CHAPTER 21

The Global Economy

Global Integration and Interdependence

Global Integration- the interdependency among countries.

Interdependence- the reliance of countries on one another to survive. Ex- In France, a person drinks coffee

imported from Brazil, works at a computer made in Japan, and uses gasoline from Saudi Arabia in a German automobile.

Reasons for Global Integration Improved telecommunications

(satellites, radio, TV, internet, fiber optic cables, etc.)

Migration/ Immigration cultural diffusion

Results of Global Integration Globalization of Financial Markets- 24

hour markets trade currency and commodities worldwide. If one market falters, ex. US recession, they all suffer economic crisis can go worldwide very quickly.

Direct Foreign Investment

The purchase by foreigners of real estate and businesses in another country Exs: Burger King and Pillsbury are British

companies A&P Supermarkets is a German

company Hyundai is a South Korean company Toyota is a Japanese company

Foreign Control of American Companies Americans worry that if foreigners buy a

significant number of businesses in the US, they will try to use their economic power to leverage the US govt, to influence US govt. decisions on foreign policy. They also worry about the foreign purchases of US govt. securities.

Investment Here and Abroad In the US, foreign ownership of companies is

about 6%. In Britain, it is 20%. US ownership of companies worldwide is about

40% of the market. Companies from all other countries combined makeup 60% of worldwide ownership.

Some believe the US should encourage more foreign investment foreigners would then have a reason to help the US economy remain strong.

Multinationals and Economic Competition Multinationals are firms that do business

and have offices or factories in many countries

The Size and Number of Multinationals The top 100

multinationals control 50% of all cross-border trade in the world, but account for less than 20% of the world’s productive assets

The US and Britain used to dominate multinationals, and this was perceived as economic imperialism. This is no longer the case.

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Regional and Cross-Border Investments The biggest multinationals invest all over

the world, but this not the case with most multinationals. Most invest in the region closest to home. US firms invest primarily in the US, Canada, Mexico, and South America.

Beyond Multinationals- Alliances Many multinationals are now cooperating

with other multinationals in order to improve themselves and “corner the Market”. Ex: IBM and Microsoft one produces the hardware, the other the software. They don’t form a merger, but instead enter into a joint venture (work on projects together for a period of time) both benefit.

Many developing countries will only allow foreign multinationals in if they agree to a joint venture with local firms.

The Global Village and Tolerance Through increased trade increased

immigration America has become a truly multicultural society positives: diversity, tolerance, open-mindedness, cultural diffusion, shared knowledge, progress; negatives: suspicion, nativism.