WORLD ECONOMIC INTEGRATION
1. So, when did international trade started
and how did it lead to globalization?
2. And where is it headed tomorrow?
Learning Objective
3. Narrate a story o world Economic
Integration
4. Articulate your stand regarding world
economic integration
https://www.youtube.com/watch?v=6bZ4kzngki4
INTERNATIONAL TRADING SYSTEM
https://www.theethicalsilkco.com/blog/2015/3/26/the-silk-road-and-how-it-shaped-the-
modern-world
https://www.google.com/search?q=Exchange+of+ideas+on+the+Silk+Road&tbm=isch&ved=2ahUKEwjAvL
To9unrAhWCzIsBHeXZD7kQ2-
https://www.google.com/search?q=Exchange+of+ideas+on+the+Silk+Road&tbm=isch&ved=2ahUKEwjAvLTo9unr AhWCzIsBHeXZD7k
Q2-cCegQIABAA&o
Source: https://www.youtube.com/watch?v=vn3e37VWc0k&t=70s
Major inventions traded on the Silk
Road
The Chinese Four Great Inventions (paper
making, printing, gunpowder and compass) as
well as the skills of silkworm breeding and silk
spinning were transmitted to the West.
Architecture, town planning, as well as music and art
from many different cultures were transported along
the Silk Road.
Why is the Silk Road important today?
Even today, the Silk Road holds economic and cultural significance
for many. It is now recognized as a UNESCO World Heritage Site,
while the United Nations World Tourism Organization has developed
the route as a way of 'fostering peace and understanding'.
(www.theethicalsilkco.com)
The Ancient Silk Road was
international, it was not global
because it had no ocean routes
that could reach the American
continent
So, when did full economic
globalization begin?
Flyn and Giraldez trace this back in 1571
with the establishment of Galeon trade
that connected Manila in the Philppines
and Acapulco in Mexico. This was the 1st
time that America was directly
connected to Asian trading routes.
To strengthen the trade,
investment and infrasture
between China and estimated
65 other countries
Participating countries account
for
30% of world GDP
62% of the word;s
population
75% of known energy
reserves
https://www.google.com/imgres?imgurl=http%3A%2
F%2Fsbt.blob.core.windows.net
The Age of Discovery rocked the world.
But the most consequential exploration
was the circumnavigation by Magellan: it
opened the door to the Spice islands,
cutting out Arab and Italian middlemen.
Yet economists today still don’t truly
regard this era as one of true
globalization.
Age of Discovery (15th-18th centuries) / Image: BLR
Truly global trade kicked off in the Age Trade certainly started to become global,
of Discovery.
and it had even been the main reason for
It was in this era, from the end of the
15th century onwards, that European starting the Age of Discovery
explorers connected East and West – The trading during this time governed by
and accidentally discovered the mercantilism
Americas.
https://www.youtube.com/watch?v=ADWqZ6D11VM
The Galleon trade was part of the Age of
MERCANTILISM
Mercantilism was an economic system of trade
that spanned from the 16th century to the 18th
century. Mercantilism was based on the idea
that a nation's wealth and power were best
served by increasing exports and so involved
increasing trade
However, it is a system of global trade with
multiple restrictions
Source: https://www.youtube.com/watch?v=N5Bh8Z6ErRw
1857 Open Trade system adopting
the GOLD standard
Free trade is a trade policy that does not
restrict imports or exports. ... Historically,
openness to free trade substantially increased
from 1815 to the outbreak of World War
What is GOLD STANDARD?
The gold standard is a monetary system where a country's currency
or paper money has a value directly linked to gold. With the gold
standard, countries agreed to convert paper money into a fixed
amount of gold. ... That fixed price is used to determine the value of
the currency.
Trade openness increased again
during the 1920s, but collapsed
(in particular in Europe and North
America) during the Great
Depression.
What were the causes of the Great
Depression?
Four factors played roles of varying importance.
(1) The stock market crash of 1929
(2) Banking panics in the early 1930s caused many banks to fail, decreasing
the pool of money available for loans.
(3) The gold standard required foreign central banks to raise interest rates to
counteract trade imbalances with the United States, depressing spending
and investment in those countries.
(4) The Smoot-Hawley Tariff Act (1930) imposed steep tariffs on many
industrial and agricultural goods, inviting retaliatory measures that ultimately
reduced output and caused global trade to contract.
effects of great depression on the
world
The Great Depression had devastating effects in both rich and poor
countries. Personal income, tax revenue, profits and prices dropped,
while international trade fell by more than 50%. Unemployment in
the U.S. rose to 23% and in some countries rose as high as 33%.
Source: https://www.youtube.com/watch?v=Sv7IP2qL0gg
During WWII when countries
depleted their GOLD reserves to
fund their armies they were forced
to abandon GOLD standard
LOW GOLD RESERVES OF THE EUROPEANS THEY
ADOPTED FLOATING CURRENCIES that were no
longer redeemable in gold
What does floating a currency mean?
A floating exchange rate is a regime where the currency price of a
nation is set by the forex market based on supply and demand
relative to other currencies.
This is in contrast to a fixed exchange rate, in which the government
entirely or predominantly determines the rate.
