Economic Globalization Market Integration

2. THE
GLOBAL
ECONOMY

3. •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.

4. •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

5. •According to the International
Monetary Fund economic globalization
is a historical process, the result of
human innovation and technological
progress.

6. •It refers to the increasing integration of
economies around the world, particularly
through the movement of goods, services,
and capital across borders. It also refers to
the movement of people (labor) and
knowledge (technology) across international
borders.

7. •In economic terms, globalization is nothing
but a process making the world economy an
organic system by extending transnational
economic processes and economic relations
to more and more countries and by
deepening the economic interdependencies
among them

8. TWO MAJOR
DRIVING FORCES
FOR ECONOMIC
GLOBALIZATION

9. 1. The rapid growing of
information in all types of
productive activities

10. •2. Marketization (A restructuring process that
enables state enterprises to operate as market-
oriented firms by changing the legal environment
in which they operate and can be achieved
through reduction of state subsidies,
organizational restructuring of management such
as corporatization, decentralization, and
privatization

11. •Rapid development of science and
technologies served as basis for immediate
globalization of the world economies which
in turn provided an environment where there
is a swift spreading of market economic
system all over the world.

12. •It is also developed based on the
increasing cross-border division of labor
which penetrates within the enterprises
of different countries on the level of
production chains.

13. DIMENSIONS OF
ECONOMIC
GLOBALIZATION

14. 1. The globalization of trade of
goods and services
2. The globalization of financial and
capital markets

15. 3. The globalization of technology
and communication
4. The globalization of production

16. DIFFERENCE BETWEEN
ECONOMIC
GLOBALIZATION FROM
INTERNATIONALIZATION

17. ECONOMIC GLOBAL
•is a functional integration between
internationally dispersed activities which
means that it is a qualitative
transformation rather than a
quantitative change.

18. INTERNATIONALIZATION
•is an extension of economic
activities between internationally
dispersed activities

19. •Economic globalization produces its
own major players in the form of
transnational corporations (TNCs), the
main driving forces of economic
globalization. the last 100 years or
roughly two-thirds of world export

20. •Transnational corporation otherwise
known as multi -national corporation is
a corporation that has a home base, but
is registered, operates and has assets or
other facilities in at least one other
country at one time.

21. ORIGIN OF
ECONOMIC
GLOBALIZATION

22. Economic globalization is a
process that creates an organic
system of the world economy.

23. 16TH CENTURY
•world system analysts identify the origin of modernity
and globalization through long distance trade in the
16th century. This best known example of archaic
globalization is the Silk Road, which started in western
China, reached the boundaries of the Parthian empire,
and continued onwards towards Rome. It also
connected Asia, Africa, and Europe

24. 17TH AND 18TH CENTURY
•global economy exists only in trade and
exchange rather than production as the world
export to World GDP did not reached 1 to 2
percent

25. 19TH CENTURY
•the advent of globalization approaching its modern
form is witnessed. A short period before World War I
is referred to as golden age of globalization
characterized by relative peace, free trade, financial and
economic stability. Growth in international exchange of
goods accelerated in the second quarter of the 19th
century

26. 19TH AND 20TH CENTURY
•grew by an average of nearly 4 percent
per annum, which is roughly twice as
high as growth in the national incomes of
the developed economies since the late
19th century

27. INTERNATIONAL
MONETARY
SYSTEM
(IMS)

28. • refers to a system that forms rules
and standards for facilitating
international trade among the
nations. It helps in reallocating the
capital and investment from one
nation to another.

29. •It is the global network of the government
and financial institutions that determine the
exchange rate of different currencies for
international trade. It is a governing body
that sets rules and regulations by which
different nations exchange currencies with
each other

30. •IMS as rules, customs, instruments, facilities, and
organizations for effecting international payments
with the main task of facilitating cross-border
transactions, especially trade and investment. It
also reflects economic power and interests, as
money is inherently political, an integral part of
high politics or diplomacy

31. EUROPEAN
MONETARY
INTEGRATION

32. •refers to a 30-year long process that began at
the end of the 1960s as a form of monetary
cooperation intended to reduce the
excessive influence of the US dollar on
domestic exchange rates, and led, through
various attempts, to the creation a Monetary
Union and a common currency.

33. THE EUROPEAN
FINANCIAL
STABILITY
MECHANISM

34. •is a permanent fund created by the European
Union (EU) to provide emergency assistance to
member states within the Union. It raises money
through the financial markets, and is guaranteed
by the European Commission. Fund raised
through the markets, use the budget of the
European Union as collateral.

35. •The European Financial Stability
Facility (EFSF) on the other hand, is an
organization created by the European
Union to provide assistance to
member states with unstable
economies.

