The Global Economy

Globalisation

Increasing level of economic integration between countries leading to the emergence of a global market place or a single world market.

• It has linked people in various countries at different stages of economic development

The Global Economy

The integration between economies of the world. The sum of all economic activity of individual countries.

Gross World Product

The total value of goods/services that are produced worldwide over a period of time, etc a year. This is measured in USD, and can be used to indicate trends in economic activity.

Economic Integration

The liberalisation of trade flows between countries in a region, or between regions

• Can lead customs union, common markets or monetary unions, lead to growing intra regional trade

• When trade barriers (tariffs and quotas) are reduced

• Technology has played a major role in increaseing economic integration

• Trends such as COVID-19 have reduced economic integration

Trade in Goods and Services

• There has been significant increase in goods and services, due to factors promoting globalisation, such as tech and free trade agreements

• Etc in 2018 Australia reduced tariffs to 2.23%, and promoted free trade, etc CHAFTA or APEC

• There has been change in flows, especially from China, and other developing economies, as they experience convergence.

Financial Flows

• Money has been able to flow more easily between nations and countries

• Has allowed money to flow between countries

• Allows firms to maintain greater financial flows to expand operations

• Financial flows is the capitol investment between countries and nations.

• Technology has allowed this to happen, allowing efficient movement of interntional finance

• Financial deregulation, etc Australia floating the dollar in 1983 (where the dollar is allowed to fluctuate on the market)

Investment and Transnational Corporations

• There has been increased investments by TNC, etc McDonalds. This increases foreign investments

• Investments into TNC have also increased global cooperation

• Or firms taking advantage of lower labour costs in other countries

Technology, Transport and Communication

• Consumers around the world are now global, being able to access e-commerce and travel from other economies

• There has been increased transport, etc from cheap global shipping this allows increased globalisation,

• Technology, etc automation has increased efficiency

 

• Rise of Container Ship

  • Container ships came about during the 20th century, it allows for quicker loading and unloading, made quicker

  • Also made cheaper, by reducing costs of goods and services, as well as increasing productive capacity in key sectors

• Video Conferencing

  • Has made it quicker to conduct business

  • Made it easier to move labour, especially in service based sectors, increasing how labour can be utilised throughout the global economy

  • Increasing efficiency and output

International Division of Labour and Migration

• The allocation of labour to different countries in order to maximise specialization and efficiency, of the units of labour

• Some firms or TNC may establish production in emerging economies due to lower labour costs

• Immigration laws restrict lower skilled workers, to poorer countries

• However does increase the divide of skills across countries

International and Regional Business Cycle

• International business cycle refers to the changes in global economic activity, where this will have effects on domestic business cycles, if a country is well integrated into the global economy

• Regional business cycle refers to fluctuation in business activity in a geographical region over time, such as in the EU or Asia, this can also affect domestic business cycle

Strengthening the International Business Cycle

• Trade flows, reduced trade barriers between nations increase economic activity

• Increase financial flows, if there is deregulation it'll increase financial integration

• Investment flows, increased investment good

• Technology, more tech means more efficient use of resources

Weakening the International Business Cycle

• Trade flows, restrictions on activity, or higher tariffs

• Financial flows, if there is high fluctuations in forex, can cause volatility,

• Investment flows, reduced investment, for example in reaction to unethical treatment

• More recently: Rising US - China trade tensions, the Covid 19 pandemic, and Russian Invasion of Ukraine

Free Trade

Occurs when there is limited barriers imposed by governments on the flow of goods and services on international borders

Absolute Advantage

When a country can produce more output, with the same resources.

