CHAPTER 1: THE RISE OF Decoupling

GLOBALIZATION  A world economy in which the engines

Globalization of growth could comprise several major
 is the socioeconomic reform process of industrialized and emerging economies,
eliminating trade, investment, cultural, such as the United States, the European
information technology, and political Union, China, India, Brazil, Russia, and
barriers across countries. South Africa rather than the United
 It can lead to increased economic States alone.
growth and geopolitical integration and
interdependence among nations of the Multipolar world
world.  A global shift in which industrialized
 It represents more free international country-dependent developing
trade and investment or the free flow of economies grow based on their own
goods and services (including cultural underlying economic strengths rather
and belief systems) between countries. than those of highly-developed
 It includes a process of integrating the countries. (China and the world vs US)
nations of the world so that they
become more economically efficient, Main Goal: non-dependence of countries from
interdependent, and perhaps relatively the US
more inclusive and homogeneous.
South of the Global South are linked in various
Emerging economies configurations through multinational alliances
 are implementing more open trade and and trade agreements.
free-market policies to propel growth.
 Prior to 2000, globalization generally One such grouping is BRICS+. Others include
implied that business expanded from the ten member states of the Association for
developed countries to developing or Southeast Asian Nations (ASEAN), the African
emerging economies. Continental Free Trade Area, and South
 Now the flow of business had moved in America's Mercosur.
both directions, and increasingly from
one developing country to another. Key International Institutions That Facilitate
 The world's center of economic gravity Globalization
is shifting toward emerging economies,
especially China. Globalization gained momentum after World
War II, when governments of the free world
recognized the importance of international  Eradicating communicable diseases.
cooperation and coordination which led to the
emergence of three major international World Bank:
organizations:
 The international Monetary Fund (IMF)
 The World Bank  Focus: Long-term economic
 The World Trade Organization (WTO) development and poverty
International Monetary Fund's role in global reduction in developing countries.
financial stability:  Mission: Aims to reduce poverty
 Provides a forum for cooperation on and improve living standards in
international monetary problems. developing counties by providing
 Facilitates international trade that financial and technical
promotes job creation, economic growth, assistance.
and poverty reduction.  Activities: Provides loans, grants,
 Promotes exchange rate stability and an and technical assistance to
open system of international payments. developing countries to support
 Lends countries foreign exchange to investments in areas like
help address balance of payment education, health, infrastructure,
problems. al private sector development.
 Membership: 189 member
World Bank's initial role was to aid the countries.
reconstruction of Europe after World War II.  Key Function: Aids in the
implementation of specific
Current focus areas include: development projects and
 Global integration through trade programs.
liberalization and expansion.
 Analysis and national trading policy International Monetary Fund (IMF):
advice to strengthen free-market  Focus: Oversees the international
institutions and infrastructure. monetary system, promoting global
 Agreements supporting international monetary cooperation and financial
standards in financial systems. stability.
 Information and knowledge transfer to  Mission: Aims to prevent crises in the
developing countries to support international monetary system, facilitate
sustainable development. trade, and promote sustainable
economic growth and high employment.
  Activities: Monitors economic and Institutional Structure and Its Impact on
financial developments, provides policy Globalization
advice, offers financial assistance Institutions
(loans) to member countries with  the rules, enforcement mechanisms,
balance-of-payments problems, and and the organizations that support
promotes capacity development. market transactions.
 Membership: 191 member countries. To work appropriately, political systems must
 Key Function: Acts as a "lender of last also be in place.
resort" to countries facing economic
crises. Adaptive institutions
 government organizations that create
The WTO began trading in 1948 under the strong incentives for private investment
General Agreement on Tariffs and Trade and operate under a system of checks
(GATT). and balances that function best in a
 Liberalized trade by lowering and/or democratic system of government.
removing trade barriers such as tariffs,
quotas, and subsidies. Effective Policy Measures that Promote
 Developed through a series of trade Globalization
negotiations o Good governance
o Competitive markets
WTO promotes global trade by: o Property rights
 Administering trade agreements o Anticorruption policies
 Acting as a forum for trade negotiations
 Settling trade disputes
 Reviewing national trade policies
 Providing developing countries with
technical assistance and trainin
programs
 Cooperating with the IMF and the World
Impact of Information Technology on
Bank
Globalization
 Lower broadband prices have allowed
emerging economies to reach rural
towns and villages
  IT revolution has been relatively  Globalization does create winners and
instantaneous losers.
Globalization Winners and Losers
Digital divide
 the perceived economic gap between Globalization's Winners
countries with easy access to digital  China
 India
technology and those with limited
 Brazil
access Globalization's Losers
 Central Asia
 Much of Africa
The Globalization Controversy
 North Korea
 The impact of an increasingly free flow
of ideas, people, goods, services, and CHAPTER 2: THE EVOLUTUION OF
capital that leads to closer integration INTERNATIONAL BUSINESS

