Globalization and the

World Economy

Economics

What is Globalization?Globalization is the integration of economic activities through a market and across borders

The creation of a single world market

What Has Caused Globalization?

Technology

Improved transportation of goods

Improved communication around the world

Government Policies

Can set policies to open up or close trade with other countries

How can the government affect globalization?

Barriers to free trade and globalization

Limiting imports

Embargos- refusing to trade with a particular country

Tariffs- taxes on any goods that are imported into a country

Used to make these goods equal to prices of domestic goods or higher than domestic goods prices

Quotas- limit the number of certain goods allowed into a country at a specific time

Restricting workers- limiting work permits for migrant workers

Developing Free Trade and Globalization

Cutting Tariffs

Usually will increase exports as well as imports

Other countries become more willing to trade and will drop their own tariffs

How can the government affect globalization?

How can the government affect globalization?World Trade Organization (WTO)

The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

Protects trade on goods and services

Services include: Insurance, telecommunications, hotels etc.

Helps develop the economies of other countries

Protect intellectual property- ideas and designs (copyrights)

How can the government affect globalization?

WTO Controversies

Labor

Issues over poor labor conditions and child labor

Some countries have an “unfair” labor advantage

Environment

Pollution concerns (China)

Food Safety

Concerns over how safe imported food is (GMO Food)

How can the government affect globalization?

European Union (EU) 1993

Trade agreement between European countries

Opened trade between European countries

Created a single currency

How can the government affect globalization?

North American Free Trade Agreement (NAFTA)

Formed in 1993

Meant to increase trade between Mexico, US and Canada

How can the non-profit organizations affect globalization?

World Vision International is an Evangelical Christian relief, development and advocacy organization

dedicated to working with children, families and communities to overcome poverty and injustice. Inspired by Christian values, they are dedicated to working with the world’s most vulnerable people.

Founded in 1950, it has grown into one of the largest relief and development organizations in the world[with a total revenue including grants, product and foreign donations of $2.79 billion (2011).

How can international organizations

affect globalization?The United Nations (UN) is the world's largest, foremost, and most prominent International Organizations. The stated aims of the United Nations include promoting and facilitating cooperation in international law, international security, economic development, social progress, human rights, civil rights, civil liberties, political freedoms, democracy, and the achievement of lasting world peace.

The UN was founded in 1945 with the goal to stop wars between countries, and to provide a platform for dialogue

As of 2011, the UN has 193 member countries.

How can international organizations

affect globalization?

The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

How can international organizations

affect globalization?

Greenpeace is the leading independent campaigning organization that uses peaceful protest and creative communication to expose global environmental problems and to promote solutions that are essential to a green and peaceful future.

What are Multinational Corporations?

Multinational Corporation- a firm that has factories, offices or branches in two or more countries

Ex. Microsoft, Toyota, Sony, Wal-Mart, McDonalds, Sony etc.

Numerous large companies are becoming multinational due to Globalization

What are Multinational Corporations?

Many companies produce their products in other countries or will build a plant in in the country the export their products to

Why?

Cheaper labor

Save on shipping cost

Cut import/export tariffs

Exchange Rates

Foreign Exchange Market- where currency, from numerous countries, are bought and sold

Exchange Rate- The value of a country’s currency in relation to another country’s currency

Ex. 1 Euro = $1.294

Ex. 1 CAD = $0.978

Ex. 1 MX Peso = $0.080

Exchange Rates

Fixed Rate of Exchange

Currency values did not change daily and were set in regards to gold reserves (until 1971)

Governments can set the value of their currency

Flexible Exchange Rate

Currency values are set in relations to supply and demand

Traded in a manner similar to the stock market

Exchange Rates

What impact does the Foreign Exchange Rate have on our economy?

Can influence the cost of goods imported/exported

Can lower or increase the price of finished goods due to cost of raw materials

Exchange Rates

Balance of trade

Currency depreciates (decreases in value)- export more goods due to other countries being more willing to buy at the “lower price”

Currency value increases- import more goods due to foreign goods “costing less”

Trade Surplus- export value is higher than import value

Trade Deficit- import value is higher than export value

Major US Imports and Exports

Imports

Crude Oil

Electronic equipment

Cars

Precious Metals and Gems

Exports

Food Products

Electronic Equipment

Cotton

Vehicles

Major US Imports and Exports

Imports Exports

Potential Short-Answer Questions

What are some causes for Globalization

Why do companies produce their goods outside of their home country?

How are trade patterns established?

How can the US Dollar exchange rate affect our economy?