Lesson 2: The Global Economy and Market

Integration

Learning Outcomes:
At the end of the lesson, you should be able to:
1. define economic globalization and market integration
2. identify the actors that facilitate economic globalization
3. narrate a short history of global market integration in the twentieth century.
Activate
1. List at least five countries, the products that they are well-known for and the reason
why they produce a famous product.

countr product What made it famous?

y

2. Why do you think countries specialize to a specific product?

3. What will happen if a country produces all the products that its people need? 

 
Acquire:

Economic globalization and Market Integration

According to the International Monetary Fund (IMF), Economic Globalization is 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
(Claudio & Abinales, 2018).

Market integration, on the other hand, occurs when prices among different
locations or related goods follow similar patterns over a long period of time. Groups of
goods often move proportionally to each other and when this relation is very clear
among different markets it is said that the markets are integrated. Thus, market
integration is an indicator that explains how much different markets are related to each
other. 
A marketer plays the role of an integrator in the sense that he collects feedback
or vital inputs from other channel members and consumers and provides product
solutions to customers by coordinating multiple functions of organization.

The History of Economic Globalization 

Silk roads (1st century BC-5th century AD, and 13th-14th centuries AD)
People have been trading goods for almost as long as they’ve been around.
But as of the 1st century BC, a remarkable phenomenon occurred. For the first time in
history, luxury products from China started to appear on the other edge of the Eurasian
continent – in Rome. They got there after being hauled for thousands of miles along the
Silk Road. Trade had stopped being a local or regional affair and started to become
global.
That is not to say globalization had started in earnest. Silk was mostly a luxury
good, and so were the spices that were added to the intercontinental trade between
Asia and Europe. As a percentage of the total economy, the value of these exports was
tiny, and many middlemen were involved to get the goods to their destination. But
global trade links were established, and for those involved, it was a goldmine. From
purchase price to final sales price, the multiple went in the dozens. The Silk Road could
prosper in part because two great empires dominated much of the route. If trade was
interrupted, it was most often because of blockades by local enemies of Rome or
China. 
If the Silk Road eventually closed, as it did after several centuries, the fall of the
empires had everything to do with it. And when it reopened in Marco Polo’s late
medieval time, it was because the rise of a new hegemonic empire: the Mongols. It is a
pattern we’ll see throughout the history of trade: it thrives when nations protect it, it
falls when they don’t.
Spice routes (7th-15th centuries)
The next chapter in trade happened thanks to Islamic merchants. As the new
religion spread in all directions from its Arabian heartland in the 7th century, so did
trade. The founder of Islam, the prophet Mohammed, was famously a merchant, as was
his wife Khadija. Trade was thus in the DNA of the new religion and its followers, and
that showed. By the early 9th century, Muslim traders already dominated Mediterranean
and Indian Ocean trade; afterwards, they could be found as far east as Indonesia,
which over time became a Muslim-majority country, and as far west as Moorish Spain.
The main focus of Islamic trade in the Middle Ages was spices. Unlike silk, spices
were traded mainly by sea since ancient times. But by the medieval era they had
become the true focus of international trade. Chief among them were the cloves,
nutmeg and mace from the fabled Spice Islands – the Maluku islands in Indonesia.
They were extremely expensive and in high demand, also in Europe. But as with silk,
they remained a luxury product, and trade remained relatively low volume. Globalization
still didn’t take off, but the original Belt (sea route) and Road (Silk Road) of trade
between East and West did now exist.
Age of Discovery (15th-18th centuries)
Truly global trade kicked off in the Age of Discovery. It was in this era, from the
end of the 15th century onwards, that European explorers connected East and West –
and accidentally discovered the Americas. Aided by the discoveries of the so-called
“Scientific Revolution” in the fields of astronomy, mechanics, physics and shipping, the
Portuguese, Spanish and later the Dutch and the English first “discovered”, then
subjugated, and finally integrated new lands in their economies.
The Age of Discovery rocked the world. The most (in)famous “discovery” is that
of America by Columbus, which all but ended pre-Colombian civilizations. But the most
consequential exploration was the circumnavigation by Magellan: it opened the door to
the Spice islands, cutting out Arab and Italian middlemen. While trade once again
remained small compared to total GDP, it has certainly altered people’s lives. Potatoes,
tomatoes, coffee and chocolate were introduced in Europe, and the price of spices fell
steeply.
Yet economists today still don’t truly regard this era as one of true globalization.
Trade certainly started to become global, and it had even been the main reason for
starting the Age of Discovery. But the resulting global economy was still very much
siloed and lopsided. The European empires set up global supply chains, but mostly with