and interdependence of economies and

International business
societies—can be a force for exploitation  All commercial transactions, both private
and injustice. and public, between nations of the
world.
Arguments against globalization:
 The rise of international business
 Job losses and income stagnation impacts both blue-collar and white-collar
 Loss of local control over economic jobs across wealthy nations (USA,
Europe, Japan).
policies and developments
 Historical roots: Sumerians (3000 B.C.)
 Disappearance of old industries traded grain surplus for copper, fostering
 Related erosion of communities cultural exchange and security.
Outsourcing
 The corporate practice of acquiring or
Making Globalization Work for All producing quality goods or services
 Most economists would agree that abroad at a lower cost, thereby
greater integration of the world economy eliminating domestic production
Factors of production
and more openness to efficiency and  endowments used to produce goods
modernization offer all citizens of the and services: land (quantity, quality, and
global village a more rewarding and mineral resources beneath it), labor
(quantity and skills), capital. (cost), and
hopeful future.
technology (quality)
 Globalization has the potential to Trade surplus
increase the quality of life for people;
 When the value of exports exceeds the
however, there cannot be a guarantee
value of imports; the opposite of a trade
that the quality of life for all people will
deficit.
increase or that all changes caused by
globalization will be positive.
 2-1. Benefits of Trade and Foreign Direct  Developed countries enjoy cheaper
Investment goods
Downsides of Trade
Trade
 Disruption in Jobs: Some industries lose
competitiveness.
 The two-way flow of exports and imports
of goods (merchandise trade) and  Need for retraining and education
services (service trade).
 Outsourcing to lower-wage countries like
Foreign Direct Investment (FDI) India and Philippines. Outsourcing- the
corporate practice of acquiring or
 The inflows of capital from abroad for producing quality goods or services
investing in domestic plant and abroad at a lower cost, thereby
equipment for theproduc- tion of goods eliminating domestic production.
and/or services as well as for buying
domestic companies. FDI Trends

Key Benefits of Trade  High-Income Countries (Europe, U.S.)

still receive most FDI.
 A greater amount of choice in the
availability of goods and services.  China & India: Attract FDI due to
manufacturing & services.
 Lower prices for goods and services
consumed.  BRIIC Nations (Brazil, Russia, India,
Indonesia, China): Strong draw for
 Higher living standards. investors due to population and growth.
 Promotes peace and cultural exchange FDI and the Technology Surge
 Trade Creates Jobs; For every $1 billion
 2015–2016 FDI spike due to tech sector
in U.S. exports, 20,000 jobs are
(5G, cloud, EVs)
created.Imports also create jobs in retail,
car dealerships, and service industries.  Companies like Apple, Tesla, Google
attracted investors
FDI Benefits
 China’s infrastructure: Key factor in FDI
 Brings capital and technology to
inflows.
countries.
2-2. Major Theories of International Trade
 Creates well-paying jobs
 Attracts investment in key sectors (tech, Why Nations Must Trade?
energy).
 No country is self-sufficient. Every
Global Prosperity of Trade nation lacks some resources (e.g.,
minerals, skilled labor, land, tech)
 Post-2008 Rebound: World trade grew needed to produce everything its
17% by 2018. population wants or needs.Therefore,
trade becomes necessary for survival
 China and India: Millions moved to the
and prosperity.
middle class due to trade.
Value of Trade Theories wealth and wages in exporting countries
and leading to competitive price cuts
 First, these theories provide an among exporters
appreciation for the progress made in
understanding how trade (and gains Labor and Population Policies
from trade) really works in an open
 To maintain low labor costs and
economy.
competitiveness, mercantilists
 Second, these theories present a encouraged large families through
rationale why restriction to trade should incentives and penalties, prioritizing
be minimized even when domestic national wealth over individual
economic and business conditions seem prosperity.
awful.
 Mercantilists championed this short-
2-2a. Mercantilism – Wealth Accumulation sighted view of wealth.
as a Basis for Trade Theory 2-2b. Specialization as a Basis for Trade

