TCW UNIT TWO

Economic globalization

Economic globalization

refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital, and wide and rapid spread of technologies

TWO MAJOR DRIVING FORCES FOR ECONOMIC GLOBALIZATION

1. The rapid growth of information in all types of productive activities.

2. Marketization

Marketization

A restructuring process that enables state enterprises operate as market-oriented firms by changing the legal environment in which they operate and can be achieved through reduction of state subsidies, organizational restructuring of management such as corporatization, decentralization, and privatization.

Dimensions of Economic Globalization

1. The globalization of trade of goods and services.

2. The globalization of financial and capital markets.

3. The globalization of technology and communication.

4. The globalization of production

Economic globalization

is a functional integration between internationally dispersed activities which means that it is a qualitative transformation rather than quantitative change while internationalization is an extension of economic activities between internationally dispersed activities

Transnational corporation

otherwise known as multi-national corporation is a corporation that has a homebase, but is registered, operates, and has assets or other facilities in at least one other country at one time.

Examples are the US-based General Electric (GE), the Coca-Cola Company of Atlanta, Georgia, US Nike, and others.

In the 16th-century

world system, analysts identify the origin of modernity and globalization through long-distance trade in the 16th century. This best-known example of archaic globalization is the Silk Road, which started in western China, reached the boundaries of the Parthian empire, and continued onwards towards Rome.

In the 17th and 18th centuries,

the global economy exists only in trade and exchange rather than production as the world export to World GDP did not reach 1 to 2 percent.

In the 19th century,

the advent of globalization approaching its modern form is witnessed. A short period before World War I is referred to as the golden age of globalization is characterized by relative peace, free trade, and financial and economic stability

The global economy in the 19th and 20th centuries

grew by an average of nearly 4 percent per annum, which is roughly twice as high as growth in the national incomes of the developed economies since the late 19th century.

International monetary system (IMS)

refers to a system that forms rules and standards for facilitating international trade among nations. It helps in reallocating capital and investment from one nation to another. It is the global network of the government and financial institutions that determine the exchange rate of different currencies for international trade.

IMS

as rules, customs, instruments, facilities, and organizations for effecting international payments with the main task of facilitating cross-border transactions, especially trade and investment

EVOLUTION INTERNATIONAL MONETARY SYSTEMS

(From 1870 to 1914), with the help of gold and silver, trade was carried out without any institutional support. (Gold standard) functioned as a fixed exchange rate regime, with gold as the only international reserve.

Gold Standard

is a system of backing a country's currency with its gold reserves. Such currencies are freely convertible into gold at a fixed price, and the country settles all its international trade transactions in gold

After World War I

the use of gold declined due to increased expenditure and inflation which were caused by war and; the Great depression in 1931

In 1944

730 representatives of 44 nations met at Bretton Woods, New Hampshire, United States, and created a new international monetary system called the Bretton Woods system, the aim of which is to create a stabilized international currency system and ensure monetary stability for all the nations.

The Bretton Woods system

ended in 1971 as the trade deficit and growing inflation undermined the value of the dollar in the whole world

Gold

was believed to guarantee a non inflationary, stable economic environment, a means for accelerating international trade (and the gold standard functioned as a fixed exchange rate regime, with gold as the only international reserve

European monetary integration

refers to a 30- year-long process that began at the end of the 1960s as a form of monetary cooperation intended to reduce the excessive influence of the US dollar on domestic exchange rates, and led, through various attempts, to the creation of a Monetary Union and a common currency.

The European Monetary System (EMS)

on the other hand is a 1979 arrangement between several European countries that links their currencies in an attempt to stabilize the exchange rate. This system was succeeded by the European Economic and Monetary Union (EMU), an institution of the European Union (EU), which established a common currency called the euro.

The European Financial Stability Mechanism (EFSM)

is a permanent fund created by the European Union (EU) to provide emergency assistance to member states within the Union. It raises money through the financial markets and is guaranteed by the European Commission.

The European Financial Stability Facility (EFSF)

on the other hand, is an organization created by the European Union to provide assistance to member states with unstable economies.

The EFSF is a special purpose vehicle (SPV)

managed by the European Investment Bank, a lending institution. The Fund raises money by issuing debt and distributes the funds to eurozone countries whose lending institutions need to be recapitalized who need help managing their sovereign debt or who need financial stabilization.

International trade

is the exchange of goods, services, and capital across national borders. It is a multi-million dollar activity, central to the Gross Domestic Product (GDP) of many countries, and it is the only way for many countries to acquire resources. This type of trade allows for greater competition and more competitive pricing in the market

The two key concepts in the economics of international trade are

specialization and comparative advantage.

