GE 5

Free Trade

Free Trade

policy in the international economy where two or more countries exchange goods and services without tariffs and quotas

Free Flow of Capital

unrestricted movement of money and financial access

Globalization

the free movement of goods, services and people across the world in a seamless and integrated manner

theory of comparative advantage

Globalization is grounded in what theory

theory of comparative advantage

it states that countries that are good at producing a particular good are better off exporting it to countries that are less efficient at producing that good

Economic "globalization"

_________ is a historical process, the result of human innovation and technological progress.

1960’s and 1970’s, until the 1990s

economists and sociologists initiated the exploration of globalization in the _________, but historians did not engage with the concept until the _______.

259 (2 Eras, 5 Stages, 9 Periods)

Point of View of History of Globalization

Pre-Modern Period (up to 1500s)

Early forms of globalization were evident in the exchanged of goods, ideas, and cultures along ancient trade routes like the Silk Road.

empires and trade

The expansion of _______ and _______ networks facilitated the movement of people, goods, and technologies.

Silk Road

It refers to a network of ancient trade routes that connected the East and West, facilitating the exchange of goods, culture, and ideas between different civilizations.

Moscow in Russia and Beijing in China

Countries in the Silk Road

Age of Exploration (15th-17th centuries)

European exploration and maritime navigation led to the discovery of new lands, initiating the Columbian Exchange.

Age of Exploration (15th-17th centuries)

This period marked the beginning of global trade as goods, crops, and cultures were exchanged between the Old World and the New World.

Columbian Exchange

It refers to the widespread transfer of plants, animals, culture, human populations, technology, and ideas between the Old World and the New World.

Europe, Asia, and Africa

Old World

the Americas

New World

Industrial Revolution (18th-19th centuries)

It brought about significant technological advancements, leading to increased production and the growth of global trade. Steam power and improved transportation facilitated the movement of goods across continents.

Steam Engine

Important development in the Industrial Revolution (18th-19th centuries)

Colonialism and Imperialism (19th-early 20th centuries)

European colonial powers expanded their empires, integrating colonies into global economic systems. This era was marked by the extraction of resources from colonies and the establishment of trade routes that connected distant parts of the world.

Galleon Trade

maritime exchange that connects Manila Philippines and Alca Pulco Mexico

Interwar Period (1919-1939)

The aftermath of World War I saw a breakdown in international economic relations, marked by protectionist policies and economic nationalism. This period was characterized by a retreat from globalization tendencies.

Post-World War II (1945 onwards)

The establishment of institutions like the United Nations (UN), International Monetary Fund (IMF), and World Bank aimed to promote global cooperation. The General Agreement on Tariffs and Trade (GATT) laid the groundwork for reducing trade barriers.

United Nations (UN), International Monetary Fund (IMF), World Bank, and General Agreement on Tariffs and Trade (GATT)

institutions established during the Post-World War II

GATT or General Agreement on Tariffs and Trade

It was a multilateral trade agreement established in 1947 to promote international trade by reducing or eliminating trade barriers such as tariffs and quotas.

Late 20th Century

Advances in technology, particularly in telecommunications and transportation, played a crucial role in accelerating globalization. The rise of multinational corporations, improvements in container shipping, and the liberalization of trade contributed to increased global economic integration.

End of Cold War (1990s)

The collapse of the Soviet Union and the end of the Cold War opened up new opportunities for economic and cultural exchange. Countries in Eastern Europe and Asia embraced market-oriented reforms and joined the global economy.

Information Age (2000s-2020s)

The rapid growth of the internet and digital technologies facilitated instant communication and the global flow of information. Outsourcing, offshoring, and the rise of global supply chains became prominent features of the global economy.

Stage 1

it is comprised between 1400 and 1750, being called “the primary stage”, and witnesses geographic discoveries, colonization and the appearance of transcontinental trading exchanges.

Stage 2

the interval 1750-1880, also known as the “incipient stage”; it is characterized by the formation of unitary states and the development of trading relations and the signing of the first agreements in the domain of international trading relations.

Stage 3

comprised between 1880 and 1925, it is also called “the stage of development” when the manufactured production developed, the means of transport evolved, the international trading as well as the population migration intensified and the multinational organizations took shap

Stage 4

1920 – 1927 when the great state powers crystallize and the worldwide organizations and institutions develop.

Stage 5

started at the end of the 20th century, being characterized by the intensification of regionalization and integration, but also by the strong development of multinational corporations.

first stage of the first globalization era

This stage lasts until the end of the 1920s and the beginning of the 1930s.

second stage of the first globalization era

This stage begins after 1930, lasting until the Second World War.

second globalization era

During this period, globalization was guided by negotiations, during a first stage under the stipulations of the GATT (The General Agreement on Tariffs and Trade)

Economic globalization.

This type focuses on the unification and integration of international financial markets, as well as multinational corporations that have a significant influence on international markets.

Political globalization.

This type deals mainly with policies designed to facilitate international trade and commerce. It also deals with the institutions that implement these policies, which can include national governments as well as international institutions, such as the International Monetary Fund and the World Trade Organization.

Cultural globalization.

This type focuses on the social factors that cause cultures to converge -- such as increased ease of communication and transportation, brought about by technology.

