By: Prof. CESAR A. ARAO, Ph.D.

Subject Professor
 The following will be discussed:
The Rise of Economic Globalization;
The Beginning of Full Economic
Globalization;
Define Economic Globalization
Actors that Facilitate Economic
Globalization;
Global Economy; and
Modern World System
 At the end of the lesson, you would be able to:
Define Economic Globalization
Identify the actors that facilitate economic
globalization.
Define the Modern World System.
Articulate a stance on Global Economic
Integration.
Let us Trace How Economic
Globalization Came About
 One of the contributory factor for the
implementation of Economic Globalization is the so
called:

International Trading System

International Trading System
International trading systems are not new. This has
existed throughout history, its economic, social and
political has been on the rise in recent centuries. In
most countries, trade represents a significant share of
gross domestic product (GDP).
The process of trade between countries of different
economic standing, international economic
organizations were formed, like the World Trade
Organization. This organization work towards the
facilitation and growth of international trade.
 The oldest form of international trading
system was the SILK ROAD. The Silk
Road was a network of trade routes which
connected the East and West, and was
central to the economic, cultural, political,
and religious interactions between these
regions from the 2nd century BCE to the
18th century.
 The Silk Road derives its name from the lucrative trade
in silk carried out along its length, beginning in the Han
dynasty in China (207 BCE–220 CE).
The Silk Road trade played a significant role in the
development of the civilizations of China, Korea,
Japan, the Indian subcontinent, Iran, Europe, the Horn of
Africa and Arabia, opening long-distance political and economic
relations between the civilizations. Though silk was the major
trade item exported from China, many other goods and ideas
were exchanged, including religions (especially
Buddhism), syncretic philosophies, sciences, and technologies
like paper and gunpowder.
Source:
Miho Museum News (Shiga, Japan) Volume 23 (March 2009). "Eurasian winds toward Silla". Archived from the original on 9 April 2016.
Gan, Fuxi (2009). Ancient Glass Research Along the Silk Road. Shanghai Institute of Optics and Fine Mechanics, Chinese Academy of Sciences (Ancient Glass
Research along the Silk Road, World Scientific ed.). p. 41. ISBN 978-981-283-356-3. Archived from the riginal on 27 February 2018.
Elisseeff, Vadime (2001). The Silk Roads: Highways of Culture and Commerce. UNESCO Publishing / Berghahn Books. ISBN 978-92-3-103652-1.
 Traders used the Silk Road regularly
from 130 Before Common Era (BCE) when
the Chinese Han Dynasty opened trade to
the West until 1453 BCE when the Ottoman
Empire closed it.
So in addition to economic trade, the
Silk Road was a route for cultural trade
among the civilizations along its
network. Diseases, most notably plague,
also spread along the Silk Road.
 Silk Road was an ancient network of trade routes
formally established during the HAN DYNASTY in
China which connected Asia, Africa and Europe.

Silk Road was international not truly global because

it had no ocean routes that could reach the American
continent.
When Did Full Economic
Globalization Begin?
 According to historians Dennis O. Flynn
and Arturo Giraldez, the age of economic
globalization began when “all important
populated continents began to exchange
products continuously – both with each
other directly and indirectly via other
continent – and in values sufficient to
generate crucial impacts on all trading
partners.”1
 Trace back to 1571 with the
establishment of Galeon
Trade that connect Manila in
the Philippines and Acapulco
in Mexico was the first time
when the Americas were
directly connected to Asia
Trading Routes. This is
important to note that
economic globalization began
when different countries
country’s exchange products
continuously within its
boundary around the globe.
 The galleon trade was part of the age of
mercantilism. From the 16th century to 18th
century, countries, primarily in Europe,
competed with one another to sell more
goods in order to boost their country’s
income. To defend their products from
competitors, the monarchies, imposed
penalty for those who sold products in a
very cheap price. Such penalty were:

