The History of Economic Globalization further emptiying government coffers.

This recession was

the worst and longest recession ever experienced by the
 Economic globalization can be traced from the time when Western World. Some economists argued that it was
there was economic movement in Asia, Africa and largely caused by the gold standard since it limited the
Europe through the Silk Road. circulating money and, therefore, reduced demand and
 The Silk Road is the oldest known international trade consumption.
route.
 It has network of trade routes that connected the East, International Financial Institutions
specifically the China, and the West.
 Products such as teas, dyes, spices, porcelain, paper, Due to the two world wars, world leaders sought to
gunpowder and medicine were exported to the West. create a global economic system that would ensure a longer-
 Products such as glassware, textiles, animal furs, fruits, lasting global peace. They believed that one of the ways to
honey, live animals, rugs and blankets, armor and horse- achieve this goal was to set up a network of global financial
riding necessities were exported to the East. institutions that would promote economic interdependence
 However, while the Silk Road was international, it was and prosperity.
not truly “global” because it had no ocean routes that An international structure for money, power and interest was
could reach the American continent. created in order to set a system in the financial and economic
 The true age of globalization began when all important relations in the modern day. Thus, the International
populated continents began to exchange products Monetary System (IMS) was established.
continuously—both with each other directly or indirectly It refers to internationally agreed rules, conventions and
via other continents—and generate crucial impacts on all institutions for facilitating international trade, investments and
trading partners (Flynn & Giraldez). flow of capital among nation-states.
 It was traced back to 1571, with the establishment of the The Three Global IMS
Galleon Trade that connected Manila in the Philippines 1. The Gold Standard – it functions as a fixed
and Acapulco in Mexico. This was the first time that the exchange rate regime, with gold as the only
Americas were directly connected to Asian trading routes. international reserve.
 Mercantilism (16th and 18th century) - It is an 2. The Bretton Woods System – the US Dollar became
economic theory that advocates government regulation of the global currency and was the only convertible
international trade to generate wealth and strengthen currency into gold.
national power. (Ex: Galleon Trade) o The Bretton Woods system was inaugurated in
 It was a system of global trade with multiple restrictions. 1944 during the United Nations Monetary and
 For instance, to defend the products from competitors Financial Conference to prevent the
who sold goods more cheaply, the regimes (mostly catastrophes of the early decades of the century
monarchies) imposed high tariffs, forbade colonies to from reoccuring and affecting international ties
trade with other nations, restricted trade routes, and o The system was largely influenced by the ideas
subsidized its exports.
of British economist John Maynard Keynes
 Gold Standard - A more open trade system emerged in
who believed that economic crises occur not
the 1867 when, following the lead of the United
when a country does not have enough money,
Kingdom, the United States and other European nations
but when money is not spent, thereby, not
adopted the gold standard at an international monetary
moving.
conference in Paris
o When economies slow down, according to
 Its goal was to create a common system that would
Keynes, government have to reinvigorate
allow for more efficient trade and to stop the
markets with infusions of capital. This active
mercantilist era.
role of governments in managing spending
 The countries thus, established a common basis
served as the anchor for what would be called a
for currency prices and a fixed exchange rate
system of Global Keynesianism.
system—all based on the value of gold.
3. European Monetary System – it was established in
 Despite facilitation simpler trade, the gold standard was
1979 after the collapse of Bretton Woods System. It
still a very restrictive system, as it compelled countries to
was later succeeded by the European Economic and
back their currencies with fixed gold reserves
Monetary Union (EMU), which established a
 During World War I, when countries depleted their gold
common currency, the euro.
reserves to fund their armies, many were forced to
abandon the gold standard. Since European coutries had Financial Institutions
low gold reserves, they adopted floating currencies that  International Bank for Reconstruction and
were no longer redeemable in gold. Development (IBRD)
 Returning to pure standard became more difficult as the o Now known as the World Bank, it was
global economic crisis called the Great Depression established for funding postwar reconstruction
statrted suring the 1920s and extended up to the 1930s, projects. It was a critical institution at a time
 when many of the world’s cities had been  It refers to the expanding interdependence of world
destroyed by the war. economies. Shangquan (2000) attributes this to the
o As the largest development bank in the world growing scale of cross-border trade commodities and
at present, it supports the World Bank Group’s services, flow of international capital, and wide and rapid
mission by providing loans, guarantees, risk spread of technology.
management products, and advisory services o Cross-border trading - It can be illustrated by
to middle-income and creditworthy low-income the country’s trading partnerships with other
countries, as well as by coordinating responses countries.
to regional and global challenges. o Flow of international capital - This can be
There are 5 organizations that belong to the World Bank observed in foreign direct investments, a type of
Group: investment in which a company establishes a
1 International Bank for Reconstruction and business in another country for production of
Development (Provides loans and financial goods or services and still takes part in the
assistance to middle-income and creditworthy low- management of that business.
income countries for development projects) o Widespread of technology - In economics, it is
2 International Development Association (Offers widely accepted that technology is the key driver
grants and low-interest loans to the world's poorest of economic growth of countries, regions and
countries to help reduce poverty. cities. Technological progress allows for the
3 International Financial Corporation (Supports more efficient production of more and better
private sector development in developing countries goods and services, which is what prosperity
by providing investment, advisory services, and depends on (rcc.harvard.edu).
access to capital markets)
4 Multilateral Investment Guarantee Agency Interconnected Dimensions of Economy
(Provides political risk insurance and credit 1. Globalization of trade of goods and services -
enhancement to encourage foreign investment in Economic connectedness is demonstrated in the
developing countries) establishment of
5 International Center for Settlement and World Trade Organization (WTO) – it was
Investment Disputes (Facilitates the resolution of established in 1995 to “ensure that trade flows as
disputes between governments and foreign investors smoothly, predictably, and freely as possible”.
through arbitration and conciliation) o For instance, China as a major supplier and
exporter of manufactured goods and
 International Monetary Fund (IMF) Increasing number of business processing
o It aims to promote international financial outsourcing (BPO) companies in the
cooperation and strengthen international trade. Philippines
o Like World Bank, it also grants financial 2. Globalization of financial and capital markets –
assistance and loans to developing countries. For example, the cross border listing which involves
companies that trade on the stock exchange of their
Two Types of Financial Institutions home country and also on a stock exchange in
 Intergovernmental another country.
o World Bank Group 3. Globalization of technology and communication -
o International Monetary Fund various transactions and interactions transpire
o Asian Development Bank instantly due to the internet and communication
o African Development Bank technology.
 Private 4. Globalization of production - This is best illustrated
o Citigroup – American multi-national by the existence of multinational corporations.
investment banking and financial Provides a forum for almost all of the world’s nations to
corporation. discuss international issue
o Merrill Lynch – wealth management
division of the Bank of America. Agents of Economic Globalization
 Today, the world economy operates based on what are
called fiat currencies—currencies issued by the The Nation-State
government that are not backed by precious metals and  Brodie (1996) calls the government as the
whose value is determined by their cost relative to other “midwives” of globalization. It acts as mediator
currencies. between the effects of globalization and the national
economy.
Economic Globalization  Government policies and regulations either permit or
deny the smooth connection among world economies.
 o For instance, the looming trade war between unclear to its employees and, sometimes, customers.
China and US, each government imposes
high tariffs on goods and services.