Mercantilism Theory: Absolute and Comparative

Advantage
 Practice during the 1500-1750, a theory
of international trade that supports the During the mid 18th century, Adam Smith, is
premise that a nation could only gain the father of free market and open trade
from trade if it had a trade surplus. systems, recognized the irrationality of
Theory Beliefs and Goal mercantilism. In the year 1817, the Great
British Economist David Ricardo, asserted
 Exports as a way to bring precious that specialization and free trade benefits all
metals into the country. Exports = trading partners, even those that may be
national gain considered inefficient.

 Imports as a drain on national wealth Adam Smith’s international trade theory

(since gold/silver had to be paid out).
Imports = national loss  This theory proposed that unrestricted
trades favors countries to specialize in
 The theory believed that land and labor
were considered less important, the production of their goods and
because they were primary factors of services that they most efficiently
production that were needed to generate
produce. Which will be backed by the
wealth, gold and silver.
next theories :
 The goal is to Achieve a trade surplus -
increase gold/silver inflows - enhance Theory of absolute Advantage
national wealth and power
 Absolute advantage is to utilize
Flawed Global Perspective processes in what is more efficient to
produce in a country. According to Dean
 If all nations pursued trade surpluses, a et al. (2020), absolute advantage may
global surplus of exported goods would occur as a result of a country's natural
depress prices and earnings, reducing endowment.
Theory of comparative advantage intensive goods, while a labor-abundant
country will export labor-intensive goods
 Refinement of the previous theory and
can be attributed to the Great British Factor Price Equalization Theory
Economist, David Ricardo. Comparative
advantage happens when a country has  the theory (attributed to Paul A.
an absolute advantage to produce two Samuelson) that when factors of
or more goods or services in terms of production are allowed to move freely
producing one of them relatively more among nations as a result of
efficiently than the other. Producing a international trade, the prices of identical
good at a lower cost in terms of other
goods is called comparative advantage 2-2D PORTER’S “DIAMOND” MODEL OF
(Dean et al., 2020) NATIONAL COMPETITIVE ADVANTANGE
Under the assumption that a country already
has an absolute advantage over the other, Porter's model of National Competitive
should they still manage to trade between one Advantage is based upon the trade theories
another? The answer would be a yes. It is mentioned earlier. The robustness of Porter's
crucial to recall that resources in all countries model can be attributed to his integration of the
are scarce already, therefore countries must theory and structure of a firm's behavior to
choose the most efficient tactic to make use of trade theory. Porter looked more closely at the
their own resources which are land, labor, and theory of firm and industry specifics to identify
capital. characteristics that made firms and industries
in countries "winners" or "losers" in
Hypothetically, when countries manage to international trade. Porter's hybrid model was
follow the aforementioned statement of efficient designed to operate within an environment of
use of resources globally, the total output and government actions and unforeseen external
standard of living of the world can be events— external shocks, positive or negative.
increased. With the essence of free trade,
countries will ensure a higher standard of 2-3A TARIFFS, PREFERENTIAL DUTIES,
living. AND MOST FAVORED NATION STATUS
2-2C FACTOR ENDOWNMENTS AS A BASIS
FOR TRADE THEORY: HECKSCHER-OHLIN Trade Policy
(H-O) AND FACTOR PRICE EQUALIZATION  all government actions that seek to alter
the size of merchandise and/or service
Factor Endowment flows from and to a country
 the quantity and quality of factors of
production (land, labor, capital, and Tariffs
technology) that a country owns  taxes on imports; also known as custom
duties in some countries
Heckscher-Ohlin (H-O) theory
 a theory that attributes the comparative Custom Duties
advantage of a nation to its factor  taxes on imports that are collected by a
endow-ments. A capital-abundant designated government agency
country will, therefore, export capital- responsible for regulating imports
Specific Tariff Voluntary Export Restraint -(VER)
 an import tax that assigns a fixed dollar  a nontariff barrier in which an efficient
amount per physical unit exporting nation agrees to limit exports
of a product to another country for a
Ad Valorem Tariff temporary period
 a tax on imports levied as a constant
percentage of the monetary value of one 2-4 CURRENT PRACTICE OF “MANAGED”
unit of the imported good TRADE

