Globalization, Trade, Monetary Systems and Development Institutions

Posted on Mar 1, 2026 in Business Administration and Management (BAM)

Effects of Globalization on Firms

2. Indicate five effects of globalization on the organization of firms.

  1. Offshoring and outsourcing of activities: Companies begin to relocate production to countries where production factors are cheaper. In addition, they start purchasing products that are more convenient to buy rather than produce themselves.
  2. Increase in competition: Due to the possible reduction in costs mentioned above, companies can carry out greater production. Having lower costs leads to lower prices, which causes firms to compete with each other, generating price wars that ultimately benefit consumers, as goods and services become cheaper.
  3. Benefits of free trade: With the opening of trade and capital markets, exports increase considerably—sometimes even more than GDP—thus increasing their weight in global production. Capital movements grow at an even faster pace due to financing needs, foreign investment, etc.
  4. Overflow of the nation-state: In the 19th century, the Western world began to organize itself into nation-states, which structured trade and concentrated power (this process involved many wars due to territorial delimitation). Today, nation-states have lost power due to reduced effectiveness in a globalized world, as many agents bypass national laws. Governments can no longer implement policies based solely on domestic needs but must consider international markets, resulting in a loss of sovereignty and power.
  5. Shift in inequality focus: Previously, economic concern focused on inequalities between countries. Today, these inequalities are decreasing, while economic inequalities within countries are increasing. A clear example is India, which has significantly reduced its economic inequality relative to other countries through globalization, due in part to foreign investment.

Factors That Boosted Globalization

4. Describe schematically the factors that have boosted the globalization of the world economy.

  • Technological: Development of ICT, communications, advances in logistics, improvements in transportation.
  • Ideological/political: Market deregulation, reduction of trade barriers, free trade.
  • Capital movements: Greater ease for foreign investment, global financial markets.
  • International economic cooperation: World Bank, International Monetary Fund, World Trade Organization.
  • Global competition: Access to large markets, innovation, increased competition.

International Economic Cooperation

6. What do you understand by international economic cooperation? It is understood as voluntary agreements between countries that are necessary to bring order to the world economy and resolve common economic problems, since there is no global government. The solution is the creation of cooperative institutions such as the International Monetary Fund, World Bank, World Trade Organization, and the G8.

International Economic Integration

7. What do you understand by international economic integration? It is understood as the unification of markets, resulting in a larger market. Example: the European Union.

Rodrik’s Globalization Trilemma

8. What problem does Rodrik’s Globalization Trilemma raise? There is an incompatibility between democracy, the nation-state, and globalization. At the level of hyperglobalization, nation-states exercise their power at the cost of ignoring democratic demands, while democratic management of globalization weakens states. As a result, some advocate slowing globalization and returning to the Bretton Woods system (shifting from globalization back to internationalization). Due to greater capital mobility, many agents—especially large corporations—are able to bypass regulations.

G8 and G20 Roles

9. What role do the G8 and the G20 play in today’s world? The G8 no longer plays a significant role in today’s world because more developed economies, such as China, are not included. These economies are part of the G20, and it is impossible to solve global problems without taking them into account.

Globalization vs Global Governance

10. Differentiate between globalization of the world economy and global governance. Globalization refers to worldwide economic interconnection, whereas governance refers to groups of interests that establish systems of rules and organizations that facilitate solutions to collective economic problems (through cooperative institutions).

Why is governance important? Because there is no world government, and we must rely on governance instead.

Problems for Global Governance

11. What problems does economic globalization pose for global governance? It raises issues such as the crisis of the exchange rate system (1971, 1976), economic and financial crises (such as the 1973 crisis), problems in international financing, and the deadlock of international trade negotiations. These problems create the need for a new form of governance.

Main Institutions That Bring Order to the Global Economy

12. List the main institutions or actors that bring order to the global economy. The World Bank, the International Monetary Fund, the GATT, and the World Trade Organization, which are legacies of the postwar model (although they have evolved, they remain the same institutions). In addition, the G20 debates and discusses key issues for the global economy.

