Module 2 : The Global Economy Flashcards
is a multi-dimensional process although it has always been thought as an economic phenomenon.
Globalization
For anthropologist Arjun Appadurai, different kinds of globalization occur on multiple and intersecting dimensions of intersections which he calls
Scapes
is a historic process, the result of human innovation and technological progress.
Global Economy
It refers to the increasing integration of economies around the world through the movement of goods, services, and capital across borders.
Global Economy
For Benczes (2014), economic globalization can thus have several interconnected dimensions such as the following:
- The globalization of trade of goods and services;
- The globalization of financial and capital markets;
- The globalization of technology and communication; and
- The globalization of production
According to Szentes (2003), it is a process making the world economy an “organic system” by extending transnational economic processes and economic relations to more and more countries and by deepening the economic interdependence among them.
Global Economy
According to them, globalization began since homo sapiens began from migrating from the African continent to populate the rest of the world.
Grills and Thompson
According to them, Globalization considered the Silk Road (Asia, Europe, Africa) the best example for archaic globalization 5,000 years ago.
Frank and Grills
He considered the discovery of America by Christopher Columbus in 1492 and the discovery of the direct sea route to India by Vasco de Gama in 1498 as the two (2) greatest achievements of human history.
Adam Smith
According to him, if global economy did exist during 1500 to 1800, it was only in the sense of trade and exchange rather than production. Countries were mostly self-sufficient and autarkic, the UK and the Netherlands being the only exceptions.
Gereffi
According to him, the real breakthrough came only in the 19th century. The annual average compound growth rate of world trade saw a dramatic increase 4.2 per cent between 1820 to 1870, and was relatively high, at 3.4 per cent between 1870 and 1913.
Maddison
is often referred to as the “golden age” of globalization, characterized by relative peace, free trade and financial and economic stability
World War I
According to them, the age of globalization began when “all important populated continents began to exchange products continuously and its values sufficient to generate crucial impacts on all trading partners.”
Dennis Flynn and Arturo Giraldez
connected Manila in the Philippines and Acapulco in Mexico.
Galleon trade
his was the first time the Americas were directly connected to Asian trading routes
Galleon trade
According to Salvatore (2007), ________________ refers to rules, customs, instruments, facilities, and organizations for effecting international payments.
international monetary system
In the liberal tradition, the main task of ________is to facilitate cross-border transactions involving trade and investment.
international monetary system
According to Cohen (2000), is more than just money or currencies; it also reflects economic power and interests as money is inherently political, an integral part of high politics of diplomacy.
international monetary system
was believed to guarantee a non-inflationary, stable, economic environment, a means for accelerating international trade.
Gold
According to ________, Germany joined the IMS in 1872, France in 1878, United States in 1879, Italy in 1884, Russia in 1897 and roughly 70 per cent of the nations participated in the gold standard just before the outbreak of World War I.
Meisser
During ______________, when countries depleted their gold reserves to fund their armies, many were forced to abandon the gold standard. Since Europeans have low gold reserves, they adopted floating currencies that were no longer redeemable in gold
World War I
The US dollar was the only convertible currency of the time, so the US committed itself to sell and purchase gold without restrictions at US$35 an ounce. All other participating but not convertible currencies were fixed to the US dollar
Gold Exchange Standard
became responsible for post-war reconstruction, while the explicit mandate of International Monetary Fund (IMF) was to promote international financial cooperation and buttress international trade
The International Banks Reconstruction and Development (IBRD or World Bank)
was largely influenced by the ideas of British economist John Maynard Keynes who believed that economic crisis occurs not when a country does not have enough money, but when money is not being spent and, thereby, not moving.
Bretton Woods system
When economies slow down, according to Keynes, governments have to reinvigorate markets with infusions of capital.
global Keynesianism
It’s’ main purpose was to reduce tariffs and other hindrance to free trade
General Agreement on Tariffs and Trade (GATT)
They argued that the governments’ practice of pouring money into their economies had caused inflation by increasing demand for goods without necessarily increasing supply.
