Chapter 2

• Economic globalization


  A historical process representing the result of human innovation and technological progress
• Dimensions of economic globalization

  • Globalization of trade of goods & services
  • Globalization of Financial and Capital Markets
  • Globalization of Technological & Communication
  • Globalization of Production
• Early wave of economic globalization

  • Improved transportation and communication, boosting international trade, investment, and migration, and laying the groundwork for today's interconnected economies
• Silk Road


  A trade route that connected Asia, Europe, Middle East, and Africa, but was stopped by the Ottoman Empire
• Age of Exploration


  Led to the discovery of new trade routes and the establishment of the Galleon Trade
• Galleon Trade


  A prominent trade system established around 1571 in the Philippines and Acapulco, Mexico
• Gold Standard


  A common basis currency and fixed exchange rate system adopted in 1867 by the United Kingdom, the United States, and other European nations
• Keynesian Liberal Wave


  A period marked by the dominance of Keynesian Economics, emphasizing government intervention in the economy to manage demand, stabilize prices, and promote full employment
• Bretton Woods Conference


  A meeting in 1944 where countries made new rules for how money works after World War II, leading to the Bretton Woods System
• Institutions introduced by the Bretton Woods System


  • International Monetary Fund (IMF)
  • World Bank
  • General Agreement on Tariffs and Trade (GATT), which later became the World Trade Organization (WTO)
• World Bank


  Responsible for funding post-war reconstruction projects and was primarily designed for the Marshall Plan
• Marshall Plan


  A U.S. program to provide financial aid to recover Europe after World War 2
• International Monetary Fund (IMF)


  The global lender of last resort to prevent individual countries from spiraling into credit crises
• General Agreement on Tariffs and Trade (GATT)

  Its main purpose was to reduce tariffs and other hindrances to free trade
• World Trade Organization (WTO)

  Opened a new forum, including not just traditional trade issues on tariffs and non-tariffs barriers, but also intellectual property rights, trade related investment measures, and food safety standards
• Bretton Woods Goals and Strategies

  • Macroeconomic stability
  • Import Substitutions
  • Governance reforms
• Macroeconomic Stability


  To maintain macroeconomic stability, the US dollar was the only international standard currency of choice pegged at $35 per ounce of gold
• Richard Nixon


  The 37th US president who responded by abandoning the gold-exchange standard, which was announced on August 15, 1971
• Import Substitutions


  Countries aimed to replace imported goods with domestically produced ones to boost their own industries and achieve industrialization
• Governance Reform


  IMF loans to poor countries often come with conditions that require them to adopt market-oriented economic models and open up their economies to foreign competition
• Crony Capitalism


  A term which describes an economy in which success in business depends on close relationships between people and government officials
• Neo-Liberal Wave


  The emergence of neoliberalism, which became the strategy of institutions such as the US Treasury Department, the World Bank, the IMF, and eventually the WTO
• Washington Consensus


  The policies advocated by key figures in Washington, led by US President Ronald Reagan and UK Prime Minister Margaret Thatcher
• Neoliberalism gains prominence in the late 1970s to 1980s with the rise of figures like Ronald Reagan and Margaret Thatcher, who implement neoliberal policies such as deregulation, privatization, and free market principles
• Neoliberalism becomes the dominant economic ideology in the 1980s, influencing policies in many countries around the world, and Structural Adjustment Programs (SAPs) are introduced by international financial institutions like the IMF and World Bank, promoting neoliberal reforms in developing nations
• Neoliberal policies face criticism and challenges in the late 1990s to early 2000s, particularly in the wake of financial crises such as the Asian financial crisis of 1997-1998 and the dot-com bubble burst in 2000
• Despite criticism and some pushback, neoliberal principles continue to shape global economic policies, but there's also a growing recognition of the need for regulation and intervention, particularly in response to the 2008 global financial crisis
• Subprime Mortgages


  Banks issued "cheap housing loans" beyond borrowers' financial capacities
• Mortgage-Backed Securities (MBSs)


  Banks pooled mortgage payments into MBSs, assuming steady returns
• Banks assumed a majority of borrowers wouldn't default, and that even if defaults occurred, housing prices would continue to rise, allowing them to recoup losses by reselling homes
• Housing prices stopped increasing, leading to defaults on loans, and rapid reselling of MBSs ensued as banks and investors sought to offload bad investments, leading to the collapse of major investment banks, including Lehman Brothers, in September 2008, exacerbating the crisis
• The crisis spread globally as many investors were foreign entities, and losses reverberated worldwide, affecting countries like Spain and Greece, leading to debt relief efforts and austerity measures that hit the poor hardest
• The US implemented a Keynesian-style stimulus package under President Barack Obama, aiding in relatively quick recovery, while many other countries struggled with prolonged economic challenges stemming from the crisis
• Hegemonic Stability Theory


  The theory that one nation should have the power over every other nation, and that the US, as a dominant power, shaped the global economy to its liking, fostering economic globalization and multinational corporations
• Neo-Liberal Institutionalist Theory


  The theory that institutions like the IMF, World Bank, and GATT independently shape the global economy, fostering international cooperation even without a dominant power
• Hegemonic Stability Theory argues that one nation should hold the global power when it comes to the economy, while Neo-Liberal Institutionalist Theory suggests that every nation should have a say in what they do with their own economy
• Exports, not just local sales, drive national economic growth, and advanced nations initially benefited most from free trade
• WTO-led reduction of trade barriers, known as trade liberalization, reshaped the global economy and led to unprecedented global growth rates
• Some countries, corporations, and individuals benefit more than others from economic globalization, and trade talks under the WTO often resulted in significant tariff reductions but were often unfair
• Developed countries often maintain protectionist policies to safeguard their industries, such as Japan's protection of its farming sector by refusing rice imports