Lesson 2 Globalization of World Economics

LESSON 2
1. Define economic Globalization

2. Identify the actors that facilitate Economic
globalization
3. Narrate a short history of global market
integration in the twentieth century; and
4. Articulate your stance a global economic
integration.
 A historical process representing the result
of human innovation and technological
progress (International Monetary Fund )
 Characterized by the increasing integration of
economies around the world through the
movement of goods, services, capital across
borders.
 These changes are the product of people ,
organizations, institutions, and technologies.
 How does one define “ increasing
integration”?
 The drastic economic change occurs throughout
the world.
 When the value of trade ( goods and services) as
percentage of the GDP increases.
 When it is considered that trade has
increased?
 When investments are moving all over the world
at faster speeds.
 The oldest known trade route was the Silk
Road- a network of pathways in the ancient
world that spanned from China to what is
now the Middle East and to Europe.
 The silk Road was international , it was not
truly “global” because it had no ocean routes
that could reach the American continent.
 According. To historians Dennis O. Flynn and
Arturo Giraldez, the age of globalization
began when “ all important populated
continents began to exchange products
continuously- both with each other directly
and indirectly via other continents- and in
values sufficient to generate crucial impacts
on all trading partners.
 In 1571, the establishment of the Galleon trade
connected Manila in the Philippines and Acapulco in
Mexico.
 For Filipinos, it is crucial to note that economic
globalization began on the country’s shores.
 The Galleon trade was part of the age of
mercantilism.
Mercantilism- a system of global trade with multiple

restrictions.
 A more open trade system emerged in 1867
when UK, US and other European nations
adopted the gold standard at an international
monetary conference in Paris.
▪ to create a common system that would allow for more
efficient trade and prevent the isolationism of the
mercantilist era.
▪ They established a common basis for currency prices
and a fixed exchange rate system- all based on the value
of gold.
 Today, the world economy operates based on
what are called fiat currencies- currencies
that are no backed by precious metals and
whose value is determined by their cost
relative to other currencies.
 This system allows governments to freely and
actively manage their economies by increasing or
decreasing the amount of money in circulation as
they see fit.
 Economists Friedrich Hayek and Milton
Friedman argued that the governments
practice of pouring money into their
economies had caused inflation by increasing
demand for goods without necessarily
increasing supply
 They argued that intervention in economies
distort the proper functioning in the market.
 Economists like Friedman used the economic
turmoil to challenge the consensus around
Keyne’s ideas. What emerged was a new form
of economic thinking that critics labeled
neoliberalism.
 Neoliberalism- became the codified strategy
of the US Treasury Department, the world
bank, IMF and World trade organizations. The
policies they forwarded came to be called the
Washington Consensus.
 Washington Consensus- dominated the global
economic policies from the 1980s until earlu2000s.
 Its advocates pushed for minimal spending to reduce
government debt.
 Called for the privatization of government controlled
services like water, power, communications and transport
believing that the free market can produce the best
results.
 They pressured governments, particularly in the
developing world, to reduce tariffs and open up their
economies , arguing that it is the quickest way to
progress.
 Neoliberalism came under significant strain during the
financial crisis of 2007-2008 when the world
experienced the greatest economic downturn since
the Great Depression.
 The crisis can be traced back to the 1980s when the
United States systematically removed various
banking and investment restrictions.
 In their attempt to promote the free market, government
authorities failed to regulate bad investments occurring in
the US housing market. Taking advantage on “cheap
housing loans”, Americans began building houses that
beyond their financial capacities.
 To mitigate the risk of these loans, banks that
were lending house owners money pooled
these mortgaged payments and sold them as
“mortgage back securities”
 In September 2008, the major investment

banks like Lehman Brothers collapsed,
thereby depleting major investments.
 The crisis spread beyond the US since many
investors were foreign governments,
corporations and individuals. The loss of their
money spread like wildfire back to their
countries.
 These series of interconnections allowed for a
global multiplier effect that sent ripples
across the world.
 Exports make national economies grow at present.
 In the past, those that benefited the most from the
free trade were the advanced nations that were
producing and selling industrial and agricultural
goods.

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LESSON 2

1. Define economic Globalization

Mercantilism- a system of global trade with multiple

 In September 2008, the major investment

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