Friedrich Hayek and Milton Friedman
Friedrich Hayek and Milton Friedman believed that government intervention in economies distort the proper functioning of the market. Critics labelled this thinking as?
neo-liberalism
is a set of 10 economic policy reform package set by Washington-based institutions such as the International Monetary Fund (IMF), World Bank (WB), United States Department of the Treasury and eventually by the World Trade Organization (WTO).
The Washington Consensus
Rules under Washington Consensus (list 5):
- Fiscal policy discipline
- Effective public spending
- Tax reform
- Competitive exchange rates
- Trade liberalization
After the signing of the _____________, the European Economic Community was established by Germany, France, Italy, Netherlands, Belgium and Luxembourg. The original six (6) founding members created a common market where goods and services, capital and labor moved freely
Rome Treaty
European Economic Community was established by? The original six (6) founding members created a common market where goods and services, capital and labor moved freely.
Germany, France, Italy, Netherlands, Belgium and Luxembourg.
was formally established when the Maastricht Treaty came into force in 1993.
European Union (EU)
_______ became the second most widely used reserve currency
Euro
According to Ohmae (1995), __________ceased to exist as primary economic organization units in the wake of a global market.
states
To ___________, globalization transforms the national economy into a global one where there will be no national products or technologies, no national corporations, no national industries.
Reich (1991)
According to them, globalization is redefining the role of nation-state as an effective manager of the national economy. The state is the main shelter from the perverse effects of a free market economy.
Boyer and Drache (1996)
According to him, governments are acting as the midwives of globalization.
Brodie (1996)
admit states are not influenced uniformly by globalization.
Milner and Keohane
According to _____________, the major players of present global economy are the transnational corporations (TNCs) which account roughly two-thirds of world export.
Gereffi (2005)
are concerned more with profits than with assisting the social programs of the governments hosting them.
TNCs
refers to countries’ lowering their labor standards, including the protection of workers’ interests, to lure foreign investors seeking high profit margins at the lowest cost possible.
race to the bottom
weakens environmental laws to attract investors, creating fatal consequences on their ecological balance and depleting them of their finite resources like coal, oil and minerals
Government
is, however, considered to be a myth. More concerns have been raised with regard to its impact on the worldwide distribution of income.
Contemporary globalization
They argue that only non-globalizer countries failed to reduce absolute and relative poverty in the last few decades. On the other hand, countries that have embraced globalization (trade openness) have benefited from openness considerably.
Dollar and Kraay
claimed that globalization can indeed reduce poverty but it definitely does not benefit all nations.
World Bank
This claims that capitalism under globalization reinforces the structural patterns of unequal change
world system analysis
a historical social system, created a dramatically diverging historical level of wages in the economic arena of the world system.
capitalism
It is the widespread international
movement of goods, capital, services,
technology and information
Economic Globalization
It refers to an entity created by treaty, involving two or
more nations, to work in good faith, on issues of common
interest.
International governmental organizations
It include charities, non-profit advocacy groups, business
associations, and cultural associations.
International non-governmental
organizations (NGOs)
have international supply chains, favoring manufacturing in low-cost countries.
Businesses
nvolves the contracting out of a
business process (e.g. payroll processing, claims processing) and
operational, and/or non-core functions (e.g. manufacturing, facility management, call center support) to another party.
Outsourcing
have business operations in multiple countries, either simply
because they want to sell goods and services into the local market, or because a given country has advantages like natural resources, low wages, low taxes, or a useful talent pool.
Multinational corporations
transfer significant amounts of money through remittances to lower-income relatives.
International migrants
Benefits of Globalization: (FET)
Foreign Direct Investment
Technological Innovation
Economies of Scale
Risks of Globalization (NEI):
Interdependence
National Sovereignty
Equity Distribution
tends to increase at a much greater rate than the growth in worldtrade, helping boost technology transfer,
industrial restructuring, and the growth of global companies.
