The Globalization of

Economic Relations
Sir Malit
What is Economic Globalization?

Economic Globalization is a historical process, the

result of human innovation and technological
progress. It refers to increasing integration of
economies around the world, particularly through the
movement of goods, services, and capital across
borders. The term sometimes also refers to the
movement of people (labor) and knowledge
(technology) across international borders. (IMF, 2008)
Interconnected dimensions of economic
globalization
The globalization of trade goods and services

• When a country exports more than imports,

it runs a trade surplus. When a country
imports more than it exports, it runs a
trade deficit. The large trade deficits in the
middle and the late 1980s sparked political
controversy that still persist today.
The Globalization of Financial and Capital
Markets

• A country enjoys an absolute

advantage over another country in
the production of goods if it uses
fewer resources to produce that
good than the other country does.
For Example:

• Supposed Country A and Country B produce

coffee, but A’s climate is more suited to coffee
and its labor is more productive. Country A will
produce more coffee per acre than country B.
And use less labor in growing it and bringing it to
market. Country A enjoys an absolute advantage
over country B in production of coffee.
Absolute Advantage

•Absolute Advantage in the

production of goods enjoyed by one
country over another when it uses
fewer resource to produce that
goods than the other country does.
Trade Barriers

Also called obstacles to trade–

take many forms. The three
most common are tariffs,
export subsidies, and quotas.
Tariff

• A tariff is a tax on imports.

The average tariff on imports
into the United States is less
than .5%. Certain protected
items have much higher
tariffs. For example, in 2009,
former President Obama of the
United States imposed a tariff
of 35% on tire imports from
China.
Export Subsidies

• Export Subsidies is a
government
payments made to
domestic firms to
encourage exports-
can also act as a
barrier to trade.
Quotas

A quota is a limit on the

quantity of imports.
Quotas can be
mandatory or voluntary,
and they may be
legislated or negotiated
with foreign
governments.
The Globalization of Technology and
Communication

• Capital is not the only factor of production required to produce

output, labor is equally important. To be productive, the
workforce must be healthy. Health is not the only issue but basic
literacy as well as specialized training in farm management, for
example, can yield high returns to both the individual
Globalization of Production

• Production is the process of which inputs are combined and

transformed into output. Production technology relates inputs to
outputs. Specific quantities of inputs are needed to produce any
given service or good. Most outputs can be produced by a number
of different techniques. In choosing the most appropriate
technology, firms choose the one that maximize the cost of
production. For a firm, an economy with a plentiful supply of
inexpensive labor but not much capital, the optimal method of
production will involve labor-intensive techniques.
Distinction of Globalization from
Internationalization

• Dickens (2004) distinguished economic

globalization from internationalization by stating
that the former is functional in integration
between internationally dispersed activities while
the latter is about the extension of economic
activities of nation states across borders. Hence,
economic globalization is more on qualitative
change.
The World Trade Organization and the GATT
General Agreement on Tariff and Trade
(GATT)

• Year established: 1947

• 23 Nations
• Established on 3 principles
• Equal, nondiscriminatory trade
treatment for all member nations;
• The reduction of tariffs by
multilateral negotiations;
• The elimination of import quotas.
World Trade Organization

• Regulates international trades

Deals with the rule of trade
between nations Ensures the
trade will flows smoothly,
predictably and freely as
possible.
• Acts as forum in negotiation
trade agreements
Preferential Trade Agreement

• In addition to multilateral initiative of GATT, countries in each of

the world’s region are seeking to lower barriers to trade within
their regions. Historically, when countries entered into preference
agreement, they notified GATT. Between 1947 and 1992, there
were 85 agreements that were notified while 77 new agreements
have been added since 1992. Strictly speaking few of the trade
agreements fully conform with GATT requirements, although none
was disallowed. Only Japan, Hong Kong, and South Korea among
the WTO members have not sign preferential trade agreements.
Free Trade Areas

• A free trade area (FTA) is formed when two or

more countries agree to abolish all internal
barriers to trade among themselves. Countries
that belong the free trade area can do and
maintain independent trade policies with respect
to non-FTA countries. A system of certificates of
origin is used to avoid trade diversion is in favor of
low-tariff members.
Customs Union