Floating exchange rates mean
that currencies change in relative value all the
time. For example, one U.S. dollar might buy one
British Pound today, but it might only buy 0.95
British Pounds tomorrow. The value "floats."
Which countries have a floating
exchange rate?
China has adopted the managed floating mechanism,
thereby limiting its currency moves to a certain range.
The survey found that 65 of countries and regions,
including industrialized nations such as Japan, the U.S.
and many European countries, use the floating system,
representing 34% of the total.
Source(https://www.google.com/search?rlz=1C1CHBD_
enPH913PH913&ei=78RgX_7)
TODAY WORLD ECONOMIES ARE
USING FIAT CURRENCIES
A fiat currency has no intrinsic value. ... Monetary
policy determines the purchasing power of
the currency.
The exchange rate regime involving fiat currencies is
called a flexible or floating exchange rate regime,
where the exchange rate is determined in
international foreign exchange markets.
JOHN MAYNARD KEYNES
Economic crises occur not when
a country does not have
enough money but when
money is not being spent and
thereby, not moving
Global Keynisianism – when
active role of government to
invigorate markets
Bretton Wood System Created two
Global Financial Institution
The Global Lender of Last Resort
SETBACKS OF GLOBAL
KEYNESIANISM in the mid 40s to70s
OIL EMBARGO IN EARLY 1970’S BY OAPEC AND
OPEC
STOCK MARKET COLLAPSED IN 1973-74 after US
stopped linking dollars to gold effectively ending
the Bretton Wood System
Not predicted by Keynesian economics that
caused STAGFLATION AND INFLATION
NEOLIBERALISM and its discontents
Economists Friedrich Hayek and Milton Friedman WAS
beginning to challenge the Keynesianism who argued that
the government’s practice of of pouring money in their
economies caused inflation by increasing demand for goods
w/o necessarily increasing the supply. Profoundly,
government’s intervention distorts the proper functioning of
the market.
NEOLIBERALISM -
Strategy used by the US Treasury Department, World Bank,
the IMF, and eventually the World Trade Organization
(WTO) (1995)
WASHINGTON CONSENSUS
INSPIRED BY NEOLIBERALISM
Dominated global economic policies
from the 1980s up until the early 2000s.
It advocates pushed for minimal
government spending to reduce
government debt.
It also called for privatization of
government-controlled services like
water, power, communications, transport
believing that free market can produce
the best economic result.
This also pressured governments of the
developing countries to reduce tariffs
and open up their economies – quickest
way to progress.
SETBACKS OF NEOLIBERALISM
The Global Financial Crisis and the
Challenges of Neoliberalism
RUSSIA
Shock Therapy did not lead to
ideal outcomes in Russia.
Oligarch in Russia entrenched
and dominated the Russian
Economy – (Privatization bad
experience of free trade)
What was shock therapy in Russia?
In economics, shock therapy is the sudden release of price and
currency controls (economic liberalization), withdrawal of state
subsidies, and immediate trade liberalization within a country,
usually also including large-scale privatization of previously public-
owned assets.
What was the effect of shock therapy on the economy of
Russia?
Unemployment increased drastically, and government
subsidies were removed, further pushing Russian families into
poverty. Like the name of the concept implies, shock
therapy can effectively cure certain economic maladies by
jolting the economy, but it can also backfire, causing
unemployment and civil unrest. (Source:
https://www.google.com/search?rlz=1C1CHBD_enPH913PH913&ei=6WRjX6OOIdS6mAWcxJSgBA&q=ima
ges+of+shock+theraphy+of+Russia)
Largest garage sale in history- 90% of industries were sold to private
individuals and companies at throw away prices
Inflation was so high that people lost their savings
Government withdrew subsidies and social welfare was discarded that
push for public poverty
Half of the Russian bank were bankrupt
NEOLIBERALISM (GLOBAL
FINANCIAL CRISIS OF 2007-2008- US
failed to regulate the bad
investment in US housing market.
This crisis can be traced
backUS
Removed various
banking and
investment restrictions –
Americans began
building houses that
were beyond their
financial capacities
Lehman Brothers
collapsed, affecting
not only the US but
other investors outside
the US
ECONOMIC GLOBALIZATION
TODAY
The world has become too integrated,
closing national economies to world
trade wouldn’t probably work.
Regardless their argument about
Washington Consensus, it is undeniable
that some form of international trade
remains essential for countries to
develop in the contemporary world.
Benefits
before- 65%US, Japan, EU: 29%
Developing Countries
In 2011- 45% US: 51% Developing
Countries
Economic Globalization remains
an uneven process and
considered by some as unfair.
Developed countries are
protectionists – they refuse to
lift policies that safeguard their
primary products (double
standard)
TNC (Transnational Corporations)
benefits better in global
commerce rather than
governments – race to the
bottom
Stories of global market integration
e-commerce
digital services,
3D printing.
It is further enabled by
artificial intelligence,
but threatened by cross-
border hacking and
cyberattacks.
CONCLUSION
Governments should continue
to devise ways cushioning the
most damaging effects of
economic globalization, while
ensuring that tis benefits accrue
for everyone
International economic
integration is a central tenet of
globalization.
However, economics is just one
window into the phenomenon
of globalization- it is not the
entire thing.
Nevertheless, much of
globalization is anchored on
changes in economy.