Comparative Advantage

When a country has lower opportunity cost when producing a good or service, where this is based on Ricardos theory of comparative advantage,

 

This is why free trade is so effective, it allows nations to do what they are good at, increasing global output,

Free Trade Advantage

• Consumers have a wider variety of goods and services, where this increases variety of goods and services available

• Allows countries to specialise, this will further economies of scale

• Increased domestic GDP per certain countries

Free Trade Disadvantage

• Increase in unemployment and the closure of uncompetitive firms, this leads to increase burden on government

• May be difficult to establish business

• International firms may dump surplus production of a single market, causing cheap prices, etc Qatar airways flights into Aus, Qantas couldn't compete

• Negative externalities, higher environmental degradation

• May increase dependence on nations, etc wheat in Ukraine

Financial Flows

The flow of capitol into different countries through investment, the risk of these can be minimized through using derivates or diversification of assets.

Foreign Direct Investment

Where companies establish or buy a controlling interest in a foreign

subsidary

World Trade Organisation

• Multilateral trade organisation which binds governments to keep trade policies.

• It is the largest and monitors development in international trade.

• Resolve distpute between trading nations

• Uruguay round, led by 1986 Cairns group, seeked to reduce protection on agriculture

International Monetary Fund

An international agency that provides policy advice and financial support.

 

International agency that oversees the stability of global financial systems. They aim to promote monetary cooperation and exchange rate stability.

• Provide policy advice to individual nations, exchange data and advise governments, also produce the global economic outlook reports to compare policies and how they impact other economies

• Lender of last resort, they lend to nations when there is a high risk and markets are not willing to, this is to prevent the negative effects of an economic downturn, such as low purchasing power and high unemployment.

• Greece Debt Crisis, 30bn Euro

World Bank

Provides financing, advice and research to nations

• Development assistance, through providing financial aid and loans to developing nations to strengthen economic activity

• Support for long term investment projects

 

But the world bank and IMF require governments to implement specific structural reforms in their economies to receive assistance, this is called conditionality principle, and may impact state sovereignty.

OECD

Engages in research and consultation of economic issues. It only has 34 members and aims to promote sustainable economic growth and to maintain financial stability

• Publishes the OECD economic outlook, and makes policy recommendations

G20

Established after the GFC, to coordinate a global response.

• Coordinate fiscal stimulus around the world

• Improve supervision of global financial systems

• Discuss key issues in the global economy

Trading Blocs

Where countries enter preferential trade agreements, establishing free trade, while also putting external tariffs on countries outside the trading bloc, this may allow countries to utilise comparative advantage between themselves and others, however disadvantage countries not in it.

Monetary Union

When groups of countries share a common currency and monetary policy, etc the Eurozone, this increased am integrated regional market, boosting efficiency

Free Trade Agreements

Formal agreements between countries to reduce barriers, they can be unilateral, or bilateral

• Advantages: Allow greater volume of exports, and closer political relationships

• Disadvantages: Trade with non members may decrease, and trade may be divided along regional lines

Human Development Index

• Education

• Income

• Health among population

Economic Development

Refers to the process of structural changes needed for an economy to grow, including the reallocation of resources.

Protection

Protection is the use of artificial barriers, which restrict the free flow of goods and services in international trade, giving domestic producers an advantage, and international ones, a disadvantage

Infant Industries

• Industries that are new, and don't yet have time to compete in the global market.

• New firms will struggle to compete against larger competitors in the global market

Domestic Employment

• If overseas countries offer cheaper production, then domestic jobs may be put at risk, as industries may not be able to survive.

• Likewise, may affect efficient export industries

Dumping

• If a country has an oversupply of goods, it may dump, etc Qatar dumping flights into the Australian market

• This may hurt countries who are struggling to compete, putting at risk domestic jobs

• Firms can't compete with artificially low prices

Tariffs

• A tax on imported goods imposed for the purpose of protection

• Harder to remove

Quotas

• Limit on level of imports, reduce international supply

Local Content Rules

• A certain percentage of domestic goods must be in the market

Subsidies

• Paid to domestic producers in order to be more competitive in the world market

• Increase supply, decrease price

• Subsidies offer a price advantage for local consumers, and there is less inflationary pressures as they are able to compete on the world market

• They are easy to remove

• However, are costly and can support inefficient industries.

