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 economic globalization surged with improved transportation and communication, boosting international trade, investment, and migration, and laying the groundwork for today's interconnected economies


  Late 19th and early 20th centuries
• Silk Road


  A trade route that connected Asia, Europe, Middle East, and Africa
• 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 Economics


  An approach that emphasized government intervention in the economy to manage demand, stabilize prices, and promote full employment, gaining prominence after World War II and lasting until the 1970's
• Bretton Woods Conference


  A meeting in 1944 where countries got together to make 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, responded by abandoning the gold-exchange standard which was announced on August 15, 1971
• Import Substitutions


  In the 1950s and 1960s, 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
• Neoliberalism


  An economic ideology that gained prominence in the late 1970s and 1980s, advocating for policies such as deregulation, privatization, and free market principles
• The economic turmoil prompted economists like Friedman to challenge Keynesian ideas, leading to the emergence of neoliberalism
• Washington Consensus


  The policies advocated by institutions such as the US Treasury Department, the World Bank, the IMF, and eventually the WTO, which became the dominant economic strategy
• Neoliberal policies face criticism and challenges, particularly in the wake of financial crises such as the Asian financial crisis of 1997-1998 and the dot-com bubble burst in 2000
• Neoliberal deregulation in the US banking and investment sectors from the 1980s paved the way for the global financial crisis
• Subprime Mortgages


  Loans extended to individuals with dubious credit histories
• Mortgage-Backed Securities (MBSs)


  Banks pooled mortgage payments into these securities, assuming steady returns
• Housing prices stopped increasing, leading to defaults on loans, and rapid reselling of MBSs ensued as banks and investors sought to offload bad investments
• The US implemented a Keynesian-style stimulus package under President Barack Obama, aiding in relatively quick recovery
• Hegemonic Stability Theory


  The theory that one nation should have power over every other nation, shaping the global economy to its liking
• 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
• 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, leading 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
• Transnational corporations (TNCs) benefit the most from global commerce, prioritizing profits over social programs and leading host countries to loosen tax laws and sacrifice social and environmental programs
• Countries lower labor standards and weaken environmental laws to attract foreign investment, leading to a "race to the bottom" with detrimental effects on workers' rights, social programs, and ecological balance