THE GLOBAL ECONOMY
THE GLOBALIZATION OF WORLD ECONOMICS
The international monetary fund (IMF) regards “economic globalization” As a historical process representing the result of
human innovation and technological process. It is characterized by the increasing integration of economies around the world
through the movement of goods, services, and capital across borders.
Economic globalization distinct from internalization since the latter is about the extension of economic activities of nation
states across borders, and the former is functional integration between internationally dispersed activities.
Economic Globalization is a Qualitative transformation than just a quantitative change. These changes are the products of
people, organizations, institutions and technologies. While it is difficult to arrive at a precise definition of globalization, it
is universally agreed that a drastic economic change is occurring throughout the world.
It is universally agreed that a drastic economic change is occurring throughout the world.
According to the IMF, the value of trade as a percentage of world GDP increased from 42.1% in 1980 to 62.1% in 2007.
Globalists – believe progress is always a good thing
Progress &changes- living a good life
Increased trade also means that investments are moving all over the world at faster speeds.
According to the United Nations Conference On Trade And Development (UNCTAD), the amount of foreign direct
investments flowing across the world was us$57 billion in 1982 and by 2015 that number increased to $1.76 trillion.
Apart from the sheer magnitude of commerce, we should also note the increased speed and frequency of trading. These
days, supercomputers can execute millions of stock purchases and sales between different cities in a matter of seconds
through a process called high-frequency trading.
Global economy
The development strategies of countries today are affected to an unprecedented degree by how industries are organized.
Developing nations and all other stakeholders must have a thorough understanding of how the contemporary global
economy works if they hope to improve their position on it, or forestall an impending decline (Gereffiti, 2005).
The origins of a global economy can be traced back to the expansion of long-distance trade during the period of 1450-1640,
which Wallerstein has labeled the “long sixteenth century.”
From the 15th century onward, a number of trading companies in Europe, such as the East India company and the Hudson’s
bay company, which created vast international trading empires.
International trading systems
International trading systems are not new and the oldest example was the international trade route, the silk road.
Silk –profitable product
The silk road was an ancient network of trade routes, formally established during the Han dynasty of china, which linked
the regions of the ancient world in commerce between 130 bce-1453 CE.
While the silk road was international, it wasn’t truly global because it had no ocean routes that could reach the Americas.
So when did full economic globalization begin?
Historians, Dennis O. Flynn and Arturo Giraldez, agreed that it began when all important and populated continents began
to exchange products continuously—with each other directly and indirectly via other continents– and in values sufficient to
generate crucial impacts on all trading partners.
This was traced back to 1571 with the establishment of the galleon trade that connected manila, Philippines, To Acapulco,
Mexico.
Mercantilism
Global trades have a lot of restrictions. Mercantilism was a form of economic nationalism that sought to increase the
prosperity and power of a nation through restrictive trade practices. Its goal was to increase the supply of a state's gold and
silver with exports rather than to deplete it through imports. It also sought to support domestic employment.
The Galleon Trade was part of the age of mercantilism. From the 16th century to the 18th century, European countries
competed with one another to sell more goods as a means to boost their country’s income (monetary reserves)
As a countermeasure for competitors who sold their goods cheaply, they imposed high tariffs, forbade colonies to trade with
other nations, restricted trade routes and subsidized its exports.
A more open trade emerged in 1867, when the us and other European nations took after the footsteps of Uk. They adopted
the gold standard at an international monetary conference in Paris. The goal was to create a common system that would
allow more efficient trade and prevent isolation of the Mercantilist era. The countries developed a common basis for
currency prices and a fixed exchange
GLOBAL STRATIFICATION
Measures of well-being, life expectancy, infant mortality, and Access to health services are just a few of the inequalities in
Life chances which differentiate nations as to rich or poor.
CLASSIFYING GLOBAL STRATIFICATION
The best way to understand global stratification is to think of the world composed of three categories of nations, based on
their degree of wealth or poverty, their level of Industrialization and economic development, and related Factors.
FIRST TYPOLOGY


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FIRST WORLD – the western, capitalist democracies of north America and europe, and certain other nations
(Australia, New Zealand, and Japan).
SECOND WORLD – nations belonging to the Soviet Union (The USSR consisted of the following present-day
countries: Russia, Georgia, Ukraine, Moldova, Belarus, Armenia, Azerbaijan, Kazakhstan, Uzbekistan,
Turkmenistan, Kyrgyzstan, Tajikistan.)
THIRD WORLD – all the remaining nations, almost all of them from central and south America, Africa, and Asia.
Most of these counties are rich in natural resources.
