Lesson 2 and 3

• Economic globalization is not limited to the movement of goods and capital; it also involves cultural exchange
• Many products are now produced through global supply chains, where components and parts are manufactured in different countries before being assembled into a final product
• Economic globalization has been associated with both benefits and challenges. While it can lead to economic growth and job creation, it can also exacerbate income inequality within and between countries
• Governments play a significant role in shaping the impact of economic globalization. They can enact policies that promote or restrict trade, investment, and the flow of information
• Economic globalization has raised concerns about global challenges such as environmental degradation, social inequality, and the vulnerability of the global economy to financial crises
• Global trade has a long history, dating back to ancient civilizations such as the Silk Road, which connected Asia and Europe
• Drivers of Globalization

  • Technological Advances
  • Liberalization of Trade Policies
  • Multinational Corporations
  • Global Supply Chains
  • Financial Integration
• Benefits of Economic Globalization

  • Economic Growth
  • Consumer Choices
  • Technology Transfer
  • Job Opportunities
• Challenges and Concerns of Economic Globalization

  • Inequality
  • Labor Rights
  • Environmental Impact
  • Dependency
  • Financial Crises
• International institutions like the World Trade Organization (WTO), regional trade agreements (e.g., NAFTA, EU), and bilateral trade deals facilitate and regulate global trade
• Protectionism


  A policy of systematic government intervention in foreign trade with the objective of encouraging domestic production
• Trade Liberalization


  The removal or reduction of restrictions or barriers on the free exchange of goods between nations
• Before the rise of today's modern economy, people only produced for their family. Nowadays, economy demands the different sectors to work together in order to produce, distribute, and exchange products and services
• Fiat Currency


  Government-issued currency that is not supported by a physical commodity such as gold or silver. Its value is derived from the trust and confidence of those who use it as a medium of exchange
• Key Features of Fiat Currencies

  • Legal Tender
  • No Inherent Value
  • Central Bank and Government Control
  • Widely Accepted
  • Fluctuating Exchange Rates
  • Inflation Risk
• Immanuel Wallerstein's World System Theory describes high-income nations as the "core" of the world economy, while low-income countries are the "periphery", and middle-income countries are the "semi-periphery"
• Under dependency theory, the problem is not that there is a lack of global wealth; it is that we do not distribute it well
• Market integration refers to the process of economic transformation within a region, bloc, or group of countries, aimed at pegging one price for the same product, thereby directly or indirectly merging previously separate markets or economic communities into one single market or economic community
• Forms of Market Integration

  • Trade Integration
  • Financial Integration
  • Market Access
  • Integration of Infrastructure
  • Regulatory Integration
• Liberalization of capital flows

  Permits the cross-border passage of capital, investments, and financial instruments
• Financial integration

  • Can boost capital allocation
  • Can boost risk diversification
  • Can boost investment opportunity accessibility
• Market Access


  • Integration typically entails the elimination of barriers to entry or restrictions on foreign firms operating in a given market
  • Can foster competition
  • Can expand consumer options
  • Can stimulate economic expansion
• Integration of Infrastructure

  • The development of transportation, communication, and logistics infrastructure can facilitate the physical movement of commodities and people
  • Can increase market accessibility and connectivity
• Regulatory Integration


  • Harmonizing regulations and standards across various regions or countries can reduce trade barriers
  • Can promote a more seamless flow of products and services
  • Examples include the standardization of consumer product safety regulations and the adoption of common financial regulations
• Integration of Information

  • Accurate and expeditious information is essential for market integration
  • Technology advancements have facilitated the global dissemination of information
  • Allows market participants to make informed decisions
• Advantages of market integration

  • Economic growth: Can lead to increased economic activity as markets become more efficient and expansive
  • Efficiency: Can result in a more efficient allocation of resources
  • Consumer Choice: Can provide consumers with access to a broader selection of products and services
  • Diversification: Financial integration allows investors to diversify their portfolios
  • Innovation: Can stimulate innovation as firms compete on a larger scale and have access to a broader customer base
• Disadvantages of market integration

  • Income Inequality: Some individuals or regions may benefit more than others
  • Risk of Financial Crises: When financial markets are highly interconnected, problems in one sector can rapidly extend to others
  • Loss of Domestic Control: May reduce a nation's capacity to control its own economic policies
  • Cultural and Social Impact: The proliferation of global markets can sometimes erode local cultures and traditions
• Absolute Advantage


  A situation in which one country, individual, or entity can produce a specific good or service using fewer resources (e.g., labor, capital, technology) than another country, individual, or entity
• Absolute Advantage


  • If a country has an absolute advantage in the production of multiple goods, it can choose to specialize in producing the goods in which it has an absolute advantage
  • Even if one country has an absolute advantage in producing all goods, both it and other countries can still benefit from trade
  • The country with the advantage doesn't necessarily need to trade with others to benefit
• Comparative Advantage


  A situation in which one country, individual, or entity can produce a specific good or service at a lower opportunity cost than another country, individual, or entity
• Comparative Advantage


  • A country should specialize in producing the goods in which it has a comparative advantage (i.e., the lowest opportunity cost)
  • Comparative advantage emphasizes mutual benefits through trade
  • Both countries can gain from trading goods in which they have comparative advantages
• Vertical Integration


  A method for businesses to reduce costs and maintain quality control over their products and services by incorporating multiple stages of the production process and supply chain into its own operations
• Vertical Integration


  • Target
  • Many footwear and apparel companies
• Types of Vertical Integration


  • Forward Integration: When a company at the top of the supply chain controls segments further down the chain
  • Backward Integration: When businesses at the conclusion of the supply chain engage in "upstream" activities for their products and services
  • Balanced Integration: When a company integrates with other companies in an effort to control both upstream and downstream operations
• Horizontal Integration


  The merging of businesses within the same industry, typically by rivals to achieve greater market dominance and economies of scale
• Horizontal Integration

  • Vodafone-Idea
  • Marriott-Starwood
  • Arcelor-Mittal
  • Exon-Mobil
  • JP Morgan Chase
  • Jollibee Foods Corporation
• Types of Horizontal Integration

  • Merger: Two companies combine their operations to form a new entity
  • Acquisition: One corporation acquires or takes control of another
  • Internal Expansion: The entity expands internally through better utilization of resources
• Conglomerate


  A large company that has acquired numerous smaller companies over time, from unrelated business industries and activities
• Types of Conglomerate Mergers

  • Pure Conglomerate: Combination of two companies with zero market overlap
  • Mixed Conglomerate: Combination of two businesses to expand their markets, products, or services
• Governments, global institutions, and global corporations shape and influence the operation of the global economy under globalization