Economic Globalization and the World Economy Flashcards by pola ry

Q

It refers to the system of production, distribution, and consumption of goods and services within a society, region, or country.

It encompasses all the activities and interactions related to the creation and allocation of resources to meet the needs and wants of individuals and organizations.

It refers to the management of SCARCE resources to meet the UNLIMITED needs and wants of the society.

A

Economy

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Q

It is the social science that studies how societies manage their limited resources to produce, distribute, and consume goods and services.

It explores the behavior of individuals, businesses, and governments in making choices to satisfy their needs and wants within a context of scarcity.

It is often divided into two main branches

A

Economics

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Q

Economics branch

-examines the behavior of individuals and firms

A

Microeconomics

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Economics branch

studies the overall performance and behavior of the entire economy.

A

Macroeconomics

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Q

It is the process of increasing interconnectedness and interdependence of economies across national borders.

It involves the integration of markets, trade, investment, finance, and production on a global scale.

A

Economic Globalization

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Q

Factors that Drives Economic Globalization

(10)

A

Advances in Information Technology-

Trade Liberalization.

Global Supply Chains

Foreign Direct Investment (FDI)

Financial Integration

Market-Oriented Reforms

Trade Agreements

Multinational Corporations (MNCs)

Transportation Infrastructure.

Political and Economic Stability

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Q

Factor that Drives Economic Globalization

The rapid development of information and communication technologies (ICTs), such as the internet, mobile devices, and high-speed data transmission, has significantly reduced communication and transaction costs.

A

Advances in Information Technology-

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Q

Factor that Drives Economic Globalization

Governments have played a crucial role in promoting economic globalization through trade liberalization policies. Reducing tariffs, trade barriers, and quotas has encouraged international trade and allowed goods and services to flow more freely across borders.

A

Trade Liberalization

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Q

Factor that Drives Economic Globalization

Companies increasingly rely on global supply chains to source components and raw materials, assemble products, and distribute them worldwide. This trend has been facilitated by improvements in logistics and transportation.

A

Global Supply Chains

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Q

Factor that Drives Economic Globalization

Multinational corporations invest in foreign countries to access new markets, resources, and cost-effective labor. FDI flows have grown significantly, leading to the integration of national economies.

A

Foreign Direct Investment (FDI)-

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Q

Factor that Drives Economic Globalization

Global financial markets have become more interconnected, enabling the flow of capital across borders. This has allowed for greater access to foreign investment and financing options.

A

Financial Integration

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Q

Factor that Drives Economic Globalization

Many countries have adopted market-oriented economic reforms, including privatization, deregulation, and the opening of domestic markets to foreign competition. These reforms encourage foreign investment and trade.

A

Market-Oriented Reforms

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Q

Factor that Drives Economic Globalization

Bilateral and multilateral trade agreements, such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO)agreements, have created frameworks for reducing trade barriers and promoting international commerce.

A

Trade Agreements

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Factor that Drives Economic Globalization

Large multinational corporations play a pivotal role in economic globalization. They have the resources, expertise, and global reach to expand their operations across borders, invest in foreign markets, and create global value chains.

A

Multinational Corporations (MNCs)

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Q

Factor that Drives Economic Globalization

Improved transportation infrastructure, including shipping, air travel, and logistics networks, has made it more cost-effective and efficient to move goods and people internationally.

A

Transportation Infrastructure-

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Q

Factor that Drives Economic Globalization

Countries that offer stable political and economic environments tend to attract more foreign investment and trade. Predictable legal and regulatory frameworks are essential for economic globalization.

A

Political and Economic Stability

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Q

It refers to the process by which separate and distinct markets, often in different geographic regions or economic sectors, become more closely connected and interdependent.

It involves the removal or reduction of barriers to trade, investment, and competition, allowing goods, services, capital, and information to flow more freely between these markets.

It can occur at various levels, including local, national, regional, and global.

A

Market Integration

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Key Aspects of Market Integration
(6)

A

Removal of Trade Barriers

Common Market and Customs Union

Economic and Monetary Integration

Regulatory Harmonization

Market Competition

Consumer Benefits

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Q

Key Aspect of Market Integration

-One of the primary mechanisms of market integration is the elimination or reduction of trade barriers, such as tariffs, quotas, and customs restrictions. This enables goods and services to move more easily across borders, facilitating trade between countries or regions.