REPLACEMENT TYPOLOGY
DEVELOPED- is a sovereign state that has a high quality of life, developed economy, and advanced technological
infrastructure relative to other less industrialized nations. Example Switzerland, Japan, Australia, and Germany.
DEVELOPING- a poor agricultural country that is seeking to become more advanced economically and socially.
UNDEVELOPED OR LEAST DEVELOPED
POPULAR TYPOLOGY

WEALTHY (HIGH-INCOME)
The wealthy nations are the most industrialized nations, and they consist primarily of the nations of north America and
Western Europe; Australia, Japan, and New Zealand; and Certain other nations in the middle east and Asia.

MIDDLE-INCOME
They consist primarily of nations in central and South America, Eastern Europe, and parts of Africa and Asia and constitute
About one-third of the world’s population. Many international organizations and scholars find it Useful to further divide
middle-income nations into Upper-middle-income nations and lower-middle-income Nations.
THEORIES OF GLOBAL STRATIFICATION
As societies become ever more interconnected, cultural Diffusion between them creates common ground, while cultural
Differences may become more important as the relationships Among nations become more intimate.
Cultural factors like values affect how the people strive to make their lives better. The structure of the nation is also important
in understanding the development of nations.
MODERNIZATION THEORY
Rich nations became wealthy because early on they were able To develop the correct beliefs, values, and practices – in
short, The correct culture – for trade, industrialization, and rapid Economic growth to occur. These cultural traits include a
willingness to work hard, to Abandon tradition in favor of new ways of thinking and doing things, and to adopt a future
orientation rather than one aimed toward the present.
Western European nations began to emerge several centuries ago as economic powers because their populations adopted
the Kind of values and practices just listed.
DEPENDENCY THEORY
This theory blames global stratification on the exploitation of These nations by the rich ones. The poor nations never got
the chance to pursue economic Growth because early on they were conquered and colonized by European ones. The
European nations stole the poor nation’s resources and`either enslaved their populations or used them as cheap labor.
FORMS OF DEPENDENCE
DOMINANT COUNTRIES OR METROPOL – CAN expand itself and can be Self-sustaining. These countries are
usually considered as the Rich ones and have great influence in the global scene. USA, CHINA, RUSSIA, GERMANY,
UK, JAPAN, SOUTH KOREA AND FRANCE
DEPENDENT SATELITES – can expand and self-sustain as a result Of the expansion of dominant countries. These
countries are Usually the ones being exploited in terms of labor and natural Resources.
WORLD SYSTEM THEORY
The proponent of this theory is American sociologist Immanuel Wallenstein. This theory states that some nations become
modernized by exploiting other nations. Their continuing exploitation prevents less developed nations from becoming fully
modernized (Ferrer, et al., 2017).
GEOGRAPHIC DIVISION OF LABOR ACCORDING
To Wallerstein Core nations are the most modernized nations, having Diversifies economies and stable internal politics
that dominate the world system.
GEOGRAPHIC DIVISION OF LABOR ACCORDING TO WALLERSTEIN
Semi-peripheral nations are those nations that fall in Between the core and the peripheral nations, being more Industrialized
than the peripheral but less industrialized than the core.
THE MODERN WORLD SYSTEM
According to Wallerstein (2006), it started in the 16th century primarily in Europe and Americas which has always been a
capitalist modern world.
He defined world economy as a large geographic zone with which there is a division of labor and significant internal
exchange of basic or essential goods as well as flows of capital and labor.
SIX INSTITUTIONS IN THE MODERN WORLD SYSTEM
1. MARKET
Literally, it is a place in which individuals can sell products and buy goods. It may be virtual markets outside of a specific
place wherein Buying and selling of products and services also happen. EX. PUBLIC MARKET
2. FIRMS
There are the ones who produce the goods and provide the services in the markets. These are said to be the lead actors in
the markets where they compete with each other, especially in the virtual market scene.
The rise of firms in the markets paved the way for production processes:
Core-like process tends to group themselves in a few states and constitute the bulk of the production activity in this state.
A “core process” is one that supports stability throughout a department. They include customer service best
practices, hiring processes, or systems your sales team utilizes.
Peripheral process tend to be scattered in a large number of States and constitute the bulk of the production activity in
these states
Semi-periphery is a mix of core-like and peripheral products.
3. STATES
They are related to the geographical division of labor. Ex. NATIONS
4. HOUSEHOLD
It consists of 3-10 persons who, over a long period of time, pool multiple sources of income in order to survive collectively.
They have an obligation to provide income for the group and to share in the consumption resulting from this income.