The Global corporations

 San Miguel Corporation and Jollibee Foods
Corporation are good illustrations as agents of
economic globalization.
 These two Filipino companies have expanded outside
their home country as they are present in Europe, US
and the rest of Asia.
o According to Gereffi (2005), such
companies are the main driving force of
economic globalization accounting for two-
thirds of the world export.

Meanwhile, Iwan (2012), identifies the differences among

international, multinational, transnational and global
companies:

INTERNATIONAL COMPANIES – importers and exporters

with no investments outside their home countries.
Example: A small local bakery that sells cookies. If this
bakery buys chocolate from another country to make its
cookies or sells its cookies to customers in other countries, it's
considered an international business.

MULTINATIONAL COMPANIES (MNCs) – they have

investments in other countries, but do not have a coordinated
product offering in each country.
Example: Starbucks, where most of the menu is the same, but
offerings change based on local tastes. Starbucks also
customizes its locations to the local culture, providing
different seating and setup to make local customers more
comfortable.

GLOBAL COMPANIES – they have investments and are

present in many other countries. A global company, however,
is one where the central headquarters of the business makes
the decisions for driving the business, and the same product(s)
are offered in every country, regardless of local culture and
tastes.

TRANSNATIONAL COMPANIES – it is a newer term,

describing a business with heavy operations in multiple
nations. Transnational businesses become incredibly complex,
as each local branch has its own decision-making power, its
own markets and its own product selection.
Example: Nestle, which has a headquarters, but international
branches make their own decisions regarding operations and
product offering.

Cross-over Between Companies

There is definitely crossover in these examples; in today’s
market, many businesses operate as a combination of these
types. This can often make a company’s global strategy