The Globalization of World Economics

The Globalization of World Economics
Three Dimensions of Globalization
 Political globalization
 Religious globalization
 Economic globalization
Economic Globalization
 It 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. (Shangquan, 2000)
 It refers to the widespread international movement of goods, capital, services, technology and
information. It is the increasing economic integration and interdependence of national, regional,
and local economies across the world through an intensification of cross-border movement of
goods, services, technologies and capital.
Actors that Facilitate Economic Globalization
 International Trading Systems

 The Bretton Woods System
 Neoliberalism
International Trading Systems
 It is the exchange of capital, goods, and services across international borders or territories. In

most countries, such trade represents a significant share of gross domestic product.
Examples of International Trading Systems:
 The Silk Road – an ancient network of trade routes that connected the East and West with
silk as the major trade exported. Although it was international, it was not truly global
because it had no ocean routes that could reach the American continent.
 The Galleon Trade – the trade which connected Manila with Acapulco, Mexico. Its name
was derived from the ships used by the traders. This marked the beginning of economic
globalization, considering the Americas were directly connected to Asian trading routes.
 The age of globalization when all important populated continents began to exchange products
continuously – both with each other directly and indirectly via other continents – an in values
sufficient to generate crucial impacts on all trading partners. (Dennis O. Flynn and Arturo
Giraldez)
 Age of Mercantilism – from the 16th – 18 th century, countries competed with one another to sell
more goods as a means to boost their country’s income. To defend their products from
competitors who sold goods more cheaply, these regimes imposed high tariffs, forbade colonies
to trade with other nations, restricted trade routes, and subsidized its exports.
 In 1867, the United States and other European nations adopted the gold standard.
 The Classical Gold Standard (1870s – 1914) was the first system of fixed exchange rates to span
the entire globe. By the outbreak of World War I, virtually all countries followed the gold
standard: either they had made their currencies convertible into gold or they had, at least,
stabilised their exchange-rates with respect to convertible currencies. It was still a very restrictive
system, as it compelled countries to back their currencies with fixed gold reserves.
 The Great Depression – a global economic crisis and was the worst and longest recession ever
experienced by the Western world. Some economists argued that it was largely caused by the
gold standard, since it limited the amount of circulating money and ergo, reduced demand and
consumption.
 Fiat Currencies – currencies that are not backed by precious metals and whose value is
determined by their cost relative to other currencies. This system allows governments to freely
and actively manage their economies by increasing or decreasing the amount of money in
circulation as they see fit.
The Bretton Woods System
 The Bretton Woods Agreement is the landmark system for monetary and exchange rate
management established in 1944. It was developed at the United Nations Monetary and Financial
Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944. Under the
agreement, currencies were pegged to the price of gold, and the U.S. dollar was seen as a reserve
currency linked to the price of gold.
 The post-war emergence of the U.S. as the predominant economic power had enormous
implications for the global economy. At one time, its GDP represented 50% of the
world’s output, so it only made sense that the U.S dollar would become the global
currency reserve.
 This was largely influenced by the ideas of British economist John Maynard Keynes who
believed that economic crises occur not when a country does not have enough money, but when
money is not being spent, thereby, not moving.
 It gave birth to two financial institutions:
 International Bank for Reconstruction and Development or World Bank
- Responsible for funding post-war reconstruction projects.
 International Monetary Fund
- The global leader of last resort to prevent individual countries from spiralling
into credit crisis.
To this day, both institutions remain key players in economic globalization.
 General Agreement on Tariffs and Trade (GATT)

- Established in 1947, its main purpose was to reduce tariffs and other hindrances
to free trade.
 In the beginning, the world benefited from a strong and stable dollar, and the United States
prospered from the favorable exchange rate on its currency. The foreign governments did not
fully realize that although their currency reserves were backed by gold reserves, the United States
could continue to print dollars that were backed by its Treasury debt. As the United States printed
more money to finance its spending, the gold backing behind the dollars diminished. The
continued printing of money beyond the backing of gold reserves reduced the value of the
currency reserves held by foreign countries.
 The U.S. dollar remains the world’s currency reserve, due primarily to the fact that countries
accumulated so much of it, and that it was still the most stable and liquid form of exchange.
Backed by the safest of all paper assets, U.S. Treasuries, the dollar is still the most redeemable
currency for facilitating world commerce.
 U.S. President Richard Nixon called for a suspension of the Bretton Woods Agreement in 1971
when it collapsed. The agreement was dissolved between 1968 and 1973. In 1973, the agreement
officially ended.

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The Globalization of World Economics

Three Dimensions of Globalization

Actors that Facilitate Economic Globalization

 International Trading Systems

International Trading Systems

 It is the exchange of capital, goods, and services across international borders or territories. In

Examples of International Trading Systems:

The Bretton Woods System

To this day, both institutions remain key players in economic globalization.

 General Agreement on Tariffs and Trade (GATT)

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