those colonies they owned. Moreover, their colonial model was chiefly one of
exploitation, including the shameful legacy of the slave trade. The empires thus created
both a mercantilist and a colonial economy, but not a truly globalized one.
First wave of globalization (19th century-1914)
This started to change with the first wave of globalization, which roughly occurred over
the century ending in 1914. By the end of the 18th century, Great Britain had started to
dominate the world both geographically, through the establishment of the British
Empire, and technologically, with innovations like the steam engine, the industrial
weaving machine and more. It was the era of the First Industrial Revolution.
The “British” Industrial Revolution made for a fantastic twin engine of global trade. On
the one hand, steamships and trains could transport goods over thousands of miles,
both within countries and across countries. On the other hand, its industrialization
allowed Britain to make products that were in demand all over the world, like iron,
textiles and manufactured goods. “With its advanced industrial technologies,” the BBC
recently wrote, looking back to the era, “Britain was able to attack a huge and rapidly
expanding international market.”
The resulting globalization was obvious in the numbers. For about a
century, trade grew on average 3% per year. That growth rate propelled exports from a
share of 6% of global GDP in the early 19th century, to 14% on the eve of World War I.
As John Maynard Keynes, the economist, observed: “The inhabitant of London could
order by telephone, sipping his morning tea in bed, the various products of the whole
Earth, in such quantity as he might see fit, and reasonably expect their early delivery
upon his doorstep.”
And, Keynes also noted, a similar situation was also true in the world of
investing. Those with the means in New York, Paris, London or Berlin could also invest
in internationally active joint stock companies. One of those, the French Compagnie de
Suez, constructed the Suez Canal, connecting the Mediterranean with the Indian Ocean
and opened yet another artery of world trade. Others built railways in India, or
managed mines in African colonies. Foreign direct investment, too, was globalizing.
While Britain was the country that benefited most from this globalization, as it
had the most capital and technology, others did too, by exporting other goods. The
invention of the refrigerated cargo ship or “reefer ship” in the 1870s, for example,
allowed for countries like Argentina and Uruguay, to enter their golden age. They
started to mass export meat, from cattle grown on their vast lands. Other countries,
too, started to specialize their production in those fields in which they were most
competitive.
But the first wave of globalization and industrialization also coincided with darker
events, too. By the end of the 19th century, the Khan Academy notes, “most
[globalizing and industrialized] European nations grabbed for a piece of Africa, and by
1900 the only independent country left on the continent was Ethiopia”. In a similarly
negative vein, large countries like India, China, Mexico or Japan, which were previously
powers to reckon with, were not either not able or not allowed to adapt to the industrial
and global trends. Either the Western powers put restraints on their independent
development, or they were otherwise outcompeted because of their lack of access to
capital or technology. Finally, many workers in the industrialized nations also did not
benefit from globalization, their work commoditized by industrial machinery, or their
output undercut by foreign imports.

The World Wars

It was a situation that was bound to end in a major crisis, and it did. In 1914,
the outbreak of World War I brought an end to just about everything the burgeoning
high society of the West had gotten so used to, including globalization. The ravage was
complete. Millions of soldiers died in battle, millions of civilians died as collateral
damage, war replaced trade, destruction replaced construction, and countries closed
their borders yet again.
In the years between the world wars, the financial markets, which were still
connected in a global web, caused a further breakdown of the global economy and its
links. The Great Depression in the US led to the end of the boom in South America, and
a run on the banks in many other parts of the world. Another world war followed in
1939-1945. By the end of World War II, trade as a percentage of world GDP had fallen
to 5% – a level not seen in more than a hundred years.
Second and third wave of globalization
The story of globalization, however, was not over. The end of the World War II
marked a new beginning for the global economy. Under the leadership of a new
hegemon, the United States of America, and aided by the technologies of the Second
Industrial Revolution, like the car and the plane, global trade started to rise once again.
At first, this happened in two separate tracks, as the Iron Curtain divided the world into
two spheres of influence. But as of 1989, when the Iron Curtain fell, globalization
became a truly global phenomenon.
In the early decades after World War II, institutions like the European Union, and
other free trade vehicles championed by the US were responsible for much of the
increase in international trade. In the Soviet Union, there was a similar increase in
trade, albeit through centralized planning rather than the free market. The effect was
profound. Worldwide, trade once again rose to 1914 levels: in 1989, export once again
counted for 14% of global GDP. It was paired with a steep rise in middle-class incomes
in the West.