a. High Tariffs on the imported products

b. Forbade colonies to trade with other nations
c. Restricted trade routes and Subsidized its exports
Mercantilism was a system of global trade with
multiple restrictions
 Economic Globalization - refers to the
increasing integration of economies around the
world, particularly through the movement of
goods, services and capital across borders. This
also refers to the movement of people (labor)
and knowledge (technology) across
international borders. In other words, the
increasing interdependence of world economies
as result of the growing scale of cross-border
trade of commodities and services, flow of
international capital, and wide and rapid spread
of technologies.
 The International Monetary Fund (IMF) defined
Economic Globalization as the process representing
the result of human innovation and technological
progress. It is characterized by the increasing
integration of economies around the world through
movement of goods, services, and capital across
boarders.
 1. The globalization of goods and services;
2. The globalization of financial and capital;
3. The globalization of technology; and
4. The globalization of production.
Hence, in the interest of international commerce,
the following must be given importance:
a. Communication System
b. Transportation System
c. Trading System
 Communication System
1. Modern communication technology and mass media are
global standards.
2. Its relativity easy and inexpensive to stay in touch.
Transportation System
1. Travel and Shipping are cheaper and safe.
2. Advances in transportation technology allow people
and goods to be quickly transported almost anywhere in
the world.
Trading System
1. Multi-national Corporation have Global Reach and
Increasing Power.
2. Governments have decreases tariffs and Regulation on
international trade.
 Two Different Types of Economies
a. Protectionism – means a policy of systematic
government intervention in foreign trade with the
objectives of encouraging domestic production. The
encouragement involves giving preferential treatment
to domestic producers and discriminating against
foreign competitors. This means that in protectionism
this protects one’s economy from foreign competition by
creating trade barriers. Trade barriers usually comes
from quotas and tariffs. Tariffs are required fees on
imports and exports products. (Ex. Canada – putting
high tariff on their dairy products)
 PROTECTIONISM
• Protecting one’s economy from foreign competition
by creating a trade barriers:
* Tariff – Tax levied by a government on imports
and exports. The money collected from
tariffs is called Custom Duties.
* Import Quota – limits on the number of
products that can be imported into the
country.
* Ban – forbid products on import goods.
• Domestic Products > Imported Goods
 b. Trade Liberalization – is the removal or reduction
of restrictions or barriers on the free exchange of
goods between nations. This includes the removal or
reduction of tariff obstacles, such as duties and
surcharges, and nontariff obstacles, such as licensing
rules, quotas and other requirements. Economists
often view the easing or eradication of these
restrictions as promoting free trade.
In other words, Trade Liberalization is the process
of reducing trade barriers to make international
trade easier between countries.
Two Things That Make International Trade Easier
a. Free Trade - is the trading of goods and services
between two or more countries without imposing tariffs
or taxes.
Hence, this allows countries to trade
goods without regulatory barriers or their associated
costs. This decreases costs for countries that trade with
other nations and may, ultimately, result in lower
consumer costs because imports are subject to lower
fees and there is increased competition.
e.g. “connection b/w Canada and South Korea , where their
GDP increase to 97.8% and 98.2%, respectively.
b. Trade Bloc – refers to the agreement between
governments to reduce or eliminate barriers.

e.g. NAFTA (North America Free Trade Agreement)

consist of Canada, Mexico and United States.
 Intergovernmental Organization (IGO)
- World Bank (WB)
- International Monetary Fund (IMF)
- World Trade Organization (WTO)
 State - that rule over a define territory
 Government – the political direction and control over
the actions of the citizens of the state.
Multi-Business Companies - companies that operates in
more than one countries.
Non-Governmental Organization (NGO) – non-profit
group organization voluntarily organized in the local,
national and in international level.
 Activist Groups – groups who campaign for the political
and social change.
 The World Bank is an international organization
dedicated to provide financing, advice, and research
to developing nations to aid their economic
advancement. The bank predominantly acts as an
organization that attempts to fight poverty by
offering developmental assistance to middle- and
low-income countries.
As a provider of financial and technical assistance
to individual countries around the globe. The bank
considers itself a unique financial institution that
sets up partnerships to reduce poverty and support
economic development.
 This was to be the global lender of last resort to
prevent individual countries from spiraling into
credit crises. If economic growth in a country slowed
down because there was not enough money to
stimulate the economy, the IMF would step in to help
countries facing financial crises. This institution
provides a short term loans to countries when an
emergencies occurs.
To this day, both WB and IMF remain key players
in economic globalization.
 The World Bank was created in 1944 out of the Bretton
Woods Agreement, which was secured under the auspices of
the United Nations in the latter days of World War II. The
Bretton Woods Agreement included several components: a
collective international monetary system, the formation of the
World Bank, and the creation of the International Monetary
Fund (IMF). Since the founding of both the World Bank and
the International Monetary Fund have worked together
toward many of the same goals. The original goals of both the
World Bank and IMF were to support European and Asian
countries needing financing to fund post-war reconstruction
efforts.
 Both the World Bank and IMF outlasted the collective
international monetary system which was central to the
Bretton Woods Agreement. President Nixon halted the
Bretton Woods international monetary system in the 1970s.
However, the World Bank and IMF remained open and
continued to thrive on providing worldwide aid.
The Bretton Woods Agreement was negotiated in 1944 by
delegates from 44 countries during the United Nations
Monetary and Financial Conference held in Bretton Woods,
New Hampshire.
• Formerly known as General Agreement on Tariffs and Trade
(GATT).
• Works to improve trade relations among the countries of
the world.
• Remove tariffs and other trade barriers or disputes between
countries.
• Deals with the rules of trade between nations, settles trades
disputes and conduct straight negotiations.
e.g. (May 2013) Japan and European Union brought a case
to WTO regarding unfair renewable energy serves offered in
Ontario.
1. The WTO provides a forum for negotiating agreements
aimed at reducing obstacles to international trade and
ensuring a level playing field for all, thus contributing to
economic growth and development.
2. The WTO also provides a legal and institutional
framework for the implementation and monitoring of
these agreements, as well as for settling disputes arising
from their interpretation and application. The current
body of trade agreements comprising the WTO consists of
16 different multilateral agreements (to which all WTO
members are parties) and two different plurilateral
agreements (to which only some WTO members are
parties).
Three Fundamental Factor that Affects the Process of
Economic Globalization.
1. Improvements in the technology of transportation and
communication have reduced the costs of transporting goods,
services, and factors of production and of communicating
economically useful knowledge and technology.
2. The tastes of individuals and societies have generally, but not
universally, favored taking advantage of the opportunities
provided by declining costs of transportation and
communication through increasing economic integration.
3. Public policies have significantly influenced the character and
pace of economic integration, although not always in the
direction of increasing economic integration.
 Defining Global Economy
Global Economy refers to the interconnected
worldwide economic activities that take place between
multiple countries. These economic activities can have
either a positive or negative impact on the countries
involved. Considered as the international exchange of
goods and services that is expressed in monetary units of
account in some contexts, the two terms are
distinguished: the "international" or "global economy"
being measured separately and distinguished
from national economies while the "world economy" is
simply an aggregate of the separate countries'
measurements.
The global economy comprises several characteristics, such as:

