was the emerging eras
of nations-states and the formation of more central governments. This system flourished
due to the following reasons:
▪ Higher export than import.
▪ Export less high valued product and import less high valued product
▪ The benefits of colonial powers.

3. Structuralists
The earliest wave of mercantilism was described as classical imperialism. The drive of
European countries to explore and colonized underdeveloped countries originated from
the aggressive mercantilist behavior of European economies. This idea was extended
to the practice of modern capitalist-imperialist approach by countries and economies
that have the immense resource through the use of hard power over developing and
less developed countries.

The Modern World System (MWS) theory deveIoped by Immanuel Wallerstein, explains
the contact of economies between core, semi peripheral, and peripheral countries in
the world. The core states have the absolute advantage over the other through unequal
exchange and extraction of raw materials from periphery and semi-periphery.

Thus, the economic globalization and market integration of the 21 st century are
extensions of the same economic motives of imperial powers of the nineteenth and
twentieth centuries (Balaam and Veseth, 2008)

REFERENCES

Balaam, D and Vesseth, M. (2008), Introduction to International Political

Economy, 4th ed. Pearson Prentice Hall, Pearson Education, Inc.

De Ocampo, F., Ramos, B., Llomora, R.,Macaraeg, A., David, M.A. (2018),
Introduction to Contemporary World. St. Andrew Publishing House.

Claudio, L., Abinales, P. (2018), The Contemporary World. C & E Publishing, Inc.,

Jarque, M.C., et.al. The Contemporary World Learning Module.

Shangquan, G. (2000). Economic Globalization:Trends, risks and risk

prevention.CPD background paper no.1. United Nations Development
Policy and Analysis Division.

Nau, H. (2009). Perspectives on International Relations: Power, Institutions, and

Ideas. 2nd edition.Washington DC: CQ Press Sage Publishing. 2009