Then, when the wall dividing East and West fell in Germany, and the Soviet
Union collapsed, globalization became an all-conquering force. The newly created World
Trade Organization (WTO) encouraged nations all over the world to enter into free-
trade agreements, and most of them did, including many newly independent ones. In
2001, even China, which for the better part of the 20th century had been a secluded,
agrarian economy, became a member of the WTO, and started to manufacture for the
world. In this “new” world, the US set the tone and led the way, but many others
benefited in their slipstream.
At the same time, a new technology from the Third Industrial Revolution, the
internet, connected people all over the world in an even more direct way. The orders
Keynes could place by phone in 1914 could now be placed over the internet. Instead of
having them delivered in a few weeks, they would arrive at one’s doorstep in a few
days. What was more, the internet also allowed for a further global integration of value
chains. You could do R&D in one country, sourcing in others, production in yet another,
and distribution all over the world.
 The result has been a globalization on steroids. In the 2000s, global exports
reached a milestone, as they rose to about a quarter of global GDP. Trade, the sum of
imports and exports, consequentially grew to about half of world GDP. In some
countries, like Singapore, Belgium, or others, trade is worth much more than 100% of
GDP. A majority of global population has benefited from this: more people than ever
before belong to the global middle class, and hundred of millions achieved that status
by participating in the global economy.

Globalization 4.0
That brings us to today, when a new wave of globalization is once again upon
us. In a world increasingly dominated by two global powers, the US and China, the new
frontier of globalization is the cyber world. The digital economy, in its infancy during the
third wave of globalization, is now becoming a force to reckon with through e-
commerce, digital services, 3D printing. It is further enabled by artificial intelligence,
but threatened by cross-border hacking and cyberattacks.
At the same time, a negative globalization is expanding too, through the global
effect of climate change. Pollution in one part of the world leads to extreme weather
events in another. And the cutting of forests in the few “green lungs” the world has left,
like the Amazon rainforest, has a further devastating effect on not just the world’s
biodiversity, but its capacity to cope with hazardous greenhouse gas emissions.
But as this new wave of globalization is reaching our shores, many of the world’s
people are turning their backs on it. In the West particularly, many middle-class
workers are fed up with a political and economic system that resulted in economic
inequality, social instability, and – in some countries – mass immigration, even if it also
led to economic growth and cheaper products. Protectionism, trade wars and
immigration stops are once again the order of the day in many countries.
As a percentage of GDP, global exports have stalled and even started to go in
reverse slightly. As a political ideology, “globalism”, or the idea that one should take a
global perspective, is on the wane. And internationally, the power that propelled the
world to its highest level of globalization ever, the United States, is backing away from
its role as policeman and trade champion of the world.
It was in this world that Chinese president Xi Jinping addressed the topic
globalization in a speech in Davos in January 2017. “Some blame economic
globalization for the chaos in the world,” he said. “It has now become the Pandora’s
box in the eyes of many.” But, he continued, “we came to the conclusion that
integration into the global economy is a historical trend. [It] is the big ocean that you
cannot escape from.” He went on the propose a more inclusive globalization, and to
rally nations to join in China’s new project for international trade, “Belt and Road”.
It was in this world, too, that Alibaba a few months later opened its Silk Road
headquarters in Xi’an. It was meant as the logistical backbone for the e-commerce giant
along the new “Belt and Road”, the Paper reported. But if the old Silk Road thrived on
the exports of luxurious silk by camel and donkey, the new Alibaba Xi’an facility would
be enabling a globalization of an entirely different kind. It would double up as a big
data college for its Alibaba Cloud services.
Technological progress, like globalization, is something you can’t run away from, it
seems. But it is ever changing. So how will Globalization 4.0 evolve? We will have to
answer that question in the coming years.