a. Globalization: Globalization describes a process by which national

and regional economies, societies, and cultures have become
integrated through the global network of trade, communication,
immigration, and transportation. These developments led to the
advent of the global economy. Due to the global economy and
globalisation, domestic economies have become cohesive, leading to
an improvement in their performances.
b. International trade: International trade is considered to be
an impact of globalisation. It refers to the exchange of goods and
services between different countries, and it has also helped countries
to specialise in products which they have a comparative advantage in.
This is an economic theory that refers to an economy's ability to
produce goods and services at a lower opportunity cost than its trade
partners.
The global economy comprises several characteristics, such as:

c. International finance: Money can be transferred at a faster

rate between countries compared to goods, services, and
people; making international finance one of the primary
features of a global economy. International finance consists of
currency exchange rates and monetary policy.
d. Global investment: This refers to an investment strategy that
is not constrained by geographical boundaries. Global
investment mainly takes place via foreign direct investment
(FDI).
Benefits of Global Economy
There are numerous benefits of global economy, among
these are the following:
a. Free trade: Free trade is an excellent method for countries to
exchange goods and services. It also allows countries to
specialise in the production of those goods in which they have
a comparative advantage.
b. Movement of labour: Increased migration of the labour force
is advantageous for the recipient country as well as for the
workers. If a country is going through a phase of high
unemployment, workers can look for jobs in other countries.
This also helps in reducing geographical inequality.
Benefits of Global Economy

c. Increased economies of scale: The specialisation of goods

production in most countries has led to advantageous
economic factors such as lower average costs and lower prices
for customers.
d. Increased investment: Due to the presence of global economy,
it has become easier for countries to attract short-term and
long-term investment. Investments in developing countries go
a long way in improving their economies.
 A world-system are defined by the existence of a
division of labor. The modern world-system has a multi-
state political structure (the interstate system) and
therefore its division of labor consists of three zones
according to the prevalence of profitable industries or
activities. These distributed into: core, semiperiphery,
and periphery.
The Core Countries are nations having a high-income
of the world economy. This core is the manufacturing
base of the planet where resources funnel in to become
the technology and wealth enjoyed by the western world
today.
 The Periphery are nations having low-
income of the world economy, whose
natural resources and labor support the
wealthier countries, first as colonies and
now by working for multinational
corporations under neocolonialism.
The Semi-Periphery are nations with a
middle-income in the world economy or
having a closer ties to the global economic
core.
 The most well-known version of
the world-system approach has been
developed by Immanuel Wallerstein
known as the Core-Periphery Periphery : Have-Nots
Model which explain that economy, Rural
political and/or cultural and power Core: Haves Mining
Urban Forestry
is spatially distributed into
Social Elites Agriculture
dominant, economically powerfull Financial Power
Little Power
countries (Core) and into marginal Educational
System Brain Drain
or dependent countries (Semi-
Low Wages
Periphery/Periphery).
Under this model, it suggest that
the world economic system some
countries were benefited and the
others have been exploited, these are
characterized into “HAVES“ and the
“HAVE-NOTS”.
 Core – dominate and exploit
peripheral countries for labor
and raw materials.
 Periphery – countries that are
dependent upon core countries
for capital.
 Semi-Periphery – countries
that shares characteristics of
both
 Semi
CORE Periphery Periphery
Dominant Capitalist Countries Lack Strong Central
Government Newly Industrialized
May be control by another
Strong Military Power State Median Standard of Living
No Dependency upon Other Export Raw Materials to the Citizens often have diverse
Countries Core economic activities but
typically have a significant gap
between the rich and the poor.
Serve the Needs of Higher May Depend Upon Core for
Capital
Economy is Focused Upon
Higher-Skill, Capital- Underdeveloped Industry
Extensive.
Because of their Power, they
can obtain lower prices for raw Low-Skill, Labor-Intensive
materials and cheap labor. Production (Cheap Labor)