36. The EFSF is a Special Purpose Vehicle (SPV)
managed by the European Investment Bank, a
lending institution. The fund raises money by
issuing debt, and distributes the funds to eurozone
countries whose lending institutions need to be
recapitalized who need help managing their
sovereign debt or who need financial stabilization

37. INTERNATIONAL
TRADE AND
TRADE POLICIES

38. •is the exchange of goods, services and capital
across national borders. It is a multi-million
dollar activity, central to the Gross Domestic
Product (GDP) of many countries, and it is
the only way for many people in many
countries to acquire resources.

39. •In acquiring products where demand is
inelastic and domestic supply is
inadequate absent traders, consumers
and suppliers are forced to either
develop substitute goods or devote a
large percentage of their income

40. is the exchange of goods or services along
international borders. This type of trade
allows for a greater competition and more
competitive pricing in the market. The two
key concepts in the economics of
international trade are specialization and
comparative advantage

41. COMPARATIVE
ADVANTAGE

42. comes in; so long as the two countries have
different relative efficiencies, the two countries
can benefit from trade – the country with
absolute advantage will still benefit by directing its
resources to those goods where it is most
productive and trading for the others while
specialization refers to this process;

43. countries as well as individual
businesses can maximize their
welfare by specializing in the
production of those goods where
they are most efficient and enjoy the
largest advantages over rivals

44. TRADE
POLICIES

45. • refer to the regulations and agreement
of foreign countries. It defines
standards, goals, rules, and regulations
that pertain to trade relation between
countries . Each country has specific
policies formulated by its officials.

46. •Boosting the nation’s international trade
is the aim of each country. Taxes
imposes on import and export,
inspection, regulations, tariffs and
quotas are all part of country’s trade
policy.

47. FOCUSES OF
TRADE POLICY
INTERNATIONAL
TRADE

48. TARIFFS
•These are taxes or duties paid for a particular class of
imports or exports. Imposing taxes on imported and
exported goods is a right of every country. Heavy tariffs on
imported goods are levied by some nations for the
protection of their local industries. The prices of imported
goods in local markets are inflated due to high imported
taxes to ensure demand of local products.

49. TRADE BARRIERS
•Theses are measures that governments or public
authorities introduce to make imported goods or
services less competitive than locally produced
goods and services. They are state-imposed
restrictions on trading a particular product or
with a specific nation.

50. TRADE BARRIERS
•It can be linked to the product, service like
technical requirement and it can also be
administrative in nature such as rules and
procedures of transactions. Tariffs, duties,
subsidies, embargoes and quotas are the most
common trade barriers

51. SAFETY
•This ensures that imported products in the
country are of high quality. Inspection
regulations laid down by public officials
ensure the safety and quality standards of
imported products

52. TYPES OF
TRADE
POLICY

53. NATIONAL TRADE POLICY
•This safeguards the best
interest of its trade and citizen.

54. BILATERAL
TRADE POLICY
•To regulate the trade and business relations between
two nations, this policy is formed. Under the trade
agreement the national trade policies of both the
nations and their negotiations are considered while
bilateral trade policy is being formulated

55. I N T E R N AT I O N A L T R A D E
P O L I C Y
•This defines the international trade policy under their
charter like the International economic organizations, such
as Organization for Economic Co- operation and
Development (OECD), World Trade Organization (WTO)
and International Monetary Fund (IMF).The best interests
of both developed and developing nations are upheld by
the policies

56. TRADE POLICY
AND
INTERNATIONAL
ECONOMY

57. In most developed countries where open
market economy prevails, the international
economic organizations support free trade
policies. In the case of developing nations
partially-shielded trade practices are
preferred to protect their local trade
industries.

58. The following are dependent on
globalization: sound trade policies for
market changes, establishment of
free and fair trade practices and
expansion of possibilities for
booming international trade.

59. THE WORLD
TRADE
ORGANIZATION

60. •The World Trade Organization (WTO) deals with the global
rules of trade between nations with the main function of
ensuring that trade flows smoothly, predictably and freely. It is
the only global international organization dealing with the
rules of trade between nations with WTO agreements,
negotiated and signed by the bulk of the world’s trading
nations and ratified in their parliaments at its heart. WTO is
viewed as the means by which industrialized countries can
gain access to the markets of developing countries

61. GLOBAL
ECONOMY
OUTSOURCING

62. •is an activity that requires search for a partner and
relation-specific investments that are governed by
incomplete contracts and the extent of international
outsourcing depends on the thickness of the domestic
and foreign market for input suppliers, the relative
cost of searching in each market, the relative cost of
customizing inputs and the nature of the contracting
environment in each country.

63. •Subcontracting is a central element of the
new economy. It is the practice of assigning
part of the obligations and tasks under a
contract to another party known as a
subcontractor and especially prevalent in
areas where complex projects are the norm
like construction and information technology.

64. •One of the most rapidly growing
components of international trade is the
outsourcing of intermediate goods and
business services. There are three essential
features of a modern outsourcing strategy

65. •Firms must search for partners with the expertise
that allows them to perform the particular activities
that are required..
•They must convince the potential suppliers to
customize products for their own specific needs.
•They must induce the necessary relationship-specific
investments in an environment with incomplete
contracting

66. P O S S I B L E D E T E R M I N A N T S O F T H E
LO C AT I O N O F O U T S O U RC I N G
•Size of the country can affect the “thickness”
of its markets.
•The technology for search affects the cost and
likelihood of finding a suitable partner.