FIVE KINDS OF INCOME IN THE HOUSEHOLD
1. WAGE INCOME
Payment in the form of money by persons outside the household for work of a member of the household that is performed
outside of the household in some production process.
Wage income may be occasional or regular. It can be payment by time employed or by work accomplished.
2. SUBSISTENCE ACTIVITY
It is not limited to the work of rural persons who grow food and produce necessities for their own consumption without
passing through a market. Other forms include cooking meals, washing dishes at home, or assembling a furniture bought
from a store.
Subsistence production is a large part of household income today In the most economically wealthy zones onf the capitalist
world Economy.
Example: farming
3. PETTY COMMODITY PRODUCTION
A product produced within the confines of the household but sold for cash on a wider market. It involves not only marketing
of produced goods but also petty marketing.
Online selling and retail selling are just two examples of this type of income.
4. RENT
It can be drawn from some major capital investment or from capital ownership. Apartments, dormitories, private lots,
commercial space, dividends and interest on savings account are good sources of Rent.
5. TRANSFER PAYMENT
It is income that comes to an individual by virtue of a defined obligation of someone else to provide this income. It may
come from persons close to the household, as when gifts or loans are given from generation to another at birth, death, or
marriage.
Inheritance, dowry, pension, and maturity of insurance policy are some examples.
5. CLASSES
It has something to do with the placement of the household or individual in the capitalist economic system. They can be
located in the upper, middle or lower class stratum.
6. IDENTITIES
All of us have identities, inherent from birth, whether we like it Or not. We are a member of a nation, an ethnic group, a
race, and Religious group. Gender and sexual preferences are also part of one’s identity.
UNIVERSALISM VS ANTI-UNIVERSALISM
The complex relationships of the world economy, the firms, the states, and the household institutions that link members of
classes and status groups are beset by two opposite but symbiotic ideological themes.
UNIVERSALISM
It is a theme prominently associated with the modern world system. It means the priority to general rules applying equally
to all persons, and the rejection of particularistic preferences in most spheres.
In the level of a firm or a school, it means assigning of persons to positions on the basis of their training and capacities, also
known as meritocracy. In the level of the state, it means universal suffrage and Equality before the law.
government or the holding of power by people selected on the basis of their ability."progress towards meritocracy was
slow"/
Universalism is believed to ensure relatively competent performance and thus make for a more efficient world-economy,
which in turn improves the ability to accumulate capital. Normally, those who control production processes push for
universalistic criteria.
Positive norm , virtue
Trying to prioritize general rules applying equality. Pushing through equality base on knowledge, capabilities.
ANTI-UNIVERSALISM
It is linked with racism and sexism which are active institutional discrimination against all the persons in a given statusgroup or identity.
Racism and sexism are norms, but negative norms, where most People deny their belief in them.
Opposite of universalism, negative norm, promote segregation
It is still a norm
Example: Americans’ high pride
These anti-universalistic norms perform important tasks in allocating work, power, and privilege within the modern-world
system. They imply exclusions from the social arena however, in reality they are modes of inclusion, albeit at inferior ranks.
THESE NEGATIVE NORMS EXPLAIN THE POLARIZATION OF THE WORLD SYSTEM.
With polarization ever increasing, anti-universalism has become ever more “important”, even though the political struggle
against such forms has also become more central to the functioning of the world system.
Polarization - division into two sharply contrasting groups or sets of opinions or beliefs. "the polarization of society
between rich and poor"
The modern world-system has made a central, basic feature of its structure the simultaneous existence, propagation, and
practice of both universalism and anti-universalism. This duo is as fundamental to the system as is the core-peripheral
division of labor (wallerstein, 2006).
Market Integration and the Role of International Financial Institutions in the Creation of a Global Economy
Market Integration
Integration, as defined by Koester (2000), is a state of affairs or a process involving attempts to combine separate national
economies into larger economic regions.
It is a means of stimulating trade and improving the division of labor between participating countries.
Article 1 of the GATT states:
“All contracting parties must accord any advantage, favor, privilege, or immunity granted to any product from any other
country immediately and unconditionally to all other members.”
The General Agreement on Tariffs and Trade (GATT) covers international trade in goods. The workings of the GATT
agreement are the responsibility of the Council for Trade in Goods (Goods Council) which is made up of representatives
from all WTO member countries.
Two Types of Market Integration
Negative Integration -reduces non-tariff and tariff barriers to trade as a main tool for integrating markets. Governments
play a minor roles in the regulation of the movement of goods and factors of production on national borders.