Sectoral Structure and Economic Development

1. Briefly comment on how the process of change in the sectoral structure occurs as an economy develops. A backward economy concentrates its production in sector 1 (the primary sector). When the development process takes place, agricultural productivity increases, making it possible to produce more with fewer factors (less labor is needed). This labor force moves to industry, also introducing innovations that cause industrial expansion.

Key factor: innovation.

Weights of Productive Sectors

2. Indicate the approximate weight of the main productive sectors in the world economy. In the global economy, the services sector has a large weight (due to tertiarization), while agriculture loses importance. Primary sector (1–5%), secondary sector (around 20%), and tertiary sector (over 70%).

Productivity: Definition and Effects

3. Define productivity and explain how its increase affects the economy, indicating the chain of influences or possible changes resulting from that increase (this appears in the exam). Productivity refers to the relationship between the amount of output or services generated and the resources used to obtain them. Increasing productivity means producing more with the same resources or the same amount with fewer resources.

GDP / labor factor. It leads to a reduction in costs (per unit of product), which can result in higher profits, lower prices, or higher wages, and an increase in real income, which in turn leads to an improvement in living standards.

Technology and Sectoral Change

4. Indicate the role played by technology and productivity in changes in the sectoral structure. Technological diffusion leads to industrialization in developing countries and increases innovation, which results in higher productivity. Meanwhile, increased productivity in the primary sector drives the development process, making it possible to produce more with fewer factors.

Multinationals and Firm Size

5. Taking into account the U-shaped curve that relates GDP per capita to the number of firms, explain the role of large multinational or global companies in today’s economy. The graph represents the level of entrepreneurship in a country as it develops. As income per capita increases, the number of employers or firms as a percentage of employment decreases (that is, how many entrepreneurs there are), until a certain point at which it begins to increase again, leading to the creation of larger companies.

Endogenous Development

6. What do you understand by endogenous development? How does it differ from the traditional model of economic development? It is understood as the development of specific areas (such as local development rather than national development) using their own resources. The traditional model focuses on a comprehensive analysis of the entire economy, whereas endogenous development focuses on specific development, promoting innovation, internationalization, and dynamic entrepreneurship.

Foreign Direct Investment (FDI)

7. FDI: definition and forms it takes. It is investment (acquisition of productive assets) made in another country in order to manage or control those assets. This type of investment seeks control, whereas portfolio investment seeks speculation (earning returns).

8. FDI: role in the global economy and differences compared to other types of portfolio investment. FDI (Foreign Direct Investment) is investment aimed at decision-making control, differing from portfolio investment, which seeks profitability. Today, investment from other countries for business creation is greater. It increases economic growth, innovation, and therefore productivity.

GATT and the WTO

1. Differentiate between GATT and the WTO. GATT is an agreement, whereas the WTO is an organization with a set of functions and hierarchies that GATT did not have. The objective of both is to eliminate tariffs and trade barriers.

Protectionist Barriers

2. Explain what the three protectionist barriers studied consist of and their degree of difficulty in being reduced or eliminated.

  • Import quotas or contingents: Limits on imports of a product, either in value or quantity, for a given period, usually one year. Import licensing systems are granted by the government.
  • Customs tariffs: A tax on imported products to raise their price (and thus reduce their competitiveness) in the domestic market compared to national products, thereby reducing their demand. They can be specific or ad valorem.
  • Administrative and technical barriers: Complex customs procedures, sanitary, technical, or quality standards that make it difficult for imported products to be sold in the domestic market.

WTO Negotiations and Objectives

3. Briefly describe how the WTO is organized to reach agreements on reducing trade barriers. Through negotiation rounds.

4. State the objectives pursued by the WTO and the areas or types of activity in which it seeks to achieve them. The main objective is the opening of international trade. The areas covered are goods, services, and intellectual property (which is protected because acquiring new knowledge requires large investments; otherwise, major advances would not occur).

