Economics HSC - Topic 1: The Global Economy

The Global Economy

The global economy results from the integration of discrete national economies into a much larger single world economy so that the events (economic, social, cultural, political) and decisions of one country impact on the whole economy

Globalisation

The integration between different countries and economies and the increased impact of international influences on economic activity

Results of Globalisation

Increasing intergration, increasing consumer choice, increasing reliance, increasing economic volatility, less isolation, increased impact of international influences on economic, political, and cultural parts of life

Major indicators of integration between countries

International trade in goods and services, international financial flows, international investment flows and transnational corporations, technology, transport and communication, and the movement of workers between countries (international division of labour)

International Trade in Goods and Services

International trade in goods and services makes the world more connected and globalised in a simple way. This helps spread products and ideas across borders, and as more countries join in, the world becomes more interconnected, making our world more globalised. A measure of how goods and services produced in an economy are consumed in other countries around the world

Methods of measuring an increase in global trade

- The Value of Exports: calculated by adding up the total monetary value of all the goods and services that a country sells to other countries during a specific time period, typically a year (e.g. This was US$4.3 trillion in 1990 (19% of global production) and is now US$27.9 trillion (29% of global production).)

- Gross World Product (GWP): Total output of goods and services produced by all economies in the world over a period of time, showing us how well the global economy is doing (e.g. Currently $106US trillion and has grown over 50 times since 1960.)

- The growth in volume of world trade: trade volume grows at a much faster rate than economic growth during rapid globalisation, as caused by i. computer managed container movement, better communication technology --> reduces transport costs, ii. removal of trade barriers and signing trade agreements, iii. WTO policies to promote trade

An Example of how trade flows have changed

a) High income economies share of global trade has dropped from 82% to 70%

b) East Asia and Pacific region's share increased from 7% to 16%

c) China's economy has grown rapidly in recent years and is playing an important role in global trade

Source: IMF

Increased International Financial Flows

An International Financial Flow refers to the movement of money across national borders to finance economic activities, manage risks, and convert currencies. International Financial Flows play a critical role in the global economy and can have significant impacts on exchange rates, interest rates, and overall economic stability. The rapid movement of money allows countries to strengthen their connections with other nations.

Reasons for International Financial Flows

1. To facilitate the exchange of goods and services between countries

2. To support foreign investments, often driven by speculators seeking short term gains from currency fluctuations and financial assets

3. To enable businesses and governments to borrow from international financial markets, thereby securing necessary funds

When these international financial flows grow faster than the GWP, it signifies increased financial integration, a key aspect of globalisation - increasingly prominent due to to advances in technology and speculative financial activities.

Effect of International Financial Flows on integration and globalisation

Global financial flows enable a country to increase levels of investment and economic growth. It also allows countries to access funds whereas otherwise they couldn't have had enough national savings (positive impact if increased integration)

International Financial Flows Stats

Flows of finance 'pass through' the FOREX market - $7.5 trillion + per day (a 30% increase on 2010 activity); note though that only 30% of this was buying and selling currencies. The remainder was in derivative markets to speculate

TNCs (Transnational Corporations)

A large business organisation that operates and has a presence in multiple countries. These corporations conduct business activities, such as manufacturing, sales, and services, on a global scale, often with centralised management structure. TNCs typically have subsidiaries. branches, or affiliates in various countries, and they engage in international trade and investment.

Example of a TNC

COCA COLA

Coca Cola operates in more than 200 countries, producing and distributing its beverages worldwide. While it originated in the US, it has established a global presence through subsidiaries, partnerships, and extensive marketing efforts. This allows Coca Cola to manufacture and sell its products in various countries, adapting its strategies to local markets while maintaining a centralised brand identity and control over its global operations.

Impact of TNCS on globalisation

An increase in the number of TNCs is an indicator of significant links between economies because investors from one country are making moves to other countries and increasing the links between economies.

International Investment

Investment flows are longer term investments in companies and assets. This can be measured using the size or growth in Foreign Direct Investment (FDI), referring to investment made by a person, company, or entity from one country into businesses or assets located in another country. It involves the acquisition of a significant ownership stake (at least 10% or more) in a foreign company or the establishment of new business operations (such as subsidiaries or branches) in a foreign country. It includes establishment of a new business or productive asset in the foreign country. Global FDI in 2022 was USD $1.58 Trillion.

