Economics - International Economic Integration

Topic 1 - Subtopic 1

Global Economy

consists of all the countries in the world that produce goods and services and contribute to Gross World Product (GWP)

Advanced Economies (39 countries)

market economies with high level of industrialisation and per capita incomes of over US$40,000 per year

Developed Economies

market economies with high level of industrialisation and per capita incomes

Developing Economies

An economy with low levels of per capita incomes and low levels of industrialisation and social, legal and financial infrastructure.

Emerging Economy

Developing economies that are undergoing rapid economic growth catching up with developed economies faster than most developing nations.

Foreign Direct Investment (FDI)

Foreign investment into a business for the intent of controlling and operating a subsidiary

Foreign Portfolio Investment (FPI)

Foreign investment into a business for the sole intent of making a profit

Gross World Product

Total output of the world economy, the aggregate of all economies GDP

Globalisation

process of economic integration leading to more open world markets and the customisation of products, services and technology on a global basis

International Business Cycles

fluctuations in the level of global economic activity and GWP over time.

Advanced economies data!

• 40.3% of GWP

• 63% of world exports of G&S

• 14.2% of world population

G7 data!

• US, Japan, Germany, the UK, France, Italy and Canada

• 29.7% of GDP

• 33.4% of world exports in 2019

• 10.2% of world population

Euro Area

• 19 countries in the EMU

• 11.2% of GWP

• 26.2% in 2017

• 4.5% world population

16 other advanced economies

• 6.5% world output

• 17% world exports

• 2.3% world population in 2017

BRIC nations

• Brazil, Russia, India and China

• 32.% of World GDp 2019

Gross World Product

total market value of all goods and services produced by all countries over a period of time (2023 was $174t (USD), an increase of 6.7% as the world has recovered from COVID-19.)

Composition of World Output

• Advanced Economies - 42.5%

• Emerging and Developing Economies 57.5%

Economic Integration

occurs where trade barriers (like tariffs, subsidies and quotas) are reduced or removed between countries to facilitate the growth in free international trade and flows of investment

Forces driving Globalisation =

• Global webs of production and distribution centres across the world

• Improved levels of technology, communications, transport and information technology reducing transport, communication and transaction costs

• Liberalisation of global trade (through the signing of free trade agreements)

• Strengthening of financial and trade linkages between countries through globalisation

Substantial growth in Financial flows due to

• Increasing world trade and investment

• Deregulation and integration of financial markets

• Increasing globalisation

• Improvements in technology and communications

Trends in Trade

• Asian economic crisis, world trade grew by 12.4% in the year 2000 but slowed after September 11th and the US share market crash.

• volume of world trade grew by 8% in 2007, 3% in 2008 but fell by 11.0% during the GFC in 2009.

• Richest 15% of economies -- 62% of world trade, whereas poorest 30% had less than 4%

• Trade has increased from $6.4 trillion in 2000 to $32.2 trillion in 2024

• An increase of 400% over the last 24 years

• An increase of 2.2% over past year

Transnational Corporations

businesses that manage production or deliver services in more than one country

Disadvantages of TNCs -

• led to the exploitation of labour (textiles industry)

• degradation of the environment

Advantages of TNCs

• Greater capital flows (technology)

• Export opportunities

• Employment opportunities

• Tax revenue for governments

How did technology help with globalisation

Globalisation → driven by improvements in technologies.

Technology → improvements in productivity of labour and capital and reduced the cost of conducting international business. (ie. capital deepening) (e.g. e-commerce)

How did Transport help with globalisation

They are vital for the operation of domestic economies and the global economy with the movement of raw materials, intermediate goods, finished goods and labour. (i.e. improved the speed of transport increasing the trade flows and levels of globalisation.)

How did communication help with Globalisation -

Improvements in ICT have broken down barriers to trade such as time and distance. This in turn has improved the profitability of some Australian businesses whilst worsening others.

Benefits of the international division of labour

The use of migrant labour allows developed nations:

• to gain access to skills that are not found easily

• to gain access to unskilled labour that are willing to work in regions that struggle to hire workers

The international division of labour also increases the wages paid for many migrant workers allowing for worker remittances.

Costs of the international division of labour

• An Amnesty International report, identified that 1.7 million workers (90% of the workforce) working in Qatar were paid as little as $190 per month and live in conditions that resulted in the death of 6500 workers.

• 7/11 migrant workers in Australia were paid as little as 47 cents per hour.