• A custom union represents the logical evolution of a free

trade area. In addition to eliminating internal barriers to
trade, members of a custom s union establish common
external barriers. On January 1, 1996, the European
Union and Turkey initiated a customs union in an effort
to boost two-way trade above the current annual level of
$20 billion. The arrangement called for elimination of
tariffs averaging 14% that added $1.5 billion each year to
the cost of European goods imported by Turkey.
Common Market

• A common Market is the next step in the

spectrum of economic integration. In addition
to the removal of internal barriers to trade
and the establishment of common external
barriers, the common market allows for free
movements of factors of production,
including labor, capital and information.
North American Free Trade Agreement

• The North American Free Trade is

an agreement signed by Canada,
Mexico, and the United States,
creating a trilateral trade bloc in
North America. The agreement
came into force on January 1, 1994.
It superseded the 1988 Canada–
United States Free Trade
Agreement between the U.S. and
Canada, and is set to be replaced
by the 2018 United States–Mexico–
Canada Agreement.
Andean Community

• The Andean Community (Spanish: Comunidad

Andina, CAN) is a customs union comprising the
South American countries of Bolivia, Colombia,
Ecuador, and Peru. The trade bloc was called the
Andean Pact until 1996 and came into existence
when the Cartagena Agreement was signed in
1969. Its headquarters are in Lima, Peru.

• The Andean Community has 98 million

inhabitants living in an area of 4,700,000 square
kilometers, whose Gross Domestic Product
amounted to US$745.3 billion in 2005, including
Venezuela, who was a member at that time. Its
estimated GDP PPP for 2011 amounts to
US$902.86 billion, excluding Venezuela.
Common Market of the South (Mercosur)
• Mercosur, officially Southern Common Market (Portuguese:
Mercado Comum do Sul or Mercosul; Guarani: Ñemby
Ñemuha) is a South American trade bloc established by the
Treaty of Asunción in 1991 and Protocol of Ouro Preto in
1994. Its full members are Argentina, Brazil, Paraguay and
Uruguay. Venezuela is a full member but has been
suspended since December 1, 2016. Associate countries are
Bolivia, Chile, Colombia, Ecuador, Guyana, Peru and
Suriname. Observer countries are New Zealand and Mexico.

• Mercosur's purpose is to promote free trade and the fluid

movement of goods, people, and currency. It currently
confines itself to a customs union, in which there is free
intra-zone trade and a common trade policy between
member countries. The official languages are Spanish,
Portuguese, and Guarani. Since its foundation, Mercosur's
functions have been updated, amended, and changed many
times: it is now a full customs union and a trading bloc.
Mercosur and the Andean Community of Nations are customs
unions that are components of a continuing process of South
American integration connected to the Union of South
American Nations (USAN).
Asia-Pacific
Association of Southeast Asian
Nation
ASEAN
It is a geo-political and economic
organization of ten countries located in
Southeast Asia, which was formed on 8
August 1967 by Indonesia, Malaysia, the
Philippines, Singapore and Thailand.
Since then, membership has expanded to
include Brunei, Burma (Myanmar),
Cambodia, Laos, and Vietnam. Its aims
include accelerating economic growth,
social progress, cultural development
among its members, protection of
regional peace and stability, and
opportunities for member countries to
discuss differences peacefully.
The European Union

• The European Union has established a

single market across the territory of all its
members representing 512 million citizens.
In 2017, the EU had a combined GDP of $21
trillion international dollars, a 17% share
of global gross domestic product by
purchasing power parity (PPP). As a
political entity the European Union is
represented in the World Trade
Organization (WTO). EU member states
own the estimated second largest after the
United States(US$93.6 trillion) net wealth
in the world, equal to 25% (US$70.8
trillion) of the $280 trillion global wealth.
The Middle East
The Gulf Cooperation Council

