Chapter 2

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

• wide and rapid spread of technologies

• Advancement of Science and Technologies

Reduced cost in transportation and communication makes it possible to organize and coordinate global production which makes the concept of national boundaries and distance for certain economic activities meaningless.

• Multinational Corporations (MNCs)

Multinational Corporations (MNCs) are globally organizing production and allocating resources according to the principle of profit maximization. Their global expansions are reshaping macroeconomic mechanisms of the operation of the world economies.

• Financial sector

A section of the economy which is made up of firms and institutions that provide financial services to commercial and retail customers. The sector is comprised of many different industries including banks, investment companies, insurance companies, and real estate firms. It advances loans for businesses so they can expand, grants mortgages to homeowners, and issues insurance policies to protect people, companies, and their assets.

It is a process in which two or more states in a broadly defined geographic area reduce a range of trade barriers to advance or protect a set of economic goals.

https://www.britannica.com/topic/economic-integration

Free trade area. This is the most basic form of economic cooperation. Member countries remove all barriers to trade between themselves but are free to independently determine trade policies with nonmember nations. An example is the North American Free Trade Agreement (NAFTA).

Customs union. This type provides for economic cooperation as in a free-trade zone. Barriers to trade are removed between member countries. The primary difference from the free trade area is that members agree to treat trade with nonmember countries in a similar manner.

Common market. This type allows for the creation of economically integrated markets between member countries. Trade barriers are removed, as are any restrictions on the movement of labor and capital between member countries. Like customs unions, there is a common trade policy for trade with nonmember nations. The primary advantage to workers is that they no longer need a visa or work permit to work in another member country of a common market. An example is the Common Market for Eastern and Southern Africa (COMESA).

Economic union. This type is created when countries enter into an economic agreement to remove barriers to trade and adopt common economic policies. An example is the European Union (EU).

• Reactive regionalism

• Peace and security

• Efficiency

• Externalization

• Political factor