Trading globally

gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries

Trade policies

on the other hand refer to the regulations and agreements of foreign countries. It defines standards, goals, rules, and regulations that pertain to trade relations between countries.

Tariffs

taxes or duties paid for a particular class of imports or exports.

Trade barriers

measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.

Safety

ensures that imported products in the country are of high quality

National Trade Policy

safeguards the best interest of its trade and citizen.

Bilateral Trade Policy

regulates the trade and business relations between two nations, this policy is formed.

International Trade Policy

international trade policy under their charter like the International economic organizations.

Trade Policy and International Economy

in most developed countries where an open market economy prevails, international economic organizations support free trade policies.

The World Trade Organization (WTO)

deals with the global rules of trade between nations with the main function of ensuring that trade flows smoothly, predictably, and freely

Outsourcing

is an activity that requires a search for a partner and relation-specific investments.

Subcontracting

is the practice of assigning part of the obligations and tasks under a contract to another party known as a subcontractor

There are three essential features of a modern outsourcing strategy

1. Firms must search for partners with the expertise that allows them to perform the particular activities that are required.

2. They must convince potential suppliers to customize products for their own specific needs.

3. They must induce the necessary relationship-specific investments in an environment with incomplete contracting.

Possible Determinants of the Location of Outsourcing:

1. Size of the country can affect the "thickness" of its markets.

2. The technology for search affects the cost and likelihood of finding a suitable partner.

3. The technology for specializing components determines the willingness of a partner to undertake the needed investment in a prototype.

4. The contracting environments can impinge on a firm's ability to induce a partner to invest in the relationship.

Market integration

refers to how easily two or more markets can trade with each other. It occurs when prices among different locations or related goods follow similar patterns over a long period of time

Stock Market Integration

This is a condition in which stock markets in different countries trend together and depict the same expected risk-adjusted returns.

Financial Market Integration

It is an open market economy between countries facilitated by a common currency and the elimination of technical, regulatory, and tax differences to encourage the free flow of capital and investment across borders

Global corporation

is a business that operates in two or more countries. It also goes by the name "multinational company

The Finance function

in a Global Corporation as corporations go global, capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets.

Chief financial officers (CFOs)

must balance the opportunities with the challenges of operating in multiple environments in managing their internal markets in building an advantage.

The three functions below can be created by CFOs from exploiting their internal capital markets

1. Financing

2. Risk management

3. Capital budgeting

Financing

A group's tax bill can be reduced by the CFO by borrowing from countries with high tax rates and lending to operations in countries with lower rates

Risk Management

Global firms can offset natural currency exposures through worldwide operations instead of managing currency exposures through financial markets

Capital budgeting

Getting smarter about valuing investment opportunities CFOs can add value to a Global Corporation as corporations go global, and capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets.

Foreign Direct Investment (FDI)

was of corporate origin. It is a major driver of extended global corporate development.

Brazil, Russia, India, China, and South Africa (BRICS)

is an acronym for the combined economies of Brazil, Russia, India, China, and South Africa. BRIC, without South Africa, was originally coined in 2003 by Goldman Sachs, which speculates that by 2050 these four economies will be the most dominant

The General Agreement on Trade in Services (GATS)

is the first multilateral agreement covering trade in services which was negotiated during the last round of multilateral trade negotiations, called the Uruguay Round, and came into force in 1995.

General Agreement on Tariffs and Trade (GATT)

deals with trade in goods. The two primary objectives of GATTS are to ensure that all signatories are treated equitably when accessing foreign markets, and the second is to promote progressive liberalization of trade and services

Neoliberalism

is the elevation of capitalism as a mode of production into an ethic, a set of political imperatives, and a cultural logic.

Economic sovereignty

is the power of national governments to make decisions independently of those made by other governments

four different concepts of sovereignty

International Legal Sovereignty

Westphalian Sovereignty

-Interdependence Sovereignty

Domestic Sovereignty

-International Legal Sovereignty

refers to the acceptance of a given state as a member of the international community.

Westphalian Sovereignty

is based on the principle that one sovereign state should not interfere in the domestic arrangements of another.

-Interdependence Sovereignty

is the capacity and willingness to control flows of people, goods, and capital into and out of the country.

-Domestic Sovereignty

is the capacity of a state to choose and implement policies within the territory.

European integration

is the process of industrial, political, legal, economic, social, and cultural integration of states wholly or partially in Europe.