TNCs and FDI

TNCs are a major source of FDI. TNCs have production facilities in at least two countries and are owned by residents in at least two countries e.g. Apple and Nike. FDI and TNCs are sources of growth through expertise, ideas, technology, skills, and IP. They bring money from one country to another, linking the two economies.

Technology, transport, and communication

If there is an increase in the ease of doing business, there will be increasing links between countries, leading to increased globalisation. New technology to move freight and transfer funds and ideas means that goods and services can move more quickly between countries. This increased the links between countries, increasing globalisation. E.g. shipping containers, Zoom meetings, online banking, social media, online trading platforms. OECD found that a 1% increase in digital connectivity increases international trade by 1.5%

International Division of Labour and Migration

The concept of the international division of labour signifies the distribution of work responsibilities across national boundaries, becoming a compelling indicator of heightened integration. E.g. the Apple Logo --> conceived in California, brought to life in manufacturing facilities in China, highlighting the interconnectedness of economies and the global nature of production

Migration and Globalisation (plus stats)

An increase in migration signifies increased globalisation. Notably, a substantial 2% of the world's population has chosen to relocate to foreign lands in pursuit of employment opportunities. This trend may experience a resurgence, particularly in response to current labour shortages. The driving forces behind this migration are: the migration of highly skilled professionals from their home countries and low skilled workers seeking improved prospects and a better quality of life (e.g. in Jamaica 80% of the skilled labour force moves overseas)

STATS

FDI - US$1.58 TRILLION

TNCs - 104K

GWP - US$97 TRILLION

MIGRANT WORKERS - 164 MILLION

INTERNET USERS - 5..3 BILLION

International and Regional Business Cycles

Fluctuations in economic activity across the world OR in certain regions respectively. The increasing integration of the world economy in recent decades has meant that many economies see their business cycles correlate more highly. This is because there are increased links between economies, leading to increased integration and therefore increasing globalisation. If business cycles are more synchronised, this indicates a strengthened business cycle - increased integration and globalisation.

IBC - Global Economic Interconnectedness

The more countries are linked, the more changes in one economy are felt in others, emphasising the growing interconnectedness of economies on a global scale. This implies that economic events in one part of the world can reverberate through the international economic landscape.

IBC - Synchronisation of Economic Growth

When the rate of economic growth in one economy moves in a similar direction as others, economic growth rates around the world become synchronised, leading to a global business cycle. This synchronisation means that the economic fortunes of nations are increasingly intertwined, and fluctuations in one economy can impact others.

IBC - Impact of Integration on the IBC

Greater integration and interdependence between economies increase the synchronisation of global growth rates, strengthening the international business cycle. In essence, as nations become more economically interlinked through trade, finance, and other channels, the global economic system becomes more unified in its ups and downs.

IBC - Role of Major Economies

Major economies play a pivotal role in influencing the international business cycle. When a major economy (e.g. US or China) experiences slower growth, the repercussions are felt globally. Other economies can face reduced demand for exports and diminished foreign investment inflows, leading to lower economic growth. This highlights the disproportionate impact that influential economic players have on the global stage.

IBC - Impact of an open economy

The more open (an economy participating in relatively free and unregulated international trade) is, the more it is affected by exogenous factors. E.g. in Australia, a substantial 63% of changes in GDP can be explained by factors such as interest rate fluctuations, inflation rates, and growth rates of the G8 industrialised countries.

Regional Business Cycles

A business cycle can also be drawn just based on a particular region. Economic cycles are not confined to national boundaries; they can manifest at the regional level, and regional business cycles may exhibit distinct patterns and have implications for both regional and global economies.

Regional Trade Dominance

WTO - identifies three major world regions - Asia, Western Europe, and North America - where intraregional trade compromises a majority of total trade, highlighting the significance of trade relationships within these regions, and the potential for regional economic dynamics to deviate from the global norm.

Regional GDP Growth Variation

The variation of GDP growth rates in a region can diverge from the global business cycle, suggesting that regions may experience economic growth trends that are distinct from the worldwide economic patterns. These variations in growth rates can be attributed to factors specific to the region, such as regional economic policies, industries, and geopolitical dynamics.