Preferential Duties Domestic Content Provisions

 an especially advantageous or low  regulations requiring that a certain
import tariff established by a nation for percentage of the value of imports be
all or some goods of certain countries sourced domestically
and not applied to the same goods of
other countries Managed Trade
Generalized System of Preferences (GSP)  agreements, sometimes temporary,
 an agreement where a large number of between countries (or a group of
developed countries permit duty free countries) that aim at achieving certain
imports of a selected list of products that trade outcomes
originate from specific countries
Countertrade
Export Subsidy  agreement in which an exporter of
 a negative tariff or tax break aimed at goods or services to another country
boosting exports commits to import goods or services of
corresponding value from that country
Export Taxes
 taxes meant to raise export cost and Export Cartels
divert production for home consumption  a group of countries that could
2-3B NONTARIFF BARRIERS effectively control export volume to keep
their export prices, revenues, and
Most Favored Nation economic growth stable or high
(MFN)
 an agreement among WTO countries in Infant Industry Argument
which any tariff concession granted by  temporary provision of protection to
one member to any other country will nascent industries that have good
automatically be extended to all other prospects of becoming globally
countries of WTO competitive in the medium term

Import Quotas Embargoes

 also known as Quantitative  trade sanctions that are imposed upon a
Restrictions (QRs); regulations that nation to restrict trade with that country
limit the amount or number of units of
products that can be imported to a
country
 CHAPTER 3: REGIONAL ECONOMIC WHY ARE SOME ECONOMISTS
INTEGRATION CONCERNED ABOUT REGIONAL TRADE
BLOCS?
Regional integration
 Unequal benefits across and within
 is the cooperation of two or more countries
countries through formal agreements to  May entrench inefficiencies if not well-
promote peace, stability, and economic managed
growth.  Risk of undermining multilateral efforts
 It addresses barriers like poor and global trade rules
infrastructure, inefficient policies, and  Requires governance, inclusivity, and
geographical divisions. careful policy design
 It starts with economic collaboration and
MULTILATERALISM
can evolve into deeper political
unification  World Trade Organization (WTO)
 Promotes fairness, global market
DOES REGIONAL INTEGRATION
access, and dispute resolution
CONFOUND GLOBAL TRADE?
 Based on non-discrimination (MFN
 Regional integration can complement principle)
global trade by improving internal
REGIONALISM
capabilities and infrastructure.
 Overreliance on regional blocs may  North American Free Trade Agreement
divert attention from global trade efforts (NAFTA)
and weaken global systems like the  European Union (EU) Easier to
WTO. negotiate, region specific
 Careful alignment with global goals is  Allows faster liberalization but violates
essential. MFN
 Tolerated if it leads to broader
HOW DOES REGIONAL INTEGRATION
liberalization
AFFECT GLOBAL TRADE?
EUROPEAN UNION (EU)
Positive Effects
 The EU is the most advanced form of
 Enhances regional trade efficiency
regional integration, uniting 27 European
 Strengthens policy alignment and
countries under shared political,
infrastructure
economic, and social goals. It was
 Creates larger, unified markets
established through the Maastricht
Negative Effects Treaty (1993); aims include a common
currency, EU citizenship, and joint
 Risks excluding non-members
foreign/security policy.
 Can shift focus from global cooperation
 Originated post-WWII to rebuild Europe,
to regional interests
promote peace, and support free
 May introduce shared risks and
markets and democracy.
instability
 Headquartered in Brussels; awarded
Nobel Peace Prize (2012) for peace and
unity.
KEY TREATIES AND DEVELOPMENTS CHALLENGES AND OPPORTUNITIES OF
EU
1. Treaty of Paris (1951)
OPPORTUNITIES
 Established the European Coal and
Steel Community (ECSC), laying the  Economic growth in Eastern Europe
groundwork for European economic (e.g., Poland’s GDP per capita rose
cooperation. from 48% to 76% of EU average)
 New trade and investment potential
2. Treaty of Rome (1957)
CHALLENGES
 Created the European Economic