Actors that Facilitate Economic Globalization

A global actor refers to any social structure which is able to act and influence and
engage in the global or international system.  This Gateway highlights these specific
actors:

1. International Economic and Financial Organizations

International economic and financial organizations provide the structure and funding for
many unilateral and multilateral development projects. Such organizations deal with the
major economic and political issues facing domestic societies and the international
community as a whole. Their activities promote sustainable private and public sector
development primarily by: financing private sector projects located in the developing
world; helping private companies in the developing world mobilize financing in
international financial markets; and providing advice and technical assistance to
businesses and governments,

2. International Governmental Organizations (IGOs)

IGOs have international membership, scope and presence. Their primary members
consist of sovereign states. These organizations bring member states together to
cooperate on a particular theme or issues that have global impacts and implications
such as human rights, trade, development, poverty, gender or migration.

3. Media
As the world becomes ever more complex and interconnected, access to information
must play an increasingly central role in every problem facing development specialists.
At the individual level, access to information allows people to make informed choices—
to decide how to vote, to educate themselves on critical health issues, to get the
market data they need to sell their products, and ultimately to participate in the global
community. 

4. Multilateral Development Banks

Multilateral development banks are international financial institutions owned by
countries. In addition to the World Bank Group, there are four regional multilateral
development banks: the Inter-American Development Bank, the African Development
Bank, the Asian Development Bank, and the European Bank for Reconstruction and
Development. These institutions provide loans, grants, guarantee, private equity and
technical assistance to public and private sector projects in developing countries.

5. Nation-States
Nation-states  refer to a certain form of state that derives its political legitimacy from
serving as a sovereign entity for a nation within its sovereign territorial space. The
state 
is a political and geopolicial entity while the nation is a cultural and/or ethnic entity The
term "nation-state" implies that the two geographically coincide, and this distinguishes
the nation state from the other types of state, which historically preceded it.

6. Non-Governmental Organizations (NGOs)

Non-governmental organization (NGO) refers to a legally constituted organization
created with no participation or representation of any government and driven . These
organizations are task-oriented perform a variety of service and humanitarian functions.
Some are organized around specific issues such as human rights, environment, gender,
or health. In many jurisdictions these types of organization are defined as "civil society
organizations."

7. Trans-National Corporations (TNCs)

"Transnational Corporations exert a great deal of power in the globalized world
economy. Many corporations are richer and more powerful than the states that seek to
regulate them. Through mergers and acquisitions corporations have been growing very
rapidly and some of the largest TNCs now have annual profits exceeding the GDPs of
many low and medium income countries. It is important to explore how TNCs dominate
the global economy and exert their influence over global policy making."    

8. United Nations (UN) System

The United Nations (UN) is an intergovernmental organization that aims to
maintain international peace and security, develop friendly relations among nations,
achieve international cooperation, and be a centre for harmonizing the actions of
nations. It is the largest, most familiar, most internationally represented and most
powerful intergovernmental organization in the world. 

Apply

List the global actors of economic globalization, its role in economic globalization and
provide at least two examples for each.
Global Economic Role in Facilitating Economic Examples
Actors Globalization
Assess:
Answer the following questions.
1. Discuss in brief the concept of Economic Globalization.

2. How does the increasing integration of economies facilitated by the different

economic actors?

3. What economic ideology dominates the world today? How do countries respond to
this ideology?

4. How are we affected by the phenomenon of economic globalization?

References: 
Vanham, P. (2020). A Brief History of Globalization. World Economic Forum. 
Retrieved From: https://www.weforum.org/agenda/2019/01/how-globalization-4-0-fits-
into-the-history-of-globalization/ Date Retrieved: September 28, 2020

Lund University (2020). Global Research Gateways: Global Actors. Lund University
Library. 
Retrieved From: https://libguides.lub.lu.se/c.php?g=489859&p=3368635
Date: September 28, 2020