Trends in World Trade

5. Briefly describe how world trade is changing across the major regions of the world. World trade is expected to grow more rapidly due to greater liberalization. There is faster growth in certain areas through a process of regionalization, with an increase in trade agreements and the elimination of tariffs through economic integration.

Intra-Industry Trade

6. State what intra-industry trade is and between which types of countries it mainly occurs. It consists of exporting and importing similar products—belonging to the same product group—but with different levels of technology. It mainly occurs between developed countries (Europe, Asia, and North America).

Terms of Trade and Consequences

7. What differences exist in the real terms of trade between developed and developing countries? What consequences does this difference have for developing countries? Real terms of trade (export prices / import prices) are favorable when export prices are higher, as this generates greater income. This occurs when countries sell technologically advanced products to the world and buy primary products from abroad. For developed countries, this ratio is greater than 1, while for developing countries it is less than 1.

Consequence for developing countries: If they sell at low prices and buy at high prices, they experience a negative outflow of foreign currency.

WTO Principles

8. Explain the principles of the “most-favored-nation” and “national treatment” of the WTO. The Most-Favored-Nation (MFN) clause consists of granting products from other member countries treatment no less favorable than that given to products from any other country. Exceptions include promoting free trade through preferential agreements, regional integration agreements, and special advantages for developing countries. On the other hand, national treatment means that imported products must receive the same treatment as domestically produced goods once they enter the domestic market.

Trade Diversion

9. Explain what trade diversion consists of. It is a situation in which, after a trade agreement between two or more countries, trade flows are diverted away from third countries because they are cheaper. However, this causes a loss of efficiency. In open economies, the effects are smaller.

Levels of Economic Integration

10. Write the differences between the different levels of economic integration.

  1. Free Trade Area (FTA): Elimination of tariffs among member countries. It is easier to implement but requires rules of origin, and each country maintains its own external tariff.
  2. Customs Union (CU): The same as a free trade area, but with a common external tariff among member countries. It is more difficult to implement and does not require rules of origin.
  3. Common Market: Free movement of services and factors of production (capital and labor).
  4. Economic Union: Common market plus close coordination of economic policies.
  5. Political Union: Creation of a single policy for all countries; that is, economic union plus a single political union. The ultimate goal is to achieve a United States of Europe.

Why an International Monetary System Is Necessary

1. Why is an international monetary system necessary? It is necessary in order to grant loans to member countries facing balance-of-payments problems (to ensure the availability of foreign currency and enable transactions between countries), as well as for surveillance and advisory functions, and for providing technical assistance and training to central governments.

Exchange Rate Determination

2. How is the exchange rate of most currencies currently determined? Indicate all the agents involved. Exchange rates depend on supply and demand in the foreign exchange market. This is a flexible exchange rate system, in which the value of one currency varies in relation to another. However, exchange rates do not fluctuate completely freely due to the intervention of richer and more powerful countries, which influence the market according to their interests. For this reason, the system is known as a “dirty float.”

Devaluation Versus Depreciation

3. Differentiate between devaluation and depreciation. Currency depreciation is the loss of value of a currency relative to another and occurs when an economy uses a freely floating exchange rate system, where exchange rates vary due to supply and demand. In a flexible exchange rate system, there are only appreciations and depreciations.

Devaluation is the loss of the nominal value of a currency relative to another as a result of intervention by the country’s central bank. It occurs under a fixed exchange rate system. In systems with fixed exchange rates, there may be devaluations as well as depreciations (or appreciations), which occur within a fluctuation band. When a devaluation occurs, the central exchange rate is adjusted.

Repeated: Levels of Economic Integration and Monetary Questions

d) Economic Union: Common market plus close coordination of economic policies. e) Political Union: Creation of a single policy for all countries; that is, economic union plus a single political union. The ultimate goal is to achieve a United States of Europe.

1. Why is an international monetary system necessary? It is necessary in order to grant loans to member countries facing balance-of-payments problems (to ensure the availability of foreign currency and enable transactions between countries), as well as for surveillance and advisory functions, and for providing technical assistance and training to central governments.