• A common market was launched on 1 January 2008

with plans to realise a fully integrated single
market. It eased the movement of goods and
services. However, implementation lagged behind
after the 2009 financial crisis. The creation of a
customs union began in 2003 and was completed
and fully operational on 1 January 2015. In January
2015, the common market was also further
integrated, allowing full equality among GCC
citizens to work in the government and private
sectors, social insurance and retirement coverage,
real estate ownership, capital movement, access to
education, health and other social services in all
member states. However, some barriers remained
in the free movement of goods and services. The
coordination of taxation systems, accounting
standards and civil legislation is currently in
progress. The interoperability of professional
qualifications, insurance certificates and identity
documents is also underway.
Economic Community of West African States

• The union was established on 28 May

1975, with the signing of the Treaty of
Lagos, with its stated mission to promote
economic integration across the region. A
revised version of the treaty was agreed
and signed on 24 July 1993 in Cotonou.
Considered one of the pillar regional
blocs of the continent-wide African
Economic Community (AEC), the states
goal of ECOWAS is to achieve "collective
self-sufficiency" for its member states by
creating a single large trade bloc by
building a full economic and trading
union.
South African Development Community
(SADC)
• The SADC Free Trade Area was established in August 2008,
after the implementation of the SADC Protocol on Trade in
2000 laid the foundation for its formation. Its original
members were Botswana, Lesotho, Madagascar, Mauritius,
Mozambique, Namibia, South Africa, Swaziland, Tanzania,
Zambia and Zimbabwe, with Malawi and Seychelles joining
later. Of the 15 SADC member states, only Angola and the
Democratic Republic of Congo are not yet participating.
The SADC-Customs Union, scheduled to be established by
2010 according to SADC's Regional Indicative Strategic
Development Plan (RISDP), is unlikely to become reality in
the near future. This is because the European Union's
Economic Partnership Agreements (EPA) with their
inherent extra-regional freetrade regimes provided for
several SADC members more benefits than deeper regional
market integration within the framework of a SADC-
Customs Union. Since these SADC countries formed four
different groupings to negotiate and implement different
Economic Partnership Agreements with European Union,
the chance to establish a SADC-wide common external
tariff as prerequsite for a regional customs union is
missed.
Organization of the Petroleum Exporting
Countries (OPEC)
• The formation of OPEC marked a turning
point toward national sovereignty over
natural resources, and OPEC decisions have
come to play a prominent role in the global
oil market and international relations. The
effect can be particularly strong when wars
or civil disorders lead to extended
interruptions in supply. In the 1970s,
restrictions in oil production led to a
dramatic rise in oil prices and in the revenue
and wealth of OPEC, with long-lasting and
far-reaching consequences for the global
economy. In the 1980s, OPEC began setting
production targets for its member nations;
generally, when the targets are reduced, oil
prices increase. This has occurred most
recently from the organization's 2008 and
2016 decisions to trim oversupply.
The Bretton Woods System

• Preparing to rebuild the international economic system while World War II was
still raging, 730 delegates from all 44 Allied nations gathered at the Mount
Washington Hotel in Bretton Woods, New Hampshire, United States, for the
United Nations Monetary and Financial Conference, also known as the Bretton
Woods Conference. The delegates deliberated during 1–22 July 1944, and signed
the Bretton Woods agreement on its final day. Setting up a system of rules,
institutions, and procedures to regulate the international monetary system,
these accords established the International Monetary Fund (IMF) and the
International Bank for Reconstruction and Development (IBRD), which today is
part of the World Bank Group. The United States, which controlled two thirds of
the world's gold, insisted that the Bretton Woods system rest on both gold and
the US dollar. Soviet representatives attended the conference but later declined
to ratify the final agreements, charging that the institutions they had created
were "branches of Wall Street". These organizations became operational in 1945
after a sufficient number of countries had ratified the agreement.
The Philippines and the Bretton Woods
Agreement

• On 5 December 1945, President Osmeña appointed Resident

Commissioner Carlos P. Romulo as his representative to accept
Philippine membership in the International Monetary Fund and in
the International Bank for Reconstruction and Development, which
bodies had been conceived in the Bretton Woods Agreement, in
which the Philippine had also taken part. Romulo signed said
membership on 27 December 1945 on behalf of the Philippines.