A

Removal of Trade Barriers

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Q

Key Aspect of Market Integration

In some cases, countries form common markets or customs unions, where member states remove internal trade barriers and establish a common external trade policy. Examples include the European Union (EU) and the North American Free Trade Agreement (NAFTA, now the United States-Mexico-Canada Agreement, or USMCA).

A

Common Market and Customs Union

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Q

Key Aspect of Market Integration

-Some regions pursue deeper forms of market integration by adopting common currencies and economic policies. The Eurozone, where countries use the euro as their currency, is an example of monetary integration.

A

Economic and Monetary Integration

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Q

Key Aspect of Market Integration

To promote market integration, regions often work to harmonize regulations and standards. This can include product safety standards, financial regulations, and intellectual property rights.

A

Regulatory Harmonization

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Q

Key Aspect of Market Integration

Increased integration often leads to greater competition, as companies from different regions or countries compete for customers in previously segmented markets. This can drive efficiency and innovation.

A

Market Competition

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Q

Key Aspect of Market Integration

-Consumers can benefit from market integration through access to a wider variety of goods and services, potentially at lower prices due to increased competition.

A

Consumer Benefits

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History of Market Integration - In ancient times, people engaged in ____________, exchanging goods and services directly without a standardized medium of exchange.

Barter Trade

History of Market Integration It was established around the 2nd century BCE, facilitated trade between the East and West, connecting China with the Mediterranean, allowing the exchange of goods, culture, and ideas

The Silk Road

History of Market Integration - Banking systems emerged in ancient civilizations like Mesopotamia and Greece, facilitating trade through the use of coins and early forms of banking instruments.

First Banking System

History of Market Integration - prevalent from the 16th to 18th centuries, promoted state intervention in trade to amass wealth. - routes connected Europe, the Americas, and Asia, fostering early global trade.

Mercantilism and Galleon Trade

History of Market Integration - European colonial powers established vast overseas empires, exploiting resources and engaging in trade monopolies with their colonies.

Colonialism

History of Market Integration - It was signed in 1215, laid the foundation for legal and property rights, contributing to the development of modern market economies.

Magna Carta

History of Market Integration - Enlightenment thinkers in the 18th century advocated for free trade and the benefits of laissez-faire economics, influencing trade policies.

Open Trade System

History of Market Integration - It was adopted in the 19th century, providing stability to international currencies by tying their values to gold, supporting global trade and financial integration.

Gold Standard

History of Market Integration - Disrupted global trade and marked the end of the classical gold standard era.

First World War

History of Market Integration - (1929-1930s) led to protectionist policies, including the Smoot-Hawley **Tariff Act**, which exacerbated global economic challenges.

Great Depression

History of Market Integration - it further disrupted international trade and left many countries in ruins.

World War II

History of Market Integration - trade relations were influenced by geopolitical tensions between the Western and Eastern blocs.

Cold War

History of Market Integration - in 1944 established a new international monetary system, leading to the creation of the **International Monetary Fund (IMF) and the World Bank,** promoting economic stability and cooperation.

Bretton Woods Conference

History of Market Integration It was established to reduce trade barriers and promote international trade. It served as the primary international trade agreement until it was succeeded by the World Trade Organization (WTO) in 1995.

General Agreement on Tariffs and Trade (1947)

History of Market Integration (1995-present)- It was established to provide a more comprehensive framework for international trade rules and dispute resolution. It covers not only trade in goods but also trade in services and intellectual property. The WTO oversees negotiations on trade liberalization, such as the Doha Development Round.

World Trade Organization

Effects of Market Integration Positive: (9)

Economic Growth Efficiency and Productivity Access to Diverse Goods and Services Specialization and Comparative Advantage Foreign Direct Investment (FDI) Increased Foreign Exchange Earnings Economies of Scale Technology Transfer Political Stability

Effect of Market Integration Positive: - Market integration often leads to increased economic activity, trade, and investment, which can stimulate economic growth by expanding market opportunities for businesses.

Economic Growth

Effect of Market Integration Positive: Competition from foreign firms can drive domestic companies to become more efficient and innovative, leading to higher productivity and lower prices for consumers.

Efficiency and Productivity

Effect of Market Integration Positive: Consumers benefit from market integration by gaining access to a wider variety of goods and services, often at competitive prices.

Access to Diverse Goods and Services

Effect of Market Integration Positive: Market integration allows countries to specialize in producing goods and services in which they have a comparative advantage, leading to resource allocation efficiency.