Community (EEC), forming a common  Brain drain, wage stagnation, and labor
market among member states. shortages
 Energy dependency (over 57% of
3. Single European Act (1986)
energy imported)
 Marked a significant step by introducing  Russia-Ukraine conflict exposed
free movement of labor across member geopolitical vulnerabilities
nations.  The EU must adapt through innovation,
education, and strategic partnerships
4. Maastricht Treaty (1992)
TURKEY AND THE EU
 Formally established the European
Union (EU) and set the stage for a  Turkey’s application to join the European
monetary union and common foreign Union, submitted in 1987, remains
and security policies. controversial due to several political,
economic, and cultural concerns.
5. Lisbon Treaty (2009)
 These include Turkey’s low per capita
 Enhanced the EU’s political integration, income, its authoritarian leadership
giving more power to EU institutions and under President Erdogan, ongoing
strengthening roles in defense and human rights issues—particularly
international affairs. regarding the Kurdish population—and
its potential influence as the largest and
BREXIT (WITHDRAWAL OF UK FROM EU)
predominantly Muslim member of the
 Brexit = British + Exit, decided by EU.
referendum (June 2016), formalized  These concerns have created resistance
January 31, 2020 among existing member states, leaving
 Driven by issues on sovereignty, Turkey’s membership unresolved.
immigration, and EU regulations
The euro (€)
 Trade and Cooperation Agreement
(2020): Allows tariff and quota-free trade  is the official currency of the European
in goods Union, introduced in 1999 for electronic
 Marked a major shift in EU history, use and in 2002 as physical money.
highlighting tensions between regional  It was created under the Maastricht
unity and national autonomy Treaty to promote economic unity
through a shared currency,requiring
strict criteria like low debt and stable
inflation.
  While it helped streamline trade and  NAFTA is a comprehensive free-trade
eliminate exchange risks, not all EU agreement among Canada, the United
members adopted it, with countries like States, and Mexico.
the UK, Sweden, and Denmark  Canada has long been one of the U.S.'s
choosing to opt out or delay participation closest trading partners, especially in
due to concerns over national control automotive, energy, and agriculture, with
and economic readiness. their relationship strengthened through
trade deals like the Canada-U.S. Free
THE SOVEREIGN DEBT CRISIS AND ITS
Trade Agreement (1989), NAFTA (1994),
IMPACT ON THE EURO
and now the USMCA (2020)- which
 The European sovereign debt crisis oversees nearly $2 trillion in trilateral
(2009–2012) exposed vulnerabilities in trade. Since NAFTA's launch in 1994,
the eurozone after the 2008 global Mexico- U.S. trade has grown
financial crash. significantly.
 Countries like Greece, Ireland, and  By 2019, Mexico became the U.S.'s top
Spain faced severe debt and economic goods trading partner, with two-way
collapse, leading to bailout programs by trade reaching $840 billion by 2024.
the EU, ECB, and IMF.
MOTIVATIONS FOR NAFTА
 In exchange, strict austerity measures
were enforced, sparking public protests. Regional Economic Integration
 The crisis highlighted how economic
 aimed to remove non-tariff and tariff
instability in one member state can
barriers between the United States,
threaten the stability of the entire
Canada, and Mexico in order to
eurozone, raising questions about the
establish a single North American
risks of shared currency without deeper
market.
fiscal coordination.
Leveraging Shared Borders
The North American Free Trade Agreement
(NAFTA)  used geographic connection to support
integrated production systems, cross-
 signed in 1992, was a controversial
border supply networks, and easier
trade agreement that gradually removed
trade flows.
the majority of tariffs and other trade
barriers on goods and services traveling Political Rationalization
between the US, Canada, and Mexico.
 NAFTA was a planned political move
With the agreement, the three major
that strengthened the United States'
North American countries essentially
leadership in advancing free markets
formed a free-trade bloc.
and securing influence in the western
 The 1994 operation of NAFTA continued
region, for instance, the European
until its replacement in 2020.
Union.