Regional Business Cycle Independence

Regions can have their own business cycle - little impact on global business cycle. Reinforces the idea that regional economic fluctuations can be somewhat insulated from the global context. Specific regional issues e.g. the Asian Financial Crisis of 1998, may not necessarily trigger a global economic crisis, but they can have profound implications within the region.

Australia's Economic Synchronicity

Australia's economic growth is going to be synchronised to an extent with that of our trading partners, highlighting the practical implications of these concepts for Australia, emphasising that its economic fortunes are linked to those of its major trading partners. As Australia engages in trade and economic relations with various regional partners, its own economic cycle will be influenced by these regional dynamics.

The Free Trade Diagram

The Advantages of Free Trade

- Improved price and availability of goods --> a range of cheap foreign goods become available, driving down prices, consumers more able to fulfil material wants by purchasing goods and services. Consumers can now buy goods and services they haven't been able to buy in the past, consumer choice improves, and living standards and wellbeing improve

- Improvement in efficiency --> domestic firms have to adjust to compete with new foreign firms, overseas firms tend to have lower prices and are more efficient, Australian firms lower their prices, international competitiveness improves

- Structural changes and specialisation --> industries that can't compete with overseas firms will shrink (frees up resources), resources then move from inefficient to efficient industries

Allocative efficiency

When resources are allocated in a way that reflects demand and makes best use of them

Structural Change

Change in the size and composition of industries within the economy

Disadvantages of Free Trade/Advantages of Protection (Brief)

- Dumping undermines local firms

- Domestic employment may fall as Australian firms close

- Infant industries struggle to compete

Free Trade

Trade between two countries where the government imposes NO barriers that restrict the free trade of goods and services (no tariffs, subsidies, quotas or rules). It aims to promote efficiency, economic growth and access to a wider variety of products by allowing each country to specialise in its comparative advantage

Absolute Advantage

A situation where one individual, firm, or country can produce a particular good or service with fewer resources, or in less time, than another entity, signifying a clear and objective superiority in efficiency and productivity in the production of a specific item. An entity with an absolute advantage can produce more of the same product with the same resources or produce the same amount of product with fewer resources compared to others

Comparative Advantage

When two or more entities allocate their resources to tasks in which they have a lower opportunity cost relative to others, overall economic efficiency is maximised. The relative efficiency or productivity advantage that one entity possesses in the production of a particular item or service compared to alternate entities.

How to figure out comparative advantage

Find opportunity cost and compare (dividing the cost of what is given up over what is gained) choose the one with lower OC

China and Comparative Advantage

Manufacturing: China has a comparative advantage in manufacturing a wide range of consumer goods e.g. textiles, electronics, and machinery due to its vast labour force, low labour costs, and well-established manufacturing infrastructure

Information Technology (IT) and Electronics:

- China's IT and electronics industry, with companies like Huawei and Lenovo, has a comparative advantage in producing smartphones, telecommunications equipment, and other electronic devices, with the country's robust supply chains and skilled workforce contributing to its strength

Textile and Apparel Industry: China is a global leader in textile and apparel production due to its competitive labour costs, efficient supply chains, and expertise in textile manufacturing.

Solar Panel Production: China has a comparative advantage in the manufacturing of solar panels, producing a significant proportion of the world's solar panels, benefiting from economies of scale and government support for the renewable energy industry

Free Trade Agreements

A formal agreement that decreases or eliminates protection between members

Advantages of Free Trade Agreements

- Promote competitiveness and innovation (exposes domestic industries to large foreign firms) and boosts economic growth in member economies

- Lower Prices

- Increased Consumer Choice

- Creates jobs in competitive industries

- May encourage investment

Disadvantages of FTAs

- Cause short term structural unemployment

- Workers lose jobs and their skills are no longer relevant

- Restricts Global Free Trade (only benefits members)

- Result in trade diversion --> agreements don't contribute much to global trade, other economies lose export markets and revenue

Bilateral FTA

Between two members (easier and faster to negotiate)

Multilateral FTA

Between multiple members (adds more to global trade)

Closer Economic Relations Trade Agreement (Australia and New Zealand) (CERTA) 1983

New Zealand removed export incentives and quotas, and Australia decreased protection in the dairy industry --> tariffs and quotas completely eliminated (this has seen an increase in Australia's export revenue. Recently, this treaty has moved beyond simple trade protection by synchronising business and tax law (encourages investment))