Specialization and Comparative Advantage-

Effect of Market Integration Positive: Integrated markets attract FDI, which can bring capital, technology, and job opportunities to host countries.

Foreign Direct Investment (FDI)

Effect of Market Integration Positive: Export-oriented economies can benefit from higher foreign exchange earnings, which can be used to import essential goods and invest in infrastructure and development.

Increased Foreign Exchange Earnings

Effect of Market Integration Positive: Integration can enable firms to achieve economies of scale by producing goods in larger quantities, potentially lowering production costs.

Economies of Scale

Effect of Market Integration Positive: Integrated markets often facilitate the transfer of technology and know-how across borders, promoting innovation and industrial development.

Technology Transfer

Effect of Market Integration Positive: Economic interdependence through market integration can lead to greater political stability and cooperation among nations as they have a vested interest in maintaining peaceful relations.

Political Stability

Effects of Market Integration Negative Effects: (9)

Income Inequality Job Displacement Social Disruption Environmental Concerns Dependence on External Markets Loss of Sovereignty Financial Instability Competition Pressure- Cultural Homogenization

Effect of Market Integration Negative Effect: - Market integration can exacerbate income inequality within and between countries, as those who benefit the most from trade and investment may not necessarily distribute those benefits equitably.

Income Inequality

Effect of Market Integration Negative Effect: Increased trade and foreign competition can lead to job displacement in certain industries or regions, potentially causing economic hardship for affected workers.

Job Displacement

Effect of Market Integration Negative Effect: Rapid economic changes due to market integration can disrupt traditional ways of life, culture, and communities, leading to social dislocation.

Social Disruption

Effect of Market Integration Negative Effect: Market integration can contribute to environmental degradation, as increased production and transportation can lead to higher carbon emissions, deforestation, and resource depletion.

Environmental Concerns

Effect of Market Integration Negative Effect: Countries heavily reliant on exports may become vulnerable to economic downturns in their major trading partners, leading to economic instability.

Dependence on External Markets

Effect of Market Integration Negative Effect: Deep market integration may require countries to cede some degree of sovereignty to supranational organizations or trade agreements, potentially limiting their ability to regulate markets and protect domestic industries.

Loss of Sovereignty

Effect of Market Integration Negative Effect: Market integration can expose countries to financial contagion and economic crises in interconnected financial markets.

Financial Instability

Effect of Market Integration Negative Effect: - Small and less-developed firms in open markets may struggle to compete with larger, more established international corporations.

Competition Pressure

Effect of Market Integration Negative Effect: - The spread of global brands and products can lead to cultural homogenization, potentially eroding cultural diversity.

Cultural Homogenization

It was an international monetary system established during a conference held in Bretton Woods, New Hampshire, in July 1944, towards the end of World War II. This system laid the foundation for the post-war international financial order and the creation of key international financial institutions.

Bretton Woods System

Establishment of fixed exchange rates, where currencies were pegged to the U.S. dollar, and the U.S. dollar was pegged to gold. Created the **International Monetary Fund (IMF)** as one of its primary institutions. The establishment of the **International Bank for Reconstruction and Development (IBRD) or The World Bank; ** Making the US dollar as a de facto gold standard.

Bretton Woods System

Over time, trade imbalances and inflationary pressures led to difficulties in maintaining the fixed exchange rates. The U.S. experienced persistent trade deficits as the demand for dollars increased, straining the system's gold reserves. In 1971, President Richard Nixon announced the suspension of the dollar's convertibility into gold (the "Nixon Shock") and imposed a temporary surcharge on imports. This marked the beginning of the system's unraveling. Following the Nixon Shock, major economies agreed to realign their exchange rates, effectively devaluing the U.S. dollar against other major currencies. The system finally collapsed when the U.S. abandoned the fixed exchange rate regime altogether, allowing currencies to float freely. This marked the end of the ________________era.

Bretton Woods

International Financial Institutions It plays a central role in the global financial system. Its mission has evolved to include providing financial assistance to countries in need, conducting economic surveillance, offering policy advice, and promoting international monetary cooperation.

International Monetary Fund (IMF)

International Financial Institutions - It has expanded its focus to address a wide range of development challenges, including poverty reduction, infrastructure development, healthcare, and education. It consists of multiple institutions, including the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

World Bank Group

Purpose and Mission to provide financial and technical assistance to developing countries for development projects and programs. focuses on reducing poverty, promoting economic development, and improving living standards in member countries.

