Chapter 2
The Structure of
Globalization
Eleazar Keinth F. Lalamoro
NC D. Cercado
BPED 4A
Overview
The world is becoming flat.
We have seen a spectacular increase in
international trade and foreign direct
investment in recent years. Many countries
engage in the global production sharing.
Varian (2007) discusses an interesting example of
global production sharing for Apple’s iPod. iPod is
designed in the U.S. and assembled in China.
However, most of its value comes from parts
made in other countries.
Linden, Kraemer, and Dedrick (2009) to illustrate
the complexity of the global economy. The retail
value of the 30-gigabyte video iPod that the
authors examined was $299. The most expensive
component in it was the hard drive, which was
manufactured by Toshiba and costs about $73.
They estimated that the final assembly, done in
China, cost 1/2 only about $4 a unit.
The labor division at the global level gives
developing countries an opportunity to further
explore their comparative advantage of labor
abundance.
Globalization changes the production pattern in
China and helps Chinese economy develop.
China imports a variety of intermediate goods
from abroad and assemble them into the final
product in China later ships final manufacturing
goods to the rest of the world.
General objectives
At the end of the chapter the students can:
1. gain a deeper understanding of the structure of
globalization;
2. discuss the significant structures amidst
globalization; and
[Link] the good effects of globalization to the
[Link]
Lesson 1
The Global Economy
Pre-discussion
It is said that global economy is the world
economy or the worldwide economy. It is also the
system of trade and industry across the world that
has emerged due to globalization.
Economic globalization refers to the expanding
interdependence of world economies. The term
global economy also refers to the
interconnected worldwide economic activities
that take place between multiple countries.
These economic activities can have either a
positive or negative impact on the countries
involved.
The International Monetary Fund (IMF) also
defined economic globalization as a historical
process, the result of human innovation and
technological progress (IMF, 2008).
Objectives:
At the end of the lesson, the students can:
1. define economic globalization; and
2. identify the actors that facilitate economic
globalization.
It can be traced from history the time when
there was an economic movement in Asia,
Africa, and Europe called the silk road.
Silk road- a trade route which connects the
East, particularly China, and the West.
This route brings us to the history of how
Philippines was discovered by the
Portuguese and Spanish envoys in search of
spices and eventually led to colonization.
In this present day time, foreign expatriates
come to the country to manage their company’s
foreign subsidiaries. Likewise, the Philippines
send thousands of skilled workers to the Middle
East as construction workers, seafarers, nurses,
etc..
Shangquan (2000) attributes this to the growing
scale of cross-border trade commodities and
services, flow of international capital, and wide
and rapid spread of technology.
In the Philippines, cross-border trading can be
best illustrated by the country’s trading
partnerships with China, the United States and
Australia.
The flow of international capital can be
observed in foreign direct investments (FDI), a
type of investment in which a company
establishes a business in another country for
production of goods and services and still takes
part in the management of that business.
[Link] Motors Philippines Corporation
which is a subsidiary of Toyota Motor
Corporation based in Toyota Japan.
How does global economy work?
A global economy is one in which goods and
services are traded across national borders.
Because the trade is among sovereign
nations, those nations may enact trade
restrictions that alter free market outcomes.
The New World Economy is characterized by:
1. More options for production. No matter what
your production processes, the chances are that
the same capabilities exist elsewhere;
2. The chance to create new markets;
3. Small firms can think big;
4. A more level playing field;
5. Networks are important; and
6. Culture is no constraint.
Economic globalization - refers to the
widespread international movement of goods,
capital, services, technology and information. It
is the increasing economic integration and
interdependence of national, regional, and local
economies across the world through an
intensification of cross-border movement of
goods, services, technologies and capital.
Economic globalization primarily comprises the
globalization of production, finance, markets,
technology, organizational regimes, institutions,
corporations, and labor.
While economic globalization has been expanding
since the emergence of trans-national trade, it has
grown at an increased rate due to improvements
in the efficiency of long distance transportation,
advances in telecommunication, exented the
importance of information rather than physical
capital in the modern economy, and by
developments in science and technology.
The rate of globalization has also increased under
the framework of the General Agreement on Tariffs
and Trade and the World Trade Organization, in
which countries gradually cut down trade barriers
and opened up their current accounts and capital
accounts.
largely supported by developed economies
integrating with developing countries through
foreign direct investment, lowering costs of doing
business, the reduction of trade barriers, and in
many cases cross-border migration.
While globalization has radically increased
incomes and economic growth in developing
countries and lowered consumer prices in
developed countries, it also changes the power
balance between developing and developed
countries and affects the culture of each affected
country. And the shifting location of goods
production has caused many jobs to cross borders,
causing some workers to change careers.