Economic Growth

• An increase in the level of output, this is measured with GDP of a nation

Economic Development

• The structural changes needed for growth to occur within an economy to sustain an improvement in living standards, measured by GNI, HDI, life expectancy,

Distribution of Wealth and Income

• There is a discrepancy in the distribution of income and wealth among different nations, done by the comparison of annual incomes

• 50% of sub-Saharan Africa live in extreme poverty

Advanced Economies

• Wide variety of industries, services based

• Market based economy

• Huge annual income levels

• However as they have almost reached peak, they experience slower economic growth

• Include Australia and the United States

Emerging Economies

• Fast growth in income and economic growth (5-10%)

• Focus on industrial and manufacturing industries

• Include China and India

Developing

• Low income levels

• Moderate growth

• High population growth

• Strong reliance on Agriculture and foreign aid

Differences in Countries, Global Trade Systems

• There is high level of protection in the agricultural sector

• Some countries, which are able to produce cheaper agricultural products, are not able to export to poorer countries, etc the failure of the Doha rounds in reducing agricultural tariffs

Differences in Countries, Natural Resources

A lack of natural resources, including oil, ore, fertile soil, can have an impact on the factors of production that a nation has. Resource rich nations such as the UAE, may have higher levels of wealth, in comparison to nations with less wealth

Differences in Countries, Education

Labour supply, poorer nations have lower education levels and lower health standards, which will reduce the productive capacity and quality of a nation’s labour supply.

China Economy

China is an economy that has seen record high levels of growth (10% average between 1980 and 2010), however now sees issues including:

China Economic Inequality

• Rich around coast, poor inland

• Due to high level of urbanisation

• However HDI has in general increased, 0.76 (2020), 0.58 (2000)

• China must ensure the growth off the middle class as it fuels growth of aggregate demand, and investment for products and industries, however constrained by necessity of those in rural areas to move into urban regions, placing stress on social services

Weakening Global Economies Impact on China

• China is dependent on trade, in 2023, 38% of GDP was based on trade

• Global economy increasing volatility, high inflation, global reduction in demand

Internal Changes

• There are limits on growth in China,

• High level of human capitol constrains due to skills deficit

• Environmental degradation

Belt and Road Initiative

• Global infrastructure development program, costing 1 trillion introduced in 2013

• Seeks to address issues of slowing economic growth in the Chinese economy, slowing down from its 10% peak, and supports the diversification of the Chinese economy

• Increases trade links, facilitates the efficient moving of goods and services, especially overland, making trade easier, World Bank estimates could increase global trade by 1.7%

• Higher levels of land clearing, this will increase emissioms

• But make them more reliant on global trade, which decr

• The jobs are temporary, so will not get a sustained increased in economic development, as income is only tempoary

• This is negative, as it prioritises short term economic growth over long term economic development,

  ade

Made in China 2025

• Shift from labor-intensive industries to more technology-intensive, high-value manufacturing

• Seeks to combat stagnating economic growth

• Increase government support for key industries including subsides, low interest loans and tax breaks

• Doing high tech education, that is only focused in urban areas that already have high income and high levels of output.

• This will increase income inequality between urban and rural areas, as urban areas will be more likely to receive higher levels of income.

• In 2023, 50k Yuan disposable income in urban, compared to 20k Yuan in rural areas

• Overprioritises short term economic growth over long term economic development.

Emissions Trading Scheme

• Reduce carbon emissions after decades of high environmental degradation, increase economic development

• Sets a cap on the amount of emissions that can be released by certain industries. Companies can receive or buy emission allowances which they are allowed to trade with other natios

• Acts as a double incentive, firms will be encouraged to emit less emissions as it may be less viable due to increased cost, however will also encourage to emit less as they are able to gain a payment

• Add increased cost for some firms, slow economic growth in already stagnating economy

• However due to its low cost, of $3 per permit, of CO2 emissions, the reform is not as effective at discouraging, and there is a unlimited supply

• The purpose is it creates a price incentive in order to decrease emissions

• However will not create enough of an incentive