Association of Southeast Asian Nations (ASEAN) plus Australia and New Zealand (2001)

This multilateral treaty, composing of Au, NZ, and poorer SE Asian nations has resulted in protection cuts on Australian exports to NZ and ASEAN economies, a significant boost to Australian exporters

Trade Blocs

When countries in a region formerly cooperate on trade by implementing an FTA, may apply more protection against non-members

The European Union as a Trade Bloc

Before the union in the 1950s, there were many trade barriers between European economies, which were dismantled as European leaders sought to work together to eliminate protection, increasing trade flows and prosperity amongst members (France, Germany, Italy, Greece, Spain and many more)

Issues of the EU

- Larger economies (e.g. France), have to support struggling members (e.g. Greece)

- If a member has to pay off lots of debt, they won't buy as much from other members

- EU implements protection against other economies e.g. agriculture --> firms in other economies struggle and must find export markets, as seen through Australian farmers, who now focus on Asian markets

NAFTA

North American Free Trade Agreement; allows open trade with US, Mexico, and Canada.

APEC

Asia - Pacific Economic Cooperation, organisation designed to increases multilateral economic cooperation between nations bordering the Pacific Ocean.

Monetary Unions

Members adopt a common currency and are run by a central bank, implementing one monetary policy, or one interest rate

The EU as a Monetary Union

- Set a standard inflation rate, and a 60% limit for government debt

- Synchronisation facilitates economic management

- Encourages investment between member economies (removes cost of converting currencies)

- Blanket economic policies might not be appropriate

The Importance of International Organisations

Increase world interconnection and help solve global problems

The WTO

The WTO has many roles: it operates a global system of trade rules, it acts as a forum for negotiating trade agreements, it settles trade disputes between its members and it supports the needs of developing countries.

Function of the WTO

1. Encourages the dismantling of trade barriers between economies by organising trade negotiations and establishes trade agreements

2. Most favoured nation policy: trade concessions must be provided to all 166 members to make sure countries aren't excluded from any beneficial trade agreements

3. Important role in global trade as it conducts dispute resolution, by facilitating a discussion or providing a decision

WTO Recent Project Example (Doha Round)

AKA as 'development round', began in 2001 with the goal of reducing global protection with a specific focus on poorer nations suffering because of protection implemented by advanced economies. Progress has been slow, as advanced economies are reluctant to cut protection in agriculture and pharmaceuticals (effectiveness of WTO limited by this)

The IMF

Ensures global financial stability by avoiding recessional and currency crisis'. The IMF gives out 'rescue packages' to counteract economic disasters by paying off debt and propping up markets (e.g. during the GFC the IMF pumped $20 billion into the global economy).

Criticism/Problems in the IMF

The IMF only gives packages to economies that agree to adjust their financial policies (e.g. deregulate markets and balance budgets aka structural adjustment policies which improve the stability of countries' financial markets, however are not suitable for every economy). They often face criticism for making situations worse

The IMF in the Asian Financial Crisis

The IMF provided a $37 billion aid package for Indonesia

required public spending cuts to decrease debt, but growth was slowing, so govt should've spent more money

The World Bank

An international organisation that provides loans to developing nations to boost their economies.

Goals of the World bank

1. Reduce the rate of extreme poverty to less than 3% of the world's population by 2030 (those on less than US$1.90 a day)

2. Reducing overall economic inequality by stimulating income growth for the bottom 40% of global income earners

Mechanisms of the World Bank

As poorer economies rely on foreign funds to build schools, hospitals and industries, the World Bank provides loans to developing nations with zero or very low interest rates and extended repayment periods (aka soft loans) to tackle poverty and build infrastructure. They also provide debt relief packages which allow economies facing high levels of debt to channel income into productive activities e.g. infrastructure and business expansion, and encourages private investment into development projects. Important as these places are not popular investment destinations.

United Nations

The United Nations is an international organisation founded in 1945. With almost universal membership, the UN tackles global issues such as global security, the environment, and international health in order to contribute to a more globalised world.

The UN and trade

Agencies like UN Conference on Trade and Development devise international standards and rules for things like food quality and intellectual property, thus facilitating the flow of goods and services

The UN's Main Focus

The UN focuses mainly on economic development, boosting quality of life indicators. The UN has sustainable development goals --> 17 ambitious goals in areas of sustainable and clean energy, climate change, education, and trade and poverty, to be achieved in 2030.