More Goods at Lower Prices -

Globalization encourages each country to specialize in what it produces best using the least amount of resources, known as comparative advantage This concept makes production more efficient, promotes economic growth, and lowers prices of goods and services, making them more affordable especially for lower-income households.

Scaled Up Businesses

Larger markets enable companies to reach more customers and get a higher return on the fixed costs of doing business, like building factories or conducting research. Technology firms have taken special advantage of their innovations this way.

Better Quality And Variety

Competition from abroad drives US firms to improve their products. Consumers have better products and more choices as a result.

Innovation

Expanded trade spurs the spread of technology, innovation, and the communication of ideas. The best ideas from market leaders spread more easily.

Job Churn

Globalization supports new job opportunities but also contributes to job displacement.

global economy

it refers to the interconnected worldwide economic activities that take place between multiple countries.

G.I.I.G (Globalization, International Trade, International Finance, Global Investment)

characteristics of global economy

Globalization

it 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.

International trade

It is considered to be an impact of globalization. It refers to the exchange of goods and services between different countries, and it has also helped countries to specialize in products which they have a comparative advantage in.

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. It consists of topics like currency exchange rates and monetary policy.

Global investment

This refers to an investment strategy that is not constrained by geographical boundaries. Global investment mainly takes place via foreign direct investment

through “Remittances“

How does International Finance help the country?

Remittances

It refers to the transfer of money from one individual or entity (usually a migrant worker) to another person or household, typically in a different geographical location, often across national borders.

Emerging markets

refer to economies that are in the process of rapid industrialization and experiencing significant economic growth.

Macroeconomics

It is the branch of economics that examines the overall behavior of the economy at the aggregate or national level.

Microeconomics

It is the branch of economics that studies the behavior of individual economic agents at the micro or individual level. It analyzes how households, firms, and individuals make economic decisions regarding the allocation of resources, consumption, production, and the pricing of goods and services.

financial institutions

Who control the global economy?

Market Integration

It refers to the unrestricted circulation of goods, services, and production factors across various regions, leading to the equalization of prices for goods and capital.

Embargo

a government-instituted prevention of exports to a certain country. Official ban ontrade or other commercial activity.

Economic sanctions

commercial and financial penalties applied by one or more countries against a targeted country, group, or individual.

Free Trade Areas

a group of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non members.

North American Free Trade Agreement (NAFTA)

Association of Southeast Asian Nations Free Trade Area (AFTA)

Southern Common Market (MERCOSUR)

Common Market of Eastern and Southern Africa (COMESA)

Major Free Trade Areas in the World

North American Free Trade Agreement

What is NAFTA?

North American Free Trade Agreement (NAFTA)

Free trade between the three member nations, Canada, the US and Mexico

January 1, 1994

When was NAFTA became effective?

Association of Southeast Asian Nations Free Trade Area

What is AFTA

Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand.

The original members of AFTA

Vietnam, Laos, Myanmar and Cambodia

Four countries who joined in AFTA

January 1992

When was AFTA signed in Singapore?

Southern Common Market (MERCOSUR)

a Latin American single market

Argentina, Brazil, Paraguay and Uruguay

full members of MERCOSUR

December 1, 2016

Venezuela is a full member of MERCOSUR but has been suspended since ________

July 7, 2015

Bolivia obtained its full membership for MERCOSUR on __________

Southern Common Market (MERCOSUR)

Established by the Treaty of Asunción in 1991 and Protocol of Ouro Preto in 1994

Common Market of Eastern and Southern Africa

What is COMESA?

December 1994

COMESA was formed in __________

The member States of __________ are: Burundi, the Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Seychelles, Uganda, Zambia and Zimbabwe

European Union, Trans-Pacific Partnership

Major Partnership Agreements in the world

European Union (EU)

It is a single market, which is similar to a free trade area in that it has no tariffs, quotas or taxes on trade

1986

Single European Act was signed in _______

TransPacific Partnership (TPP)

Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam have just signed the trade pact formerly known as the _________

February 04, 2016

Trans-Pacific Partnership (TPP) was signed in ________

Protectionism

the theory or practice of shielding a country's domestic industries fromforeign competition by taxing imports to protect their domestic industries

Economic nationalism or economic patriotism

an ideology that favors state interventionism in the economy

corporation

it is a form of business operation that declares the business as a separate, legal entity guided by a group of officers known as the board of directors.

global corporation

it is generally referred to as a multinational corporation (MNC), transnational corporation (TNC), international company. An enterprise that engages in activities which add value in more than one country

Multinational companies

they have investment in other countries, but do not have coordinated product offerings in each country. They are more focused on adapting their products and services to each individual local market.

Transnational companies

they are more complex organizations which have invested in foreign operations, have a central corporate facility but give decision-making, research and develop (R&D) and marketing powers to each individual foreign market.

Foreign Direct Investment

it occurs when a firm based in once country builds a new plantora factory or purchases existing one in a second country a national corporation thus becomes an MNC by making a foreign direct investment.

Horizontal Integration and Vertical Integration

Types of FDI

Horizontal Integration

it occurs when firms create multiple production of facilities each of which produces the same good or goods.

Vertical integration

it refers to instances in which firms internalize their transaction for intermediate goods.