CONTEMPORARY R1

• Structures of the Global Economy

  • Globalization of Trade of goods and services
  • Globalization of financial and capital markets (Currencies and FDIs)
  • Globalization of technology and communication
  • Globalization of production
• Common causes for the expansion of world trade

  • Technological improvements in transportation and communication technologies
  • Political factors such as the removal of protectionist barriers like tariffs, import quotas, and exchange controls
• Attributes of Economic Globalization

  • Global communication systems that link all regions on the planet instantaneously
  • Transportation systems capable of moving goods quickly by air, sea, and land
  • Transnational corporate strategies that have created global corporations more powerful than many sovereign states
  • New and more flexible forms of capital accumulation and international financial institutions that make 24-hour trading possible
  • Global agreements that promote free trade
  • Market economies that have replaced state-controlled economies and privatized firms and services formerly operated by governments
  • An abundance of planetary goods and services that have arisen to fulfill consumer demand, real or imaginary
  • Economic disparities between rich and poor regions and countries that drive people to migrate, both legally and illegally, in search of a better life
  • An army of international workers, managers, and executives who give this powerful economic force a human dimension
• Trade “connects geographically distant producers and consumers, often establishing a relationship of identification and interdependence between them”
• Exchanges of goods and services

  • Imports - the goods and services purchased from the rest of the world by a country’s residents rather than buying domestically produced items
  • Exports - goods and services produced
• Economic Globalization

  • The process by which the pursuit of liberal economic ideas and policies have led to increased economic growth throughout the world
  • The increasing economic integration and interdependence of national, regional, and local economies across the world through an intensification of cross-border movements of goods, services, technology and capital
• International trade occurs when goods and services cross national boundaries in exchange for money or the goods and services of another nation
• Trade ties countries together

  Generating significant economic, political, and social interdependence
• Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest
• Exchanges of goods and services

  1. Imports - the goods and services purchased from the rest of the world by a country’s residents rather than buying domestically produced items

  2. Exports - goods and services produced domestically but sold to customers in other countries
• Protectionist policies

  Imposed for non-members of trade blocs
• Actors/Drivers of Economic Globalization

  • Nation-states
• Benefits of Foreign Direct Investment for businesses/investors

  • Market diversification
  • Tax incentives
  • Lower labor costs
  • Preferential tariffs
  • Subsidies
• Basic economic policies in International Trade

  • Free trade - removes or limits protectionist measures (tariffs, quotas, etc.)
  • Protectionism - government restrictions on international trade aimed at blocking or limiting foreign products and driving companies and consumers to purchase domestically produced goods and services
• Trade blocs

  • ASEAN
  • EU
  • NAFTA
  • EFTA
• Benefits of Foreign Direct Investment for the host country

  • Economic stimulation
  • Development of human capital
  • Increase in employment
  • Access to management expertise, skills, and technology
• Foreign direct investment (FDI)

  A category of cross-border investment where an investor establishes a lasting interest and significant influence over an enterprise in another economy
• Trade blocs


  Remove or reduce trade barriers between members, guaranteeing the free flow of goods and services
• Protectionist Measures

  • Tariff - tax imposed on imported goods to raise the price, making them less attractive
  • Import Quota/quantity restrictions - limits the quantity of an item imported into a nation
  • Non-tariff Barriers - other ways of limiting imports, including health and safety standards, domestic content legislation, licensing requirements, and labelling requirements
• Disadvantages of Foreign Direct Investment

  • Displacement of local businesses
  • Profit repatriation
• Methods of Foreign Direct Investment

  1. Reinvesting profits from overseas operations

  2. Intra-company loans to overseas subsidiaries

  3. Acquiring voting stock in a foreign company

  4. Mergers and acquisitions

  5. Joint ventures with foreign corporations

  6. Starting a subsidiary of a domestic firm in a foreign country
• Key characteristics of TNCs

  • Seek competitive advantage and maximization of profits by constantly searching for the cheapest and most efficient production locations
  • Have geographical flexibility to shift resources and operations globally
  • Employ a substantial part of their workforce in the developing world, often indirectly through subsidiaries
  • TNC assets are distributed worldwide rather than focused in one or two countries
• World Bank

  1. Finances projects that enhance the economic development of member states

  2. Provides technical assistance, policy advice, and supervises the implementation of free-market reforms
• Parts of the Modern World System

  • Core countries
  • Semi-peripheral areas
  • Peripheral areas
• States that were previously isolated are now forced to engage with one another to set international commerce policies
• International Monetary Fund

  1. Facilitates and attempts to control international cash flow

  2. Increases frameworks for debt restructuring for peripheral countries to restore sustainability and growth
• Transnational corporations (TNCs) are large businesses that compete in regional or global markets and whose business environment extends beyond any given nation-state
• International financial institutions

  • International Monetary Fund
  • World Bank
  • World Trade Organization
• The role of the nation-state in globalization is largely a regulatory one, as the chief factor in global interdependence
• World Trade Organization

  1. Deals with the rules of trade between nations

  2. Helps producers, exporters, and importers conduct their business
• Wallerstein: 'This theory focuses on the historical development of the whole world and how that development has influenced individual countries today'
• Types of areas in the world economic system

  • Core countries
  • Peripheral countries
  • Semi-peripheral countries
• Core countries

  • Historically controlled global decision-making
  • Received the largest share of profits from the world economic system
  • Dominated peripheral areas politically, economically, and culturally
  • Controlled the flow of technology and capital into and out of peripheral countries
• Semi-peripheral countries


  • Intermediate position, trading with both core and peripheral countries
  • Serve as areas for core-country businesses and multinational corporations to move for continued growth
  • Often in partnerships with aspirations to join the core countries
• Peripheral countries

  • Mostly in Africa, Asia, and South America
  • Provide cheap labor and raw materials for core countries' needs