• Source:
https://www.officialgazette.gov.ph/1944/07/22/statement-agree
ments-reached-at-the-bretton-woods-monetary-conference-july-22
-1944/
Developing Countries and International Trade

• When the United Nations Conference on

Trade and Development (UNCTAD) came
into being in 1964, that was the first major
change in the state of affairs of developing
nations into international trade as they did
not participate actively in multilateral trade
negotiations for a relatively long time.
Some Key Trade Facts
Trade Deficit

• A trade deficit occurs when imports

exceed exports. The United States
has a trade deficit in goods. In 2012,
U.S. imports of goods exceeded U.S.
export of Goods by $735 Billion.
Trade Surplus

• A trade surplus occurs when exports

exceeds imports. The United States has a
trade surplus in services such as air
transportation services and financial
services. In 2012, U.S. exports of services
exceeded U.S. imports of services by $196
Billion.
• Canada is the United States most important
trading partner quantitatively. In 2012 about 20%
of U.S. exported goods were sold to Canadians,
who in turn provided 15% of imported U.S. goods.
• The United States has a sizeable trade deficit
with China. In 2012, it was $315 Billion and in
2017, it was $375 Billion.
• China has become a major international
trader, with an estimated $2.05 Trillion of
exports in 2012. Other Asian economies–
including South Korea, Taiwan, and
Singapore- are also active in international
trade. Their combined exports exceeded
those of France, United Kingdom, and Italy.
• International trade links world economies.
Through trade, changes in economic
conditions in one place on the globe quickly
affect other places.
• International trade is often at the center of
debates over economic policies, both within
the United States and internationally.
Trade Barriers and Export Subsidies

• Tariffs are excise taxes or “duties” on the dollar values or physical

quantities of imported goods. They may be imposed to obtain
revenue or to protect domestic firms.
• A revenue tariff is usually applied to a product that is not being
produced domestically. For example, tin, coffee, or bananas in the
case of the United States. Rates on revenue tariffs tend to be
modest and are designed to provide the federal government with
revenue.
• A protective tariff is implemented to shield domestic producers
from foreign competition. These tariffs impede free trade by
increasing the prices of imported goods and therefore shifting sales
toward domestic producers.
• An import quota is a limit on the quantities or total values of
specific items that are imported in some period. Once a quota is
filled, further imports of that product are denied. Import quotas
are more effective than tariffs in impending international trade.
• An export subsidy consist of a government payment to a domestic
product or export goods and is designed to aid that producer. By
reducing production cost, the subsidies enable the domestic firm
to charge a lower price and thus sell more imports in a world
market.
The Mcdonaldization of Society
Basic Organizational Principles
Efficiency

• Ray Kroc, the marketing genius behind McDonald’s set

out with one goal: to serve a hamburger, French fries,
and milkshake to a customer in 50 seconds or less. In
the restaurant, most customers bus their own trays, or
better still, drive away from pick-up window taking
whatever mess they make with them. Efficiency is a
value virtually without criticism in our society. We tend
to think that anything done quickly is, for that reason
alone, good.
Calculability

• The first McDonald’s operating manual declared the weight of a

regular raw hamburger to be 1.6 ounces, its size to be 3.875
inches across and its fat content to 19%. A slice of cheese
weighs exactly half an ounce, and French fries are cut precisely
9/32 of an inch thick. Think about how many objects around the
home, the workplace, or on the campus are designed and mass-
produced uniformly according to a standard plan. Not just our
environment but our life experiences-from traveling the nation’s
interests to sitting at home viewing television-are now more
deliberately planned than ever before.
Uniformity and predictability

• An individual can walk into a McDonalds’s

restaurant almost anywhere and buy the
same sandwiches, drinks, and desserts
prepared in precisely the same way.
Uniformity results from a highly rational
system that specifies every action and
leaves nothing to chance.
Control Through automation

• The most unreliable element in the McDonald’s system is human

beings. People, after all, have good and bad days, sometimes let
their minds wander, or decide to try something a different way.
To minimize the unpredictable human element, McDonald’s has
automated their equipment to cook food at a fixed temperature
for a set lengths of time. Even the cash register at a McDonald’s is
keyed to picture of the items, so that ringing up a customers
orders is as simple as possible.