The OECD (Organisation for Economic Cooperation and Development)

36 members, mostly developed economies. Officially aims to promote growth, employment, fiscal stability, and high standards of living. In practice, they conduct research into different economies and economic issues, helping to coordinate international economic action (e.g. macroeconomic expansionary policy)

Global Economic Forums

Provide a place for a collection of economies to discuss important economic issues (G7, G20), as well as formulate an international response

G7 (1976)

Forum connecting Italy, Germany, France, Japan, Canada, the US, and the UK (and Russia until 2014), the most important economies at the time, and discuss subjects e.g. economic growth and international security issues. But, economies like China, India and Brazil are more influential today

G20 (1999)

Response to a number of financial crisis' during the decade. Met first in 2008 (GFC), members agreed to better supervise the financial sector and coordinate a policy response to the crisis. Made up of the G7 and advanced economies (e.g. Aus). More accurately reflects the balance of power in today's global economy. In recent years, the impact of the G20 has been limited, as decisions made at summits aren't enforced, economies may agree to introduce a policy, but not follow through. G20 excellent in theory.

Protection

Any government policy or action that gives domestic producers an artificial advantage over its competitors. Historically, countries have engaged in protection to assist local business and industries.

Reasons for Trade Protection - To Protect Infant Industries

Infant industry protection is an economic policy employed by governments to shield emerging industries within their domestic economy from international competition, particularly when these industries are believed to have the potential for long term growth and future competitiveness.

Infant Industry Protection - Example

Australia has recognised the importance of transitioning to a low-carbon and sustainable energy future. To support the growth of renewable energy technologies, the government has provided various protection methods to enable the infant industry of renewable energy to flourish and establish Australia as a global leader in areas like solar power technology.

Infant Industry Protection - Benefits and Disadvantages

Infant industry protection can be beneficial for nurturing new industries, however, it can also be costly, may distort market dynamics, and may not always lead to the desired outcomes. Essential to find balance between protecting emerging industries and ensuring market competition and efficiency. If protection is not removed, there is no incentive for the industry to become more efficient and competitive, and thus this always must be temporary so that infant industries must have a chance at achieving some comparative advantage in the long term

The World Bank on Infant Industry Protection

Suggest that, 'This reason for protection, while relevant in theory, rarely works. Governments rarely select which industries to protect correctly and the industries rarely stop needing help.'

Reason 2 for Trade Prevention - To Stop Dumping

Dumping occurs when a foreign manufacturer exports goods to Australia at prices lower than the cost of production or the price charged in their home market, harming industries by making it difficult for them to compete on a level playing field. Anti-dumping measures in Australia are part of the country's broader trade policy designed to protect domestic industries from unfair trading practices, and the Australian government has established the Anti-Dumping Commission to investigate and address cases of dumping and protect domestic industries from these practices. People do it if they have a surplus of something, or to ruin a country's industry.

Australia's Anti-Dumping Measures

Australia's anti-dumping system operates in accordance with the WTO's international trade rules. This ensures that anti-dumping measures are only applied when there is a genuine case of unfair trade practices, rather than being used as a protectionist tool. The process involves a thorough investigation to determine if dumping is occurring, whether it is causing injury to the domestic industry, and whether imposing anti-dumping duties is an appropriate remedy.

E.g. of dumping scenario

China was Australia's most valuable wine export market in 2020, but a year later, anti-dumping taxes effectively ended this lucrative trade. China's anti-dumping taxes ranged between 116.2% and 218.4% on bottled wines and saw a trade worth $8.98 million a year in 2020 decrease to $8.1 million in the year to June 2023. The WTO is now questioning whether some countries are accusing others of dumping unjustly (6000 since 1995)

Reasons for Trade Protection 3 --> to protect domestic employment

Many politicians and employers argue that protection saves local jobs, with some countries employing protection measures to shield their industries from foreign competition in order to prevent job losses in the short term and maintain a stable labour market.