67. P O S S I B L E D E T E R M I N A N T S O F T H E
LO C AT I O N O F O U T S O U RC I N G
•The technology for specializing components
determines the willingness of a partner to undertake
the needed investment in a prototype.
•The contracting environments can impinge on a firm’s
ability to induce a partner to invest in the relationship

68. MARKET
INTEGRATION

69. •refers to how easily two or more markets can
trade with each other. It occurs when prices
among different locations or related goods
follow similar patterns over a long period of
time. Groups of prices often move
proportionally to each other and when this
relation is very clear among different markets it
is said that the markets are integrated.

70. •The term is further used in identifying related
phenomenon of market of goods and services
experiencing similar patterns of increase or
decrease in prices of products. It may also refer
to the movement of prices of related goods and
services sold in a defined geographical location in
similar patterns.

71. •When government implement certain strategy
to control the direction of economy then
integration is intentional while shifting in supply
and demand that has a spillover effect on several
markets is another factor of market integration.
One way of helping integration of market by
reducing barriers to trade and increasing fluidity
between markets is through foreign trade

72. TYPES OF RELATED
MARKETS WHERE
MARKET
INTEGRATION
OCCURS

73. S TO C K M A R K E T I N T E G R AT I O N
•Two markets are perfectly integrated if
investors can pass from one market to
another without paying any extra costs and
if there are possibilities of arbitration which
ensures the equivalence of stock prices on
both markets

74. F I N A N C I A L M A R K E T
I N T E G R AT I O N
•It is an open market economy between
countries facilitated by a common currency and
the elimination of technical, regulatory and tax
differences to encourage free flow of capital
and investment across borders. It occurs when
lending rates in several different markets begin
to move in tandem with one another.

75. F I N A N C I A L M A R K E T
I N T E G R AT I O N
•Emergence of similar patterns within the
capital, stock, and financial markets with
those trends coming together to exert a
profound influence on the economy of that
nation is involved in the integration within
a nation

76. GLOBAL CORPORATION
•is a business that operates in two or more countries. It
also goes by the name "multinational company". Several
advantages are offered by global expansion of business
over running a strictly domestic company. Success in
different types of economies is achieved by means of
multiple countries operation while it causes also
logistic and cultural challenges.

77. GLOBAL CORPORATION
•Expanding revenue opportunities and diversifying
business risk are the purposes of becoming global
corporation. Access to more customers and
capital is obtained through a model that works
domestically well and translates

78. F O R E I G N D I R E C T I N V E S T M E N T
•It is an investment made by a company or
individual in one country in business interests in
another country, in the form of either
establishing business operations or acquiring
business assets in the other country, such as
ownership or controlling interest

79. F O R E I G N D I R E C T I N V E S T M E N T
•in a foreign company and the key feature of
foreign direct investment is that it is an
investment made that establishes either effective
control of, or at least substantial influence over,
the decision making of a foreign business

80. BRICS ECONOMY
• Brazil, Russia, India, China and South Africa (BRICS) is an
acronym for the combined economies of Brazil, Russia, India,
China and South Africa. BRIC, without South Africa, was
originally coined in 2003 by Goldman Sachs, which speculates
that by 2050 these four economies will be the most dominant.
South Africa was added to the list on April 13, 2011 creating
"BRICS". These five countries were among the fastest growing
emerging markets as of 2011

81. BRICS ECONOMY
• Further, Brazil, Russia, India and China (BRIC) refer to the idea
that China and India will, by 2050, become the world's dominant
suppliers of manufactured goods and services, respectively, while
Brazil and Russia will become similarly dominant as suppliers of
raw materials. Due to lower labor and production costs in these
countries now including a fifth nation, South Africa, many
companies have also cited BRIC as a source of foreign expansion
opportunity i.e. promising economies in which to invest

82. G E N E R A L A G R E E M E N T O N T R A D E I N
S E RV I C E S ( G AT S )
•is the first multilateral agreement covering
trade in services which was negotiated during
the last round of multilateral trade
negotiations, called the Uruguay Round, and
came into force in 1995.

83. G E N E R A L A G R E E M E N T O N T R A D E I N
S E RV I C E S ( G AT S )
•The GATS provides a framework of rules
governing services trade, establishes a mechanism
for countries to make commitments to liberalize
trade in services and provides a mechanism for
resolving disputes between countries

84. G E N E R A L A G R E E M E N T O N T R A D E I N
S E RV I C E S ( G AT S )
•GATS has similar principle with the General
Agreement on Tariffs and Trade (GATT) that deals
with trade in goods. The two primary objectives of
GATTS are to ensure that all signatories are treated
equitably when accessing foreign markets; and second,
to promote progressive liberalization of trade and
services