2. How is the exchange rate of most currencies currently determined? Indicate all the agents involved. Exchange rates depend on supply and demand in the foreign exchange market. This is a flexible exchange rate system, in which the value of one currency varies in relation to another. However, exchange rates do not fluctuate completely freely due to the intervention of richer and more powerful countries, which influence the market according to their interests. For this reason, the system is known as a dirty float.

3. Differentiate between devaluation and depreciation. Currency depreciation is the loss of value of a currency relative to another and occurs when an economy uses a freely floating exchange rate system, where exchange rates vary due to supply and demand. Devaluation is the loss of the nominal value of a currency relative to another as a result of intervention by the country’s central bank. It occurs under a fixed exchange rate system. In systems with fixed exchange rates, there may be devaluations as well as depreciations (or appreciations), which occur within a fluctuation band. When a devaluation occurs, the central exchange rate is adjusted.

IMF Primary Role

4. What is the main role of the IMF? Indicate only one primary role. The main role is to finance countries that need foreign currency because they import more than they export. (International Monetary Fund)

SDRs and Financial Concepts

5. What are SDRs and what are they used for? They are rights that do not physically exist. They represent reserve assets that can be exchanged for any currency. Their main characteristic is that a central bank holding SDRs can convert them into the currency it needs. SDRs are created by the International Monetary Fund.

Financial Disintermediation and Financial Assets

6. What is financial disintermediation? It is the modification of the traditional role of financial intermediaries in favor of a greater role for financial markets. For example, when you buy a bond, you transfer your savings directly to the issuer (there is no intermediary). The stock exchange is another example of disintermediation, as there is nothing between the investor and the saver.

7. What do you understand by a financial asset? A financial asset is an asset for its holder and a liability for the issuer. For example, a loan is a financial asset for the bank and a liability for the borrower. A banknote is also a financial asset for its holder and a liability for the central bank.

Currency Crisis Responses

8. What can a government do through its central bank when a currency crisis occurs if it has fixed its exchange rate to the dollar or the euro? It can intervene in the market by using foreign currency reserves to buy its own currency. This can be done as long as it has sufficient reserves of the foreign currency. If not, it may turn to the International Monetary Fund.

IMS vs IFS

9. Differentiate between the International Monetary System (IMS) and the International Financial System. While the International Monetary System focuses on the rules and agreements related to monetary transactions and exchange rates between countries, the International Financial System covers a broader scope, including financial institutions and markets that facilitate the global movement of capital.

IMS: Exchange rate system. IFS: Bretton Woods system (historical reference to a broader financial framework).

Institutional Investors

10. What do you understand by institutional investors? They are entities that move large amounts of capital. Institutional investors include investment funds, insurance companies, banks, and pension funds. Insurance companies manage large sums of money because they collect premiums from clients and carry out extensive investment activities.

Multilateral Development Institutions

11. What role do multilateral development institutions play? Name some of them. They are banks specialized—usually at a regional level—in supporting the development of specific regions. The most important of all is the World Bank, which provides assistance so that developing countries can invest in infrastructure.

Poverty: Absolute, Relative, Extreme

1. Differentiate between absolute, relative, and extreme poverty. Give examples.

  • Absolute poverty: A person is considered poor when their income level is below the poverty line defined as the minimum income required to cover basic needs. This occurs when a person lives on less than €2.17 per day.
  • Relative poverty: The poverty line is established as a percentage of the average or median income of a country, usually 60% of the median income (anyone below this threshold is considered relatively poor). To calculate the median, incomes are ordered and the one in the central position is selected.
  • Extreme poverty: This is the lowest level of poverty, in which people are unable to meet their most basic vital needs.

UN and Development

2. What are the UN and what is their role in economic development? The United Nations is an international organization operating within the framework of cooperation that aims to promote global development. Its role is to set desirable goals and to measure whether they have been achieved.

Sustainable Development Goals

3. What are the UN development goals currently called and what are those goals? They are called the Sustainable Development Goals (2015–2030). This is a program of the United Nations that includes 17 integrated goals and broadly seeks economic development. The main goals are ending poverty and maintaining international peace and security.

