PLT College, Inc.: College of Arts and Sciences and Education

PLT COLLEGE, INC.
Zulueta St. Bayombong, Nueva Vizcaya
College of Arts and Sciences and Education
Self-Phase Learning Module

(Contemporary World)
LESSON 2: THE GLOBAL ECONOMY
The Global economy alludes to different financial exercises among various nations with either negative
or beneficial outcomes. The idea of a world economy is identified with regular day to day existence dependent
on the interconnected idea of the different countries around the world. Exchange interrelations are noteworthy
pointers of the worldwide economy. Thus, the growth of globalization of the world's economies to a great extent
is dependent on the advancement of science and technology. Notwithstanding the drawbacks, globalization is still
changing the world. Socially, it has encouraged the trading of thoughts and societies, adding to a world view
wherein individuals are progressively open and lenient of each other.
Economic Globalization
The International Monetary Fund (IMF) regards “economic globalization’ as a historical process
representing the result of human innovation and technological progress. It is characterized by the increasing
integration of economies around the world through the movement of goods, services, and capital across borders.
These changes are the products of people, organizations, institutions, and technologies. As with all other processes
of globalization, there is a qualitative and subjective element to this definition.
According to the United Nations (as cited by Shangquan, 2000), economic globalization 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. It reflects the
continuing expansion and mutual integration of market frontiers, and is an irreversible trend for the economic
development in the whole world at the turn of the millennium.
International Trade
The conclusion of World War II signaled the beginning of trade facilitation around the globe. Economies
set rules and guidelines for international trade which led to the formation of General Agreement on Tariffs and
Trade (GATT). These trade rules were developed through series of rounds or meetings of member ‘economies.
International Trade (IT) is the process and system when goods, commodities, services cross national economy,
and boundaries in exchange for money or goods of another country (Balaam and Veseth, 2008). Global trade has
grown dramatically since the post-cold war era as a result of increasing demand of goods and services of countries.
This global norm is a reflection of growing practice of internationalizing and globalizing local products and
services.
Trade Theories
There are two types of trade theories explaining international trade.
• Descriptive Theory. It deals with the natural order and movement of trade. it describes the pattern of
trade under the idea of laissez faire, a French term which means "leave alone". It refers to the notion that
individuals are the best economic agents to solve the problems through invisible hand rather than the government
‘policies. Descriptive theory addresses the questions of which product to trade, how much product to offer and
produce, and which country to trade in the absence of government restrictions.
Contemporary World 1
• Prescriptive Theory. This prescribes whether government, an important economic institution, should
interfere and restrict with the movement of goods and services. This theory views government to have
participation in deciding which countries to alter the amount, composition and direction of goods. The pressing
question describing descriptive theory is “Should the government control trade?”
Three Perspectives on International Trade
Economic Liberals
David Ricardo and Adam Smith were known critics of late-eighteenth century on the abuses of
mercantilism in England. Their liberal ideas and contribution in understanding global trade are still relevant until
today. For Ricardo, his influential work Law of Comparative Advantage explains that free trade efficiency is
attainable if two countries can produce more goods and trade products separately. The advantage of this theory
in international trade is deriving from the principle of specialization and division of labor (Nau, 2009). Countries
have different resources and talents; they are better in performing in that economic activity than other economic
activities.
Mercantilism
An economic theory emerged from about 1500-1800. This period was the emerging eras of nations-states
and the formation of more central governments. This system flourished due to the following reasons:
• Higher export than import.

• Export less high valued product and import less high valued product
• The benefits of colonial powers.
Structuralists
The earliest wave of mercantilism was described as classical imperialism. The drive of European countries
to explore and colonize underdeveloped countries originated from the aggressive mercantilist behavior of
European economies. This idea was extended to the practice of modern capitalist-imperialist approach by
countries and economies that have the immense resource through the use of hard power over developing and less
developed countries.
The Modern World System (MWS) theory developed by Immanuel Wallerstein, explains the contact of
economies between core, semi peripheral, and peripheral countries in the world. The core states have the absolute
advantage over the other through unequal exchange and extraction of raw materials from periphery and semi-
periphery.
Thus, the economic globalization and market integration of the 21st century are extensions of the same
economic motives of imperial powers of the nineteenth and twentieth centuries (Balaam and Veseth, 2008).
Activity:
Globalization allows for a worldwide exchange of most of the commodities that we consume. This activity
will allow you to investigate the origin and spread of the products and services sold in our country. You will also
be able to know the countries involved in the production, distribution, and consumption of the products being
sold and consumed in the country. The following are the steps to accomplish this activity:
1. Choose a specific foreign product/brand that is being sold in the Philippines.
2. List down the main ingredients or raw materials in manufacturing the chosen product. Identify the
corresponding country from which each ingredient or raw material came from.
3. Identify the countries involved in the manufacturing of the chosen product. Indicate the corresponding service
the country does for the product (e.g., Costa Rica planting of coffee beans).
4. Aside from the Philippines, list other countries where the product is being sold. Cite the kinds of technology
that made the creation of the product possible. Consider communications and transportation.

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PLT COLLEGE, INC.

Zulueta St. Bayombong, Nueva Vizcaya

College of Arts and Sciences and Education

Self-Phase Learning Module

LESSON 2: THE GLOBAL ECONOMY

Three Perspectives on International Trade

• Higher export than import.

1. Choose a specific foreign product/brand that is being sold in the Philippines.

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