Contemporary World Lesson 2

THE GLOBAL ECONOMY
At the end of the lesson student should be

able to:
1) Discuss the concept, actors involved, and processes in the global

economy.
2) Articulate a position on global economic integration..
CONTENT
 Defining Economic Globalization

 Convergence vs Divergence
 International Monetary System
 Gold Standard
 European Monetary Integration
 International Trade and Trade Policies
 Unilateral Trade to Multilateralism
ECONOMIC GLOBALIZATION
• According to International Monetary Fund as cited by Claudio Abanales, &

Patricio Economic globalization is a historical process representing the result of the
human innovation and technological progress.
• It also refers to the rapid interconnection of economies, especially through the
cross-border movement of goods, services, and resources. The term also
encompasses flow of people (labor) and information (technology) across
international boundaries .
• Origins
 Grill and Thompson (2006)
 16th Century connection of Americas to Afro-Eurasia
 Frank and Grills (1996)

 Very distant past (5000 B.C)
 Hirst and Thompson (2002)

 19th century that the world economy was even more integrated
16TH CENTURY CONNECTION OF AMERICAS TO
AFRO-EURASIA
VERY DISTANT PAST (5000 B.C)
HIRST AND THOMPSON (2002)
TWO TYPES OF ECONOMIES
• Protectionism- a policy of systematic government intervention in foreign trade with the

objective of encouraging domestic production. This encouragement involves giving
preferential treatment to domestic producers and discriminating against foreign
competitors.
• Trade Liberalization- is the removal or reduction of restrictions or barriers on the free

exchange of goods between nations. These barriers include tariffs, such as duties and
surcharges, and nontariff barriers, such as licensing rules and quotas. Economists often
view the easing or eradication of these restrictions as steps to promote free trade” (Bantone,
2019, para. 1).
INTERNATIONAL TRADING SYSTEMS: A
TIMELINE
• People only created for their families until the emergence of today's modern
world economy. Current economic trends necessitate cooperation among various
sectors to manufacture, distribute, and trade goods and services. What triggered
this change in how people manufacture products to fulfill their needs? We will
go back in time and get a better sense of this.
• From a unilateral trade order to multilateral trade order, economies of countries
have become more open and interconnected. The development of economic
globalization can be observed through the changes in its two aspects, namely,
finance and trade. The proceeding timeline outlines the key events that should be
noted in terms tracing how trading systems become more complex and global.
130 BCE TO 1453 BCE
• The Silk Road was the first known trading route. It was a network of ancient world
pathways that connected China to what is now the Middle East and Europe.
Although the Silk Road was international, it did not cross the American continent,
so it was not really global.
1400S TO 1830S
• International trading in Europe was mostly used to accumulate surplus (gold

reserves). As a result, the mercantilist era was best described as a global zero-sum
game. From Portugal to England, commerce and trade practices suited the needs of
monarchs who used surplus gold stocks to support battles and consolidate power
over domestic constituencies. During this time, the unilateral trade order was in
place.
1846
• Only after Europe's Industrial Revolution and the abolition of the British Corn
Laws did free trading became possible. Industrialists defeated landlords and
fishermen, paving the way for Britain’s further industrialization. New economic
tools, such as steam engines, manufacturing, and mass production bolstered the
growth of the economy.
1867
• At the international monetary conference in Paris, the United States and other
European nations followed the United Kingdom’s leadership and introduced the
Gold Standard. The overall aim was to establish a shared structure that would
allow for more productive trade while still avoiding the isolationism of the
mercantile age. As a result, the countries developed a shared basis for currency
rates and a fixed exchange rate regime, all of which were dependent on gold's
value.
1944-1950
• Since World War I, the United States was hesitant to assume the leadership role; however, this
was no longer the case two and a half decades later. In 1950, the dollar was backed up by two-
thirds of the world's gold reserves, making it a global currency. In 1944, delegates from 44
countries met in Bretton Woods, New Hampshire, to agree on the gold exchange standard, an
adjustable peg system.
• Originally, the International Trade Organization (ITO), which was conceived as
one of the Bretton Woods System's three pillars, should have directed the current
international trade regime (the other two being the International Monetary Fund
and the International Bank for Reconstruction and Development). Nations
committed to a future of lower tariffs agreed to align their actions under the
auspices of the General Agreement on Tariffs and Trade in place of the ITO
(GATT). A series of multilateral trade agreements or rounds was used by the
GATT to exercise control.
1957 TO 1970S
• In 1957, the creation of the European Economic Community enforced the Unites
States to adopt the Trade Expansion Act of 1962. In 1970s the Tokyo Round
proceeded with tariff cuts and adopted a series of code of conducts like the
subsidies code.
1986 TO PRESENT.
• By the early 1980s, intra-industry or even inter-company trade has become the
determining feature of the international division of labor. Multilateral trade
negotiations were carried out under the Uruguay Round between 1986 and 1994.
The Uruguay Round gave birth to a 'real' international trade institution, the
World Trade Organization in 1995.
• As for the aspect of finance, today, the global economy runs on what are known
as fiat currencies—currencies that are not backed by precious metals and whose
worth is measured by their value compared to other currencies. This mechanism
helps governments to control their economies more openly and actively by
increasing or reducing the amount of money in circulation if required (Claudio et
al., 2018).
• As for trade, the World Trade Organization (WTO) continue to govern the
interactions of countries within the purview of exchange of goods and services.
Negotiations for lowering of trade barriers are still being done among countries
to further facilitate smooth economic transactions.
IMMANUEL WALLERSTEIN’S WORLD
SYSTEM THEORY
• The history of colonization influenced the concept of the capitalist world economy developed by
American sociologist Immanuel Wallerstein. Wallerstein elaborated that in his World System
Theory, high-income economies are the “core” of the global economy. These core countries are
the planet's industrial base, where raw materials and resources are funneled into to become the
innovation and development that Western world enjoys today. Low-income nations, on the other
hand, are what Wallerstein referred to as the "periphery," whose natural resources and labor
sustain wealthy countries, first as colonies and now as laborers for multinational companies.
Because of their strong relations to the rest of the world, middle-income countries like India and
Brazil are considered semi-peripheries (Aldama, 2018).
• In Wallerstein's model, the periphery is economically dependent on the core in a
variety of ways that appear to strengthen one another. To begin with, developing
countries have little commodities to sell to rich nations. Corporations, on the
other hand, will import these raw materials for a low price and then refine and
export them in wealthier countries.
• Therefore, in this theory, it seemed that the rich countries are getting richer, and
the poor ones are getting poorer. Critics of the argument, on the other hand,
suggest that the global economy is not a zero-sum game, and that one country
becoming wealthy does not mean that other nations become poorer. Innovation and
technological advances will extend to other countries, benefiting all nations, not
just the wealthiest. Also, although colonialism left wounds, it is insufficient to
justify today's economic inequalities in its own. Some African nations, such as
Ethiopia, were never colonized and had no contact with wealthy countries.
Similarly, former colonies such as Singapore and Sri Lanka now have thriving
economies (Aldama, 2018).

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THE GLOBAL ECONOMY

At the end of the lesson student should be

1) Discuss the concept, actors involved, and processes in the global

 Defining Economic Globalization

• According to International Monetary Fund as cited by Claudio Abanales, &

 Frank and Grills (1996)

 Hirst and Thompson (2002)

• Protectionism- a policy of systematic government intervention in foreign trade with the

• Trade Liberalization- is the removal or reduction of restrictions or barriers on the free

• International trading in Europe was mostly used to accumulate surplus (gold

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