Growth and the Social Dimension of Development

4. What relationship exists between economic growth and the social dimension of development? Economic growth refers to the increase in the production of goods and services in an economy over a specific period, measured through GDP. The social dimension of development refers to improvements in people’s quality of life, including education, health, social equity, access to basic services, and poverty reduction. Economic growth is a necessary but not sufficient condition for development.

Human Development Index

5. Explain the aspects of life covered by the Human Development Index (HDI).

  • Longevity (life expectancy): Reflects population health and quality of life.
  • Access to knowledge (education): Reflects greater job opportunities and the capacity to participate in economic, social, and political life.
  • Standard of living (GNI per capita): Reflects the ability to access goods and services.

Multidimensional Approach to Underdevelopment

6. Briefly explain the aspects covered by the multidimensional approach to underdevelopment.

  • Economic dimension: Low income, low savings, low specialization, etc.
  • Social dimension: High population growth, low levels of health and education, etc.
  • Institutional dimension: Poor institutional framework, weak governments, and an ineffective public sector.

World Bank Group: Main Functions

7. Briefly differentiate the functions of the five main organizations that make up the World Bank Group.

  • International Bank for Reconstruction and Development (IBRD): Lends to governments of countries.
  • International Development Association (IDA): Specializes in the poorest countries through loans with favorable terms.
  • International Finance Corporation (IFC): Provides assistance to private companies.
  • Multilateral Investment Guarantee Agency (MIGA): Insures private investors against political risk in developing countries.
  • International Centre for Settlement of Investment Disputes (ICSID): Helps resolve investment disputes; supports sustainable growth by facilitating investment and providing advisory services.

International Cooperation in the Global Economy

8. What does international cooperation consist of and what role does it play in the global economy? It is understood as voluntary agreements between countries that are necessary to bring order to the world and solve common economic problems, since there is no global government. The most important institution promoting cooperation in trade is the World Trade Organization, and in the economic and financial sphere, the International Monetary Fund.

Population Explosion

1. What do you understand by population explosion and which regions are the main protagonists of this explosion? It is understood as a very rapid population growth, which worsens aspects of life such as resource scarcity, inequality, and poverty. The main countries experiencing this phenomenon are Nigeria, Congo, Ethiopia, Pakistan, among others.

Population Trends and Age Structures

2. What trend is the world population currently following and what do you understand by “aging vs. explosion” in relation to age structures? Currently, there is a slowdown in population growth, with a tendency toward declining fertility rates in developing countries, although life expectancy is increasing worldwide. While population aging refers to an increase in the proportion of elderly people in the population, population explosion refers to rapid and significant growth, mainly at the base of the age pyramid, with a large number of young people.

Demographic Transition

3. Briefly explain what demographic transition consists of. Demographic transition summarizes the change from a traditional demographic regime to a modern demographic regime.

Productivity, Employment, and GDP per Capita

4. Explain how changes in productivity and population by labor category affect the evolution of GDP per capita. An increase in income per capita can be achieved: (a) because the percentage of the employed population relative to the total population increases (employment per capita); (b) because average labor productivity increases (labor productivity).

Population Aging and Public Budgets

5. How does population aging influence public budgets? It generates an increase in demand for healthcare and social services and higher spending on pensions (pay-as-you-go systems).

Underemployment

6. What do you understand by underemployment? It refers to carrying out economic activities that do not fully utilize a person’s skills or capabilities.

Major Migration Flows

7. Briefly explain the main migration flows in the world (groups of migrants arriving in a given area). The main destination countries are the United States, Germany, Saudi Arabia, and Kazakhstan. The main countries of origin are India, Mexico, Russia, and Kazakhstan. These movements must be considered in relative terms, since emigration of two million people from China is not the same as from the Philippines. Around 36% of migration flows from developing countries go to other developing countries, 37% go from developing to developed countries, and 21% occur between developed countries. There is also significant mobility due to cultural proximity (for example, migration from Latin America to Spain due to cultural similarities).

