Global Economy

Economic globalization is a prominent

feature in the contemporary world. It
involves integration of economies around
the world, particularly through free trade
and financial flows. Economic
interconnectedness may not be entirely
new, but the framework of the global
economy can be said to have its roots….
…in the planning of post-war economic
order just before the end of World War II.
The institutions that were established
have since been instrumental in the
integration of markets. The results of
economic globalization have not been
good as economies are exposed to the
benefits and harms of market opennes.
 The Bretton Woods Conference

Its objective was to set up a stable

monetary system that will prevent another
Great Depression, promote world trade,
and support post-war economic
rehabilitation efforts. The negotiations led
to the creation of three multilateral
institutions.
 International Monetary Fund (IMF)

.Its function is to supervise the fixed

exchange rate system and help countries
with their balance of payments problems
.Fixed Exchange Rate- the currency of a
state is always fixed to the dollar for its
constant liquidity in global trade and
finance (ex: PhP2: $1)
Balance of Payments/Balance of Trade
This means that the more money should
be coming into the country that what is
coming out. It done through increasing the
value of its exports than what it pays for its
imports. Poor countries like the Philippines
always experience balance of trade
problems.
 International Bank for Reconstruction and
Development (IBRD) or World Bank (WB)
. Created to assist in recovery efforts and
the promotion of investments
. Promote development assistance in
different countries through partnership
with governments and non-government
organizations.
 General Agreement on Trade and Tariffs
(GATT)/World Trade Organization (WTO)

. Promote international trade by reducing

or eliminating protectionist trade barriers
such tariffs and quotas in imports ( Trade
Liberalization)
.Protectionism- policy wherein states
promote local industries and discourage
importation.
Justification for the for establishment of the
IMF,IBRD/World Bank, GATT/WTO
.The US, being the foremost capitalist
country in the world after World War II,
was confronted by challenge of socialist
states like the USSR and China and the
appeal of Marxism and socialism among
poor countries, exerted strong efforts to
contain these threats to her global
economic interests through the …
…establishment of regional military
alliances like NATO, SEATO, etc. among her
allies, providing of financial aid to war-torn
European states (Marshall Plan) and poor
and developing countries (Philippines). and
the promotion of a world order based on
free trade. This is known as the policy of
Containment.
 Multinational Corporations (MNCs’)

.MNCs are organizations that own or

control businesses in one or more
countries other than the home country.
. They are also referred to as Transnational
Corporations (TNCs)
.Their increase can be attributed mainly to
the liberalization of trade and investments.
MNCs/TNCs are a natural outcome of
borderless world economy. They take
advantage of the economies of scale, a
situation where firms incur falling average
costs with the increase in the volume of
production. With open markets, firms can
produce and sell goods or services on
multiple locations. They are directly …..
…engaged in investments either through
foreign direct investment (FDI) or through
portfolio investment . They are engaged in
market seeking, resource seeking, strategic
asset seeking, and efficiency- seeking.
 Market Seeking

. Firms go overseas to expand markets and

find new buyers
.They take advantage of selling competitive
products in foreign markets
.Because of a saturated home market,
they believe investments overseas will
bring higher profits
 Resource Seeking

Foreign firms may find it cheaper to

produce products abroad and sell it at
home an in foreign markets. The foreign
facility may be able to obtain superior or
less costly access to factors of production
(land, labor, capital)
 Strategic Asset- Seeking

Firms may seek to invest in other

companies abroad. This may involve the
establishment of a joint-venture or
partnerships with other local or foreign
firms.
 Efficiency-Seeking

Foreign firms may also seek to enter into

new overseas markets in response to
broad developments. For example, a new
free trade agreement among a group of
countries may suddenly make entry into
one country vital for developing countries.