HISTORICAL CONTEXT
NAFTA DEVELOPMENT AND TIMELINE
June 1990  NAFTA required robust IP protections
across the countries, covering patents,
 U.S. President George H.W. Bush and
trademarks, copyrights, and trade
Mexican President Carlos Salinas
secrets, to encourage innovation and
initiated free trade discussions.
cross-border commerce.
1991
Institutionalized Dispute Resolution and
 Canada joined the negotiations, building Regulatory Cooperation
on the 1988 CanadaU.S. Free Trade
 unfair trade practices, disputes between
Agreement (CUSFTA).
companies or governments,
August 12, 1992 environmental protection, workers'
rights, competition policies, and the
 Negotiators concluded the NAFTA deal.
implementation of NAFTA rules and
December 17, 1992 regulations.

 The leaders of the U.S., Canada, and IMPACT ON U.S.-MEXICO TRADE

Mexico officially signed NAFTA
 NAFTA increased trade between the
1993 United States and Mexico, securing
economic relations while at the same
 Side agreements on labor and
time making Mexico more economically
environmental standards were added to
dependent on the United States.
address public concerns, helping secure
 Side agreements to enforce fair labor
U.S. Congressional approval.
practices and environmental standards
January 1, 1994 were included to reduce worries.
 Later, to lessen its dependency on the
 NAFTA went into effect, creating one of
United States and adjust to changes in
the world's largest free trade zones.
the global market, Mexico adopted trade
2008 diversification, including with the EU.