Foreign Direct Investment
Increased competition from globalization helps stimulate new technology development, particularly with the growth in FDI, which helps improve economic output by making processes more efficient.
Technological Innovation
Globalization enables large companies to realize economies of scale that reduce costs and prices, which in turn supports further economic growth, although this can hurt many small businesses attempting to compete domestically.
Economies of Scale
Globalization leads to
the interdependence between nations, which could cause regional or global instabilities if local economic fluctuations end up impacting a large number of countries relying on them.
Interdependence
Some see the rise of nation-states, multinational or global firms and other international organizations as a threat to sovereignty. Ultimately, this could cause some leaders to become nationalistic or xenophobic
National Sovereignty
The benefits of globalization can be unfairly skewed towards rich nations or individuals, creating
greater inequalities and leading to potential conflicts both nationally and internationally as a result.
Equity Distribution
is the exchange of capital, goods, and services across international
borders or territories.
International Trading System
in which countries gradually cut down trade barriers and opened up their current accounts and capital accounts.These organisations work towards the facilitation and growth of international trade.
General Agreement on Tariffs and Trade
It replaced the gold standard
with the U.S. dollar as the global currency.
BRETTON WOODS SYSTEM
It is a monetary system where a country’s currency or paper money
has a value directly linked to gold
THE GOLD STANDARD
a term to describe currency that is used because of a government’s order.
Fiat money
that the currency must be accepted as a means of payment.
fiat
Today, ________ is used by the banks as a way to hedge against loans
made to their government and as an indicator of economic health.
Gold
Compare Fiat Currency VS. Cryptocurrency
FIAT CURRENCY | Physical/credit currency, unlimited supply, centralized, government issued, can come with interest, government regulation and market control value
CRYPTOCURRENCY | Digital currency, Limited supply, Decentralized, Computer produced, No interest at all, and supply and demand control value
They were then entitled to
borrow what it needed, within
the limits of its contributions.
IMF
is to loan money to economic
development projects in
emerging market countries.
WORLD BANK
They are both known for
their strong belief in free-market capitalism.
Friedrich Hayek and Milton Friedman
It is a policy model—bridging politics, social studies, and
economics—that seeks to transfer control of economic
factors to the private sector from the public sector.
NEOLIBERALISM
Critics argue that advocating the use of free markets in areas, such as health and education is misplaced because by nature these are public services, which are not subject to the same profit motivation.
Market fundamentalism
A broadly neoliberal policy has seen
a widening inequality of both wealth and income in the Western world. This is due to several factors, such as skilled workers in a position to command higher wages, but low-skilled workers in flexible labour markets more likely to see stagnant wages. Firms with monopoly power can increase producer surplus at the e
Monopoly and monopsony power.
have not necessarily helped economic development, but instead have contributed to increased financial instability, which has caused wider economic shocks, e.g. post 2007 credit crunch.
The growth of financial flows
An important problem for neoliberalism is that
policies which may work in one country doesn’t necessarily work in
all countries.
One size fits all.
It refers to the period of extreme stress in global financial markets
and banking systems between mid 2007 and early 2009.
THE GLOBAL FINANCIAL CRISIS (GFC)
followed cost many their jobs, their
savings, or their homes.
The Great Recession
kept the banks operating and slowly
restarted the economy.
Wall Street bailout
was primarily caused by deregulation in the financial industry. That permitted banks to engage in hedge fund
trading with derivatives.
2008 Global Financial
Crisis
raised the fed funds rate just as
the interest rates on these new mortgages reset.
the Federal Reserve
Causes of the 2008 Global Financial Crisis (CPDC)
- Caused by deregulation in the financial industry
- Permitted banks to engage in hedge fund trading
- Banks demanded more mortgages
- Created interest-only loans affordable to subprime borrowers