World Bank

Purpose and Mission to ensure the stability of the international monetary system. It focuses on macroeconomic and financial stability, exchange rate stability, and balance of payments issues.

International Monetary Fund

Financial Assistance offers long-term loans and grants to developing countries for specific development projects. These projects aim to improve infrastructure, such as roads, bridges, schools, and healthcare facilities. The financing is focused on long-term economic development and poverty reduction.

World Bank

Financial Assistance provides short- and medium-term financial assistance to member countries facing balance of payments problems, often due to fiscal or monetary challenges. This assistance is designed to stabilize a country's macroeconomic situation and restore its ability to meet international payment obligations.

International Monetary Fund

Types of Support offers project-based support, where funds are allocated for specific development initiatives. It also provides policy advice and technical assistance to help countries implement development programs effectively.

World Bank

Types of Support provides financial support through lending programs that come with policy conditions aimed at addressing the underlying economic issues causing the balance of payments problems. It offers economic analysis and policy advice to member countries to improve their economic stability.

International Monetary Fund

Focus and Time Horizon focus is on long-term economic development and poverty reduction. It supports projects that have a lasting impact on a country's economy and society.

World Bank

Focus and Time Horizon focus is on short- and medium-term macroeconomic stability. It assists countries facing immediate financial and economic crises, with the aim of restoring stability in the near term.

International Monetary Fund

It is also known as a World City; These are dynamic and ever-evolving entities that serve as both engines of economic growth and hubs of innovation; It is a major urban center that plays a critical role in the global economy and is characterized by its significant influence on international business, culture, politics, and finance. These cities are hubs for economic activities, innovation, and connectivity, often serving as key nodes in global networks.

Global Cities

Characteristics of Global Cities

Economic Powerhouses Cultural Diversity Transportation and Connectivity Global Financial Centers High-Quality Education and Research Cultural and Creative Industries

Characteristic of Global Cities - Global cities are major economic centers with thriving financial districts, numerous multinational corporations, and a strong presence of global industries. They contribute significantly to national and international GDP.

Economic Powerhouses

Characteristic of Global Cities - These cities attract a diverse population, including immigrants and expatriates, resulting in multicultural societies with a rich tapestry of languages, cuisines, and traditions.

Cultural Diversity

Characteristic of Global Cities - Global cities typically have extensive transportation networks, including major airports, seaports, and efficient public transportation systems. They serve as key transportation hubs.

Transportation and Connectivity

Characteristic of Global Cities - Many global cities house major stock exchanges, banks, and financial institutions. They play a crucial role in global finance and investment.

Global Financial Centers

Characteristic of Global Cities - Global cities often have prestigious universities and research institutions, attracting top talent and contributing to innovation and knowledge creation.

High-Quality Education and Research

Characteristic of Global Cities - These cities are centers for cultural and creative industries, including art, music, fashion, and entertainment, influencing global trends and tastes.

Cultural and Creative Industries

Challenges Faced by Global CIties

Inequality Housing Affordability Congestion and Pollution Infrastructure Strain Environmental Sustainability Globalization Vulnerabilities Security Concerns

Challenge Faced by Global CIties - Rapid economic growth in global cities can lead to income inequality, with high living costs, rising property prices, and limited affordable housing, making it difficult for lower-income residents to access opportunities and services.

Inequality

Challenge Faced by Global CIties - High demand for housing in global cities can result in soaring property prices and rent, making it challenging for both residents and businesses to afford suitable accommodations.

Housing Affordability

Challenge Faced by Global CIties Urban congestion and pollution, including traffic congestion and air pollution, can be significant problems in global cities, impacting the quality of life and public health.

Congestion and Pollution

Challenge Faced by Global CIties - The strain on transportation, utilities, and public services can lead to overburdened infrastructure and inadequate public services, affecting residents' well-being.

Infrastructure Strain

Challenge Faced by Global CIties - Balancing economic growth with environmental sustainability is a critical challenge. Global cities often consume vast amounts of resources and energy, contributing to environmental degradation.

Environmental Sustainability

Challenge Faced by Global CIties Global cities are highly interconnected and can be vulnerable to global economic downturns, financial crises, and geopolitical tensions, which can have cascading effects on their economies.

Globalization Vulnerabilities

Challenge Faced by Global CIties - As major hubs for business and finance, global cities may be targets for security threats, including terrorism and cyberattacks, necessitating robust security measures.

Security Concerns