Labor Market Segmentation and Immigration Demand

8. Explain what “labor market segmentation” means in relation to the demand for immigrants. It involves identifying specific labor needs in certain sectors or economic areas and attracting immigrant workers who can meet those specific demands.

Economic Growth and Environmental Impact

9. Briefly relate economic growth and environmental impact. The greater the scarcity of a resource, the higher its price.

Main Environmental Problems

10. List and briefly explain the main environmental problems.

  • Climate change: Rising temperatures and extreme weather events due to greenhouse gas emissions.
  • Air pollution: Emission of toxic substances that affect air quality and respiratory health.
  • Water pollution: Discharge of industrial and domestic waste that compromises water quality and threatens aquatic life.
  • Loss of biodiversity: Reduction in the variety of life on Earth due to habitat destruction and other threats.
  • Resource scarcity: Depletion of freshwater, fossil fuels, minerals, and excessive deforestation.
  • Waste generation: Massive production of solid waste, plastics, and electronic waste with negative environmental impacts.
  • Urban problems: Unplanned urban expansion leading to habitat loss, congestion, and pollution.

These problems require collective action to address environmental challenges and move toward a more sustainable future.

Repeated Population and Environment Section

1. What do you understand by population explosion and which regions are the main protagonists of this explosion? It is understood as a very rapid population growth, which worsens aspects of life such as resource scarcity, inequality, and poverty. The main countries experiencing this phenomenon are Nigeria, Congo, Ethiopia, Pakistan, among others.

2. What trend is the world population currently following and what do you understand by “aging vs. explosion” in relation to age structures? Currently, there is a slowdown in population growth, with a tendency toward declining fertility rates in developing countries, although life expectancy is increasing worldwide. While population aging refers to an increase in the proportion of elderly people in the population, population explosion refers to rapid and significant growth, mainly at the base of the age pyramid, with a large number of young people.

3. Briefly explain what demographic transition consists of. Demographic transition summarizes the change from a traditional demographic regime to a modern demographic regime.

4. Explain how changes in productivity and population by labor category affect the evolution of GDP per capita. An increase in income per capita can be achieved: (a) because the percentage of the employed population relative to the total population increases (employment per capita); (b) because average labor productivity increases (labor productivity).

5. How does population aging influence public budgets? It generates an increase in demand for healthcare and social services and higher spending on pensions (pay-as-you-go systems).

6. What do you understand by underemployment? It refers to carrying out economic activities that do not fully utilize a person’s skills or capabilities.

7. Briefly explain the main migration flows in the world (groups of migrants arriving in a given area). The main destination countries are the United States, Germany, Saudi Arabia, and Kazakhstan. The main countries of origin are India, Mexico, Russia, and Kazakhstan. These movements must be considered in relative terms, since emigration of two million people from China is not the same as from the Philippines. Around 36% of migration flows from developing countries go to other developing countries, 37% go from developing to developed countries, and 21% occur between developed countries. There is also significant mobility due to cultural proximity (for example, migration from Latin America to Spain due to cultural similarities).

8. Explain what “labor market segmentation” means in relation to the demand for immigrants. It involves identifying specific labor needs in certain sectors or economic areas and attracting immigrant workers who can meet those specific demands.

9. Briefly relate economic growth and environmental impact. The greater the scarcity of a resource, the higher its price.

10. List and briefly explain the main environmental problems. Climate change: Rising temperatures and extreme weather events due to greenhouse gas emissions.

Air pollution: Emission of toxic substances that affect air quality and respiratory health.

Water pollution: Discharge of industrial and domestic waste that compromises water quality and threatens aquatic life.

Loss of biodiversity: Reduction in the variety of life on Earth due to habitat destruction and other threats.

Resource scarcity: Depletion of freshwater, fossil fuels, minerals, and excessive deforestation.

Waste generation: Massive production of solid waste, plastics, and electronic waste with negative environmental impacts.

Urban problems: Unplanned urban expansion leading to habitat loss, congestion, and pollution.

These problems require collective action to address environmental challenges and move toward a more sustainable future.