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barriers between countries being removed example : permit to operate, license, embargos
faster import and exports
Positive Integration- adjusts domestic policies and institutions through the creation of supranational arrangements. It is
more effective in the agricultural sector because a nation can protect its products whether by exporting or importing them
from other countries.
Five Forms of Integration (Koester, 2000)
1. Preferential agreement involves trade barriers between those countries which signed the agreement. It can be in
the form of tariff reductions for unlimited volumes or imports from specific countries or for specified import
quantities.
2. Free Trade Area (FTA) reduces trade barriers among member countries to zero, but each country still has
autonomy in deciding the external rate of tariff for trading with non-member countries.
European Free Trade Area (EFTA) and Central European Free Trade Area (CEFTA) are prominent examples.
3. The Customs Union represents a higher stage of economic integration where countries agree to abolish tariff and
non-tariff barriers to trade in goods flowing between them.
They also agree to a common external tariff. This was the first phase of the European Community on the way to the common
market.
4. Common market allows for free movement of labor and capital within the member-countries.
- Its intention is to integrate both product and factor markets of member-countries.
- The single market of the EU, which came into force on January 1, 1993, constitutes a common market.
5. Economic Union is the highest form of economic integration agreeing to a common market, monetary fiscal and
other policies among member-countries.
Overview of International Financial Institutions (IFIs)
In many parts of the world, IFIs play a major role in the social and economic development programs of nations with
developing or transitional economies. This role includes advising on development projects, funding them and assisting in
their implementation.
Characterized by AAA-credit ratings and a broad membership of borrowing and donor countries, each of these institutions
operates independently.
Shared Goals and Objectives:
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To reduce global poverty and improve people’s living condition and standards;
To support sustainable economic, social, and institutional development; and
To promote regional cooperation and integration.
IFIs achieve these objectives through loans, credits, and grants to national governments. Such funding is usually tied to
specific projects that focus on economic and socially sustainable development.
IFIs also provide technical and advisory assistance to their borrowers and conduct extensive research on development issues.
In addition to these public procurement opportunities, in which multilateral financing is delivered to a national government
for the implementation of a project or program, the IFIs are increasingly lending directly to non-sovereign guaranteed (NSG)
actors including sub-national government entities as well as the private sectors.
Three Major IFIs
World Trade Organization (WTO)
Immediately after WWII, the USA invited its trading partners to negotiate less stringent restrictions which resulted in the
General Agreement on Tariffs and Trade (GATT), an international treaty adopted in 1947 by 23 countries. Essentially, the
WTO is a place where member-governments try to sort out trade problems with one another.The agreements are complex
and lengthy since they are legal texts covering different activities. Commonly, all throughout the document there runs
fundamental principles which are the foundation of the multilateral trading system. EXAMPLE COUNTRIES BELONG
Philippines, Paraguay, panama, peru, Poland, Ukraine, Russia, chile
International Monetary Fund (IMF)
It aims to prevent another breakdown of the international monetary order similar to what happened after WWI, when
countries resorted to widespread protectionism, competitive exchange devaluation, and hyperinflation in an effort to fight
off the rising unemployment rate accompanied with recession. Albania, Philippines, Russia, china, chile, Poland, Paraguay
,peru, south Africa, Nigeria, niger.
A system where countries are prevented from reducing exchange rates for competitive advantage was needed and IMF
provided such a system.
IMF exerted control on international exchange rates as well as act as a reserve base for bailing out BOP deficit countries.
The reserve pool comes from the contribution of the member-countries with each country’s contribution fixed in terms of
quotas according to the relative share of its national income and international trade.
The contributed quota will also determine a country’s borrowing rights and voting strength.
It is an autonomous organization affiliated to the UN. It started with 31 members and now commands a 189-strong
membership as of April 12, 2016.
Its functions include being a short-term credit institution, providing the orderly adjustment of exchange rates, acting as a
reserve base for member-countries to borrow from, providing foreign exchange loans against current transactions, and
providing international financial consultancy services.
World Bank
Formerly known as the International Bank for Reconstruction and Development, and an outcome of the Bretton Woods
system, it was created to offer economic assistance to war-ravaged economies of Europe and Asia, and later on the poor
countries of the world. It is an international and intergovernmental institution for providing long-term loans on easy terms
for specific developmental projects. It has been issuing loans for structural adjustment purposes to heavily indebted
countries. Its capital stock is entirely owned by the 181-strong member governments.
The World Bank Group, separate from the World Bank itself, is composed of four functional bodies: the International
Development Association (IDA), the International Finance Corporation (IFC), the Multi-lateral Investment
Guarantee Agency (MIGA), and the International Center for Settlement of Investment Disputes (ICSID).