 NAFTA was fully implemented with all PERIPHERAL AGREEMENTS AND

tariffs and major trade barriers between ENVIRONMENTAL STANDARDS
the three countries eliminated.
1. Mexican Labor Laws
MAIN OBJECTIVES OF NAFTA
 Mandates Mexico to enact and
Elimination of Trade Barriers implement new labor laws strengthening
workers' rights, including freedom of
 the agreement aimed to gradually
association, collective bargaining, and
remove all trade restrictions, such as
protections against forced labor and
quotas, tariffs, and product licensing
discrimination
restrictions, which expanded the trade of
goods and services 2. Environmental Quality Agreements
 Requires the enforcement of
environmental laws within each country -
Each party shall ensure high levels of
Protection of Intellectual Property protection and shall strive to improve its
 level of environmental protection. especially in agriculture and raw
(Article 24.3) materials.
 Initiatives on air quality, marine litter, and
Increasing economic integration and future
sustainable forest management
implications
Environment Consultations
 This establishes a bilateral consultation  USMCA strengthens North American
process to address whether there are supply chains, such as in the
any violations. (Article 24.29) automotivel agriculture, and electronics
sectors.
LIMITATIONS, CHALLENGES, AND
 USMCA modernizes trade through
ECONOMIC IMPAСТ
digital trade provisions and IP
Weak institutional structure compared to protections.
the EU
 The EU has strong supranational Future of ASEAN
institutions such as the European
• ASEAN’s Vision 2025: Calls for outward-
Parliament and the Court of Justice.
looking economic policies.
 The EU has structural funds to reduce
inequalities among countries, while the • Aims: To integrate ASEAN more deeply into
USMCA does not have a provision for the global economy.
financial redistribution.
• Focus: Expanding Free Trade Agreements
Mexico's close ties and influence from the with global partners.
U.S. economy: Mexican exports and
• Trade Agreements:
remittances
– ASEAN-Japan Comprehensive Economic
 Most recently, in 2024, 80% of the
Partnership
exports of Mexico go to the United
States. – ASEAN - Australia - New Zealand Free Trade
 40% of the imported goods in Mexico Agreement
are from the United States, making
– ASEAN - India Free Trade Agreement
Mexico the second-largest destination
for U.S. exports. – ASEAN - South Korea Free Trade Agreement
 In 2023, Mexico was the second-large
– ASEAN - China Free Trade Agreement
recipient of remittance of the world
ASEAN Socio-Cultural Community
Impact of the EU-Mexico trade relations
• Objective: Ensure the ASEAN workforce is
 The free-trade agreement between
well-prepared to benefit from economic
Mexico and the EU, Mexican trade with
the integration underway.
 EU has been increasing.
• Invests in:
 The agreement helps reduce Mexico's
dependence on U.S. trade. – Higher education
 - The agreement opens up new markets
– Training
and supports trade diversification,
– Research and Development
– Public health care – Aims to promote economies of scale and
specialization in production by eliminating tariff
– Social protection
and nontariff barriers among member countries
• Aims: To reduce inequality and uplift rural and
• Focus Areas:
disadvantaged communities.
– Financial sector liberalization
Growing Concern
– Infrastructures
• The Rise of China:
– Human Resource Development
– World’s leading low-cost manufacturing
center ASEAN Security Community
– One of the world’s most attractive • Objective: Ensure that countries in the region
destinations for foreign direct investment live in peace with one another and
– Embraces capitalism rely exclusively on peaceful processes in the
settlement of intra-regional differences.
– Was once the world’s largest economy for 18
out of 20 centuries • ASEAN Regional Forum:
• Challenges for ASEAN Economies: – Major power relations
– Risk of job losses due to manufacturing shifts – Nonproliferation
to China
– Counterterrorism
– Concerned over reduced exports as China
– Transnational crimes History
becomes more self-reliant
• Established: August 8, 1967
– Competitive pressure on local industries
• Other Members:
• Free Trade Agreement:
– Brunei - 1984
– Protect export volumes
– Laos and Myanmar - 1997
– Maintain employment levels
– Cambodia - 1999
– Access China’s massive consumer market
• Objectives:
ASEAN Economic Community
– To accelerate economic growth, social
• Objective: Create a stable, prosperous, and
progress, and cultural development in
highly competitive ASEAN economic
the region
region with free flow of goods, services,
investment, and capital to reduce poverty – To promote regional peace and stability
and socio-economic disparity. – To promote the rule of law in relationship
among countries in the region
• ASEAN Free Trade Area:
• In 2003: ASEAN leaders agreed to establish
– Launched in 1992
an ASEAN Community based on three
– In place since 1993
pillars:
– ASEAN Security Community U.S. and Venezuela which derailed the Free
Trade Area of Americas)
– ASEAN Economic Community
– Economic instability
– ASEAN Socio-cultural Community
– Corruption scandals
Regional Integration in Latin America
– COVID-19 pandemic
• Purpose:
• History:
– To foster economic, political, and social
cooperation among Latin American – Began with the Treaty of Montevideo in 1960,
created Latin American Free
countries to promote development, stability,
and global competitiveness. Trade Association, failed due to disagreements
on tariff reduction
– Goals:

∗ Promote economic integration

– In 1969, Andean Group was formed by

∗ Increase trade and investments

Bolivia, Chile, Colombia, Ecuador,
and Peru
∗ Reduce trade barriers – In 1991, MERCOSUR created a regional
∗ Develop poorer industrial regions trade bloc in South America that

• Active Trades: promotes free trade and economic cooperation

among its members
– Some Latin American countries pursue
bilateral or external trade deals (agreements – In 1994, the Free Trade Area of the Americas
with India, Israel, South Africa). was proposed but was not

– Dual strategy: Continue integration but also implemented due to political issues
seeks independent growth opportunities. – In 2005, DR-CAFTA was established with
– MERCOSUR: Costa Rica, El Salvador, Guatemala,

∗ Still active but faces slow implementation Honduras, Nicaragua

∗ Promotes free trade, coordinates economic • Societal Impacts:

policies, and fosters regional – Positive:
development within South America ∗ Increased market access for exports

∗ Boosted foreign investment

∗ On-going agreement with the U.S.
– DR-CAFTA:

∗ Job creation in key sectors

∗ Promotes trade and investment across
Central America ∗ Better regional cooperation and shared
infrastructure
• Barriers to Unity:
– Negative:

∗ Unequal development among member

– Political disagreements between member
countries (e.g., dispute between the
countries (wealthier nations benefit
more)

∗ Local industries in poorer countries may risk premium

suffer

∗ Sudden policy changes or failed agreements

 the added return required by investors
for risk associated with a security or
hurt workers and small businesses asset
foreign direct investment
CHAPTER 4 INTERNATIONAL FLOW OF
 encompasses purchases of fixed assets
FUNDS AND EXHANGE RATES
(such as factories and equipment)
balance of payments (BOP) abroad used in the manufacture and
sales of goods and services
 a statement of account that shows all
transactions between the residents of net errors and omissions
one country and the rest of the world for
 reconciles any imbalance between the
a given period of time
current account plus capital account and
current account the financial account to ensure that all
debit and credit entries in the balance of
 reflects the activities of consumers and
payments statement sum to zero
businesses in the economy with respect
to the trade balance, services balance, foreign exchange markets
income balance, and net transfers
 a global network of international banks,
trade balance currency traders, and speculators as
well as central banks that trade different
 the net of merchandise exports and
countries' currencies
merchandise imports
trade deficit
exchange rate
 when merchandise imports exceed
merchandise exports for a country  the price at which one currency can be
converted to another currency
services balance
independent floating exchange rate system
 the net of exports of services and
imports of services  a system that sets the values of major
currencies based on their demand and
income balance
supply in world currency markets
 the net of investment income from
managed floating exchange rate system
abroad and investment payments to
foreigners  a system that determines the value of
some currencies partly by demand and
capital account
supply in the foreign exchange market
 shows credit and debit entries for non and partly by active central bank
produced nonfinancial assets and intervention in the foreign exchange
capital transfers between residents and market
nonresidents
fixed exchange rate system premium
 a system in which the country pegs its  In the forward market, the selling of a
currency at a fixed rate to a major currency at forward rate that is more
currency or basket of currencies, while than the spot rate
the exchange rate fluctuates within a
hedge
narrow margin around a central rate
 insurance that reduces future risk
spot market
 exchange that trades currencies on a
real-time basis for immediate delivery
bid-ask spread
 the difference between bid and ask
prices of a currency; the transaction fee
earned by the bank
direct quotes
 prices of a foreign currency in dollars or
the number of dollars per one unit of
foreign currency
indirect quotes
 the reciprocal of the direct quote or the
prices of a dollar (for example) in foreign
currency terms
forward market
 exchange that enables purchases and
sales of currencies in the future with
prices (or the forward rate) established
at a previous time
forward rate
 the price at an earlier time of a currency
in terms of another currency established
for future delivery in the forward market
discount
 In the forward market, the selling of a
currency at a forward rate that is less
than the spot rate.