Seven Stages of Economic Integration

1. Preferential trading area (PTA) 2. Free trade area 3. Customs union 4. Common market

2. Economic union 6. Economic and monetary union

3. Complete economic integration

Preferential Trade Areas (PTAs)

happen when there's an agreement on reducing or eliminating tariff (tax or duty to be paid on a particular class of imports or exports) barriers on selected goods imported from other members of countries within the geographical region or areas. The agreement can either be bilateral (between two countries) or multilateral (several countries)

Free Trade Agreements (FTAs) or Preferential Trade Agreements (PTAs)

eliminate import tariffs as well as import quotas between signatory countries. Removal of tariff barriers between members, together with the acceptance of a common or unified external tariff against non-members is involved in the Customs Union.

Common Market (CM).

One major step towards economic integration

Economic Union

The trading bloc that has both a common market between members and common trade policy towards non-members, although members are free to pursue independent macro-economic policies

The Economic and Monetary Union (EMU)

involves a single economic market, a common trade policy, a single currency, and a common monetary policy. It represents a major step in the integration of EU economies

Complete Economic Integration

is the final stage of economic integration which member states completely forego the independence of both monetary and fiscal policies

Political integration

refers to the integration of components within political systems; the integration of political systems with economic, social, and other human systems; and the political processes by which social, economic, and political systems become integrated

Theories of European Integration Neofunctionalism

This theory focuses on the supranational institutions of the EU of which the main driving forces of integration are interest group activity at the European and national levels, political party activity, and the role of governments and supranational institutions.

Intergovernmentalism

The main concept of Intergovernmentalism is emphasizing the role of national states in European integration; in another word, it argues that "European Integration is driven by the interest and actions of nation-states. "

New Institutionalism

This theory emphasized the importance of institutions in the process of European Integration. Its three key strands are rational choice, sociological and historical

Liberal Intergovernmentalism

This dominant political theory developed by Andrew Moravsik in 1993 explains European integration. The application of rational institutionalism to the field of European integration is the aim of this theory

Multi-level Governance (MLG)

This is a new theory of European integration. Writers Liesbet Hooghe and Gary Marks defined MLG as the dispersion of authority across multiple levels of political governance.

Transnational activism

can be defined as the mobilization of collective claims by actors located in more than one country and/or addressing more than one national government and/or international governmental organization or another international

Social Movement

It refers to the organizational structures and strategies that may empower oppressed populations to mount effective challenges and resist the more powerful and advantaged elites.

Global Justice Movement

The movement is often labeled the anti-globalization movement by the mainstream media.

The new transnational activism

is as multifaceted as internationalism. Although globalization and global neoliberalism are frames around which many activists mobilize, the protests and organizations are not the product of a global imaginary but of domestically rooted activists who are the connective tissue of the global and the local, working as activators, brokers, and advocates for claims both domestic and international

Social Media and the State Social media

is a computer-based technology that facilitates the sharing of ideas and information and the building of virtual networks and communities.

Global governance or world governance

is a movement towards the political integration of transnational actors aimed at negotiating responses to problems that affect more than one state or region. It tends to involve institutionalization

The UN aims to

save succeeding generations from the scourge of war; reaffirm faith in fundamental human rights; establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained, and promote social progress and better standards of life in larger freedom.

Four Main Purposes of the UN Charte

1. Maintaining worldwide peace and security.

2. Developing relations among nations.

3. Fostering cooperation between nations in order. to solve economic, social, cultural, or humanitarian international problems.

4. Providing a forum for bringing countries together to meet the UN's purpose and goals.

Challenges of Global Governance

in the Twentyfirst Century Global governance can be understood as the sum of laws, norms, policies, and institutions that define, constitute, and mediate trans-border relations between states, cultures, citizens, intergovernmental and nongovernmental organizations, and the market

Factors that lead to the increase and acceleration of the movement of people, information, commodities, and capital.

1. Lifting of trade barriers

2. Liberalization of world capital markets

3. Swift technological progress (information technology, transportation, and communication)

The following are the problems afflicting the world today that are increasingly transnational in nature and those that cannot be solved at the national level or State to State negotiations:

1. poverty, 2. environmental pollution, 3. economic crisis, and 4. organized crime and terrorism.

The following are the effects of greater economic and social interdependence on national decisionmaking processes:

1. It calls for a transfer of decisions to the international level. 2. It requires many decisions to be transferred to local levels of government due to an increase in the demand for participation.

The following can be guaranteed only by the States through independent courts:

1. Respect for human rights and justice 2. Promote the national welfare 3. Protect the general interest