The Contemporary World

1
The Global Economy

The Global Economy

At the end of this module, you are expected to:

1. Define Economic Globalization
2. Identify the factors that facilitate economic globalization
3. Define the Modern world system
4. Articulate an instance on global economic integration

Introduction
The United Nations addressed the different problems in the world. The efforts
were guided by the eight Millennium Development Goals that they created in the
1990’s. The eradication of extreme poverty and hunger ranked first.

Since there are different standards of living around the world, different meaning
attached to it. Like for example, in the Philippines, a person is in poverty if he
makes less than 100,534 a year, around 275 pesos/day. This is called the poverty
line. But, this module focuses on extreme poverty which according to UN,
(2015), is a condition characterized by severe deprivation of basic human needs
including food, safe drinking water, sanitation facilities, health, shelter,
education and information. The UN defines extreme poverty as living on less
than $1.25/day. The organization aims to eradicate extreme poverty.

Definition of Economic Globalization

Economic globalization is the process of increasing interdependence of world
economies as a result of the growing scale of cross-boarder trade of commodities
and services (cited in Shangquan,20000). Hence, it leads to the development of a
"global marketplace" or "a single world market".

Economic globalization is enhanced by the acquisition of multinational

enterprises that resulted to the rise of the profits of that "global marketplace".

Therefore, we could say that a multinational company is a firm company that has
"headquarters" in one country but with bases, manufacturing or assembly plants
in other countries.

Factors That Facilitate Economic Globalization

Course Module
 There are factors that facilitate globalization. Globalization is influenced by
many factors such as:

1. Historical: Before, in order to easily trade from one kingdom to another, they
created the trade routes. The well known silk-route from east to west is an
example of historical factor.

2. Economy: The movement of goods determine the cost of goods and values to
the end user. The overall economic trade is an important factor in globalization.

3. Resources and Markets: The natural resources contribute to globalization,

such as coal, mineral, oil, gas, human resources, etc.

4. Generation Issues: Usage of developed limits of creation, drowsiness in

local market and over generation makes a fabricating organization search
externally and go worldwide. The improvement of abroad markets and
assembling plants in cars, four wheelers and two wheelers is an established
illustration.

5. Political: The political issues of a nation make globalization channelized

according to political pioneer. The exchange understanding decide the extent
of globalization. Trading in European Union and special agreement in the
erstwhile Soviet block and SAARC are examples.

6. Mechanical Association: The innovative improvement in the zones of

generation, item blend and firms are helping associations to extend their
tasks. The contracting of administrations and acquirement of sub-
congregations and segments have a solid impact in the globalization
procedure.

7. Advances: The phase of innovation in a specific field offers ascend to

import or fare of items or administrations from or to the nation. European
nations like Britain and Germany sent out their synthetic, electrical,
mechanical plants in 60s and fares cutting edge products to immature
nations. Today India is sending out PC/programming related administrations
to cutting edge provinces like UK, USA, and so on.

Modern World System

American sociologist Wallerstein described high-income nations as the “core”of
the world economy. This core is the manufacturing base of the planet where
resources funnel becomes the technology and wealth enjoyed by Western world
today. In his model, the periphery remains economically dependent on the core in
a number of ways which tend to reinforce each other. First, poor countries have a
fewer resources to export to rich nations. However, they can buy these raw
materials cheaply and process and sell them to rich nations. As a result, the profits
tend to bypass the poor countries. Poor countries lack industrial capacity that’s
 The Contemporary World
3
The Global Economy

why they need to import expensive goods from rich nations. All these unequal
trade patterns lead to borrowing money of poor countries creating debt. In
summary, under dependency theory, the problem is not of lack of global wealth,
but is it that we do not distribute it well.

Global Economic Integration

Global economic integration is widely thought to improve the allocation of
resources, promote technology transfer, and improve living standards. But, at the
same time, economic integration has been blamed for growing trade imbalances,
increased financial market volatility, and less effective domestic macroeconomic
policies.

Notion of international economic integration

Phenomenon of economic integration, understood as compilation and joining,

appears along with a progress of commodity - monetary economy. At the
beginning, integration got a form of joining different branches of economic
activity in some regions. The next stage was joining regions - that is how,
integrated national economies started. Then, economies of different countries
begin to merge, and create, this way, the world economy. In the modern world
economy, the economic integration has a form of creation of different kinds of
international, economic groupings, including groups of countries, which have a
target of mutual integration of their economies.

At the turn of the 20th and the 21st centuries, it is difficult to overestimate an
influence of integrative processes on the global economy. An effect of mentioned
processes on national economies, is seen in every aspect of economic life.
Integration became this factor, which has essential meaning, to make economic
decisions for national economies, as well as, for international ones. A majority of
countries join integrative processes not ignoring, an important globalization
process.

In an analysis of an economic aspect of integration, there are two tendencies:

traditional and modern one. The traditional analysis of economic integration, is
based on classical and neoclassical theories of international exchange. It is based
on advantages from specialization. A known example is on England, where labor
costs of cloth are smaller and Portugal, which makes cheaper wine. Barter trade
between these two countries lead to a situation, when they concentrate on
production of goods, made more effectively (England -cloth, Portugal - wine).
This way, international exchange allows getting comparative profits [33, p.741,
742]. Neoclassic theory - Heckscher - Ohlin -says, about uneven equipment of two
countries with production factors.
Course Module
References and Supplementary Materials

Books and Journals

1. Manfred Steger, Paul Battersby, and Joseph M. Siracusa; ed.2014; The SAGE Handbook of
Globalization. Two vols. Thousand Oaks: SAGE;
2. Chapter 9 of Textbook: “The Globalization of Economic Relations “ by Manfred B. Steger.
3. Wallerstein, Immanuel, 2004, “The Modern World-System as a Capitalist World
Economy: Production, Surplus-Value and Polarization.” In world-System Analysis: An
Introduction. Durham & London: Duke University Press, pp.23-41
4. Chapter 2 of Textbook: The Contemporary World” by Prince Kennex Aldama

Online Supplementary Reading Materials

1. https://study.com/academy/lesson/what-is-globalization-definition-effects-examples.html

"N2Growth"; The Impact of Globalization on Business; Mike Myatt; May 2010, The Kansas
State Collegia

2. https://study.com/academy/lesson/what-is-globalization-definition-effects-examples.html

"N2Growth"; The Impact of Globalization on Business; Mike Myatt; May 2006

3.http://www.yourarticlelibrary.com/globalization/7-factors-influencing-globalization-
discussed/22639

4. https://sociology.yale.edu/publications/world-systems-analysis-introduction

5.https://ebrary.net/7252/economics/integration_globalization_processes_world_economy_an
d_international_economic_relations

6. https://www.kansascityfed.org/publicat/econrev/PDF/4q00kahn.pdf

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