Five Major Functions of the World Bank
1. Provides loan services to member-governments By its statute, the World Bank can lend only to, or with the
guarantee of governments of member countries.
The standard rate of interest charged is ½% above its own borrowing cost. The effective rate is revised every six months.It
lends in a basket of currencies representing its own borrowings
2. Provides development loans on soft terms to poor member nations
A function assigned to the International Development Association (IDA), which charges zero interest and only a small
handling fee.
3. Provides support to private or joint sector projects
A function performed by the International Finance Corporation (IFC), which disburses its fund both by way of equity
and by loans
4. Setting investment-related disputes among member nations through conciliation or arbitration
A function performed by the International Center for Settlement of Investment Disputes (ICSID). It provides technical and
advisory assistance to member countries in their development programs.
5. Global Corporations
They are an integral part of economic growth. They also account for a significant share of the world’s industrial investment,
production, employment, and trade (Sinha, 2009).
The Birth of Global Corporations
Global corporations can be traced back in the early historical period wherein trade and exchange patterns were evident.
Complex patterns of interactive engagements through organized trade followed the influence by the emergent and dominant
technologies particularly in shipping and navigation.
After WWII, there emerged a period where invention and social organizations combined vastly increased world capital and
the wealth of nation states. The Industrial Revolution increased global population, wherein societies invent new ways to
organize the world through colonialism and imperialism.
Colonialism is defined as “control by one power over a dependent area or people.” It occurs when one nation subjugates
another, conquering its population and exploiting it, often while forcing its own language and cultural values upon its people.
Ex. Japan, America,Spain
Imperialism - a policy of extending a country's power and influence through diplomacy or military force. Example Great
Britain, France's control of Vietnam from the mid- to late-1800s
The interaction between people, states, and regions is called as the era of global interaction.
American corporations, followed by the Japanese and Europeans, made their entry into the global scene which gave rise to
multinational companies (MNCs).
The contemporary global corporation is simultaneously and commonly referred to either as a multinational corporation
(MNC), a transnational corporation (TNC), an international company, or a global company (Steger, Battersby, &
Siracusa, 2014).
International companies are importers and exporters without investment outside of their home country. Example: Apple,
coca – cola, Jollibee
Multinational companies have investment in other countries but do not have coordinated product offerings in each country.
They are more focused on adapting their products and services to each individual local market. Product varies from their
culture, beliefs example Toyota, Walmart, Mcdonald
Global companies have invested in and are present in many countries. They typically market their products and services to
each individual local market. Offer the same quality example Coca Cola, unilever, starbucks.
Transnational companies are more complex organizations, which have invested in foreign operations, have a central
corporate facility but give decision-making, research and development (R&D) and marketing powers to each individual
foreign market. Allow foreign markets to design, innovate and research. Ex. Coca –cola in Japan and Nike
The Power of Global Corporations
Economic Control – that global corporations have on world trade, financial markets, technology, patents, intellectual
property rights, and the media.
Political Influence – that global corporations have on national governments and regional governance structures and national
and international economic and social policies.
Social and Cultural Influence – that global corporations have on people’s attitude, values, and lifestyle choices through
media control, advertising, branding, and sponsorship, and the impact they have on people’s well-being in terms of rights,
health, income, employment, and working conditions.
Environmental Impact – that global corporations have on the natural environment
Multinational Corporations (MNCs)
MNCs gained popularity about 20 years ago and originated when globalization just began escalating. The Role of
Multinational Companies (Lapko,2015)
MNCS act as modernizers of the world economy. This is reflected in the constant promotion of new technologies and
introduction of innovations across the world even in remote places.
Promote efficiency and growth of the world economy.
Promote regional agreements and alliances.
Increase of money circulation in the economy.
Challenges of Multinational Companies
Despite general opportunities that a global market provides, there are still significant challenges MNCs face in penetrating
these markets.
Public Relations. Public image and branding are critical for a business. This can be an enormous challenge, both in
effectively localizing the message and in the capital expenditures.
Ethics. This factor greatly impacts the success or failure of global players. Maintaining the highest ethical standards while
operating in developing countries is an important consideration for all MNCs as it also affects their reputation.
Organizational Structure. New regions must be efficiently and effectively incorporated within the value chain and
corporate structure. International expansion requires enormous capital investments along with the development of a specific
strategic business unit.
Leadership. Organizations must have effective leaders with the appropriate knowledge base to approach a given
geographic market. Managers should have high intercultural competence to develop an efficient global strategy.