Lesson 2 - The Global Economy Flashcards
In the past lesson, you learned about the concept of globalization and the three aspects or approaches to its study. In this module, you will learn more about economic globalization, its origin and development, as well as the factors and actors that facilitate it. You will discover the significant events that led to the modern world economy we have today. Moreover, you will also find out about the Modern World System Theory by Immanuel Wallerstein and its application to the global economy.
What is the definition of economy?
The system of production, distribution, and consumption of goods and services.
What is economic globalization according to the International Monetary Fund?
It is a historical process resulting from human innovation and technological progress, characterized by the rapid interconnection of economies through cross-border movement of goods, services, and resources. It can also include the flow of people (labor) and information (technology) across international boundaries.
How does economic globalization transform the world economy?
It transforms the world economy into an “organic system” by expanding transnational economic ties to a growing number of countries and deepening their economic interdependence.
What are the two distinct types of economies linked with economic globalization?
Protectionism and Trade Liberalization
What is protectionism?
A policy of systematic government intervention in foreign trade with the objective of encouraging domestic production. This involves giving preferential treatment to domestic producers and discriminating against foreign competitors, often through trade barriers like quotas and tariffs.
What are the main forms of trade barriers?
- Tariffs
- Quotas
What are tariffs and quotas?
Tariffs are fees imposed on imports or exports, while quotas restrict the quantity or monetary value that a state may import or export in a specified time.
What is trade liberalization?
The removal or reduction of restrictions or barriers on the free exchange of goods between nations. These barriers include tariffs and nontariff barriers like licensing rules and quotas. Economists often view the easing or eradication of these restrictions as steps to promote free trade
What major event influenced the transition from protectionism to trade liberalization?
World War II.
What was the Silk Road in 130 BCE-1453 CE?
The first known trading route, connecting China to the Middle East and Europe. Although international, it was not global because it did not cross the American continent.
What characterized the mercantilist era in the 1400s to 1830s?
International trading in Europe was mostly used to accumulate surplus (gold reserves), and it was best described as a global zero-sum game
In 1846, what event made free trading possible in Britain?
The abolition of the British Corn Laws after Europe’s Industrial Revolution.
In 1867, what was the Gold Standard?
A shared structure introduced in 1867 to allow for more productive trade while avoiding the isolationism of the mercantile age, establishing a shared basis for currency rates and a fixed exchange rate regime dependent on gold’s value.
What happened at Bretton Woods in 1944?
Delegates from 44 countries agreed on the gold exchange standard, an adjustable peg system.
In 1944-1950, what was the original intention for the International Trade Organization (ITO)?
It should have directed the current international trade regime as one of the Bretton Woods System’s three pillars.
What is the GATT in 1944-1950?
The General Agreement on Tariffs and Trade, which nations committed to in place of the ITO, agreeing to align their actions under its auspices towards a future of lower tariffs.
What was the Trade Expansion Act of 1962?
The creation of the European Economic Community in 1957 enforced the United States to adopt the Trade Expansion Act of 1962.
What was the Uruguay Round happened between 1986 and 1994?
Multilateral trade negotiations carried out between 1986 and 1994 that gave birth to the World Trade Organization in 1995.
What are fiat currencies?
Currencies that are not backed by precious metals and whose worth is measured by their value compared to other currencies.
What does the World Trade Organization (WTO) do?
It governs the interactions of countries within the purview of exchange of goods and services and continues negotiations for lowering trade barriers.
What is Immanuel Wallerstein’s World System Theory?
A theory that divides the global economy into core, periphery, and semi-periphery countries, based on their economic status and relationships.
According to Wallerstein, what characterizes core countries?
High-income economies that are the planet’s industrial base, where raw materials and resources are funneled.
According to Wallerstein, what characterizes periphery countries?
Low-income nations whose natural resources and labor sustain wealthy countries.
According to Wallerstein, what characterizes semi-periphery countries?
Middle-income countries with strong relations to the rest of the world. Examples are India and Brazil.
How are periphery countries economically dependent on core countries in Wallerstein’s model?
Developing countries have few commodities to sell to rich nations and lack production capability, leading to unfair trading practices and debt.
What is a critique of Wallerstein’s World System Theory?
That the global economy is not a zero-sum game and that innovation and technological advances can benefit all nations. Also, colonialism alone cannot justify today’s economic inequalities