Economists however believe protection distorts the allocation of resources away from areas of more efficient production towards areas of less efficient production (away from a comparative advantage), damaging international competitiveness in the long term

Example --> when the government put forward protection for infant industries

For decades the Australian government employed tariffs and subsidies to support local automotive industries (Holden and Ford), aimed at safeguarding jobs in car manufacturing plants and related industries, so that Australian made vehicles could compete domestically, however, as global trade dynamics evolved, and the automative industry became more globally integrated, the Australian government faced challenges in maintaining the viability of its domestic car manufacturing sector. Ultimately, the industry faced increasing difficulties and shrinking market share, closing down major car manufacturing plants in Australia as they could not compete with economies of scale and cost efficiency of foreign automakers.

Reason for Trade Protection 4 -- > To increase self-sufficiency

Sometimes, decisions to keep industries going are made for non-economic reasons (etc. health, safety, environment). One example of this is to enhance national security by reducing reliance on foreign suppliers for essential resources, mitigating risks associated with global supply chain disruptions or geopolitical tensions, which also aids economic stability by insulating against international market volatility and price fluctuations. It is also essential for food security, as self-sufficiency in food production ensures a stable supply of food and minimises vulnerability to global price shocks. Protecting certain industries can also be because these industries are vital and require self-sufficiency, especially in case of an emergency.

Australia and Self-Sufficiency (Example)

In Australia, there is a strong emphasis on self-sufficiency and maintaining domestic capability in the defence sector, motivated by national security concerns, and the desire to reduce reliance on foreign suppliers for critical military equipment and technology, including building their own ships, military aircrafts, intelligence, and ammunition

Our limited manufacturing made our lack of self-sufficiency a problem when due to a shortage of supply of biscuit trays from China recently, Arnott's couldn't make Tim Tams.

Examples of the effects of not being self-sufficient

COVID-19

several countries faced challenges relating to to self-sufficiency in the production and supply of face masks and PPE

Ukraine/Russian War

Global crop and food prices have been increasing since mid-2020, due to the war in Ukraine, a leading grain exporter, and has seen a dramatic drop in exports --> major food security concerns for millions of people around the world. The actions of the EU and the UN have helped curb the price rise, but the outlook remains difficult

Arguments for Protection

- To help infant industries establish themselves

- To promote local jobs

- To maintain self-sufficiency in important areas

- To prevent dumping

- Some workers in low income economies may be taken advantage of (e.g. sweat shops)

- To protect the production of harmful goods and services with negative externalities (e.g. animal cruelty)

Arguments against Protection

- Distortion of resource allocation to less efficient industries --> lower international competitiveness --> higher unemployment --> lower living standards

- Higher prices for consumers

- Decreased amount of choice for consumers

- Can lead to political retaliation

- Can worsen poverty

- In the long term, increases inflation, decreases productivity and exports, and increases unemployment

- No incentive for infant industries to reach a level of efficiency where it would be competitive without protection

Economic Growth

An increase in the value of goods and services that an economy produces within a period of time, measured by looking at increases in REAL GDP (accounts for effects of inflation). Governments want a sustainable rate of economic growth, as when more is being made, living standards are improving.

e.g. China > 5% GDP Growth, Aus < 5 % GDP Growth

Reasons why GDP is not the best measure of economic welfare

- Differing prices and currencies mean one currency can't accurately capture the GDP of different countries (express in terms of PPP. instead)

- Varying population size means the same level of GDP can lead to different quality of life (GDP must be shared amongst whole population GDP divided by Population)

- Larger populations need higher GDPs for the same Quality of Life

- We look at GDP per capita to measure QOL

- Advanced economies receive 2/3 of global income, yet have 1/5 of the worlds population

- There is also a degree of wealth inequality in the global economy --> total value of assets owned by individuals minus what they owe (e.g. capital, property, savings)

- Income tends to generate wealth --> high income countries (e.g. Australia and Japan) possess a larger % of global wealth

- Distribution of wealth MORE UNEVEN than that of income

Economic Development

GDP per capita looks at income, BUT there's more to quality of life (health, freedom, education, environment). Economic development is a broader measurement of welfare within an economy (measured using HDI)

Human Development Index (HDI)

Indicators include; life expectancy at birth (health), educational attainment (expected and actual years people within an economy attend school), gross income per capita (how much individuals would receive if national income was split evenly). HDI is a number between 0 and 1 (1 is best).

Australia's HDI --> 0.949

GINI Coefficient (Gross National Income)

The Gini coefficient (Gini index or Gini ratio) is a statistical measure of economic inequality in a population. The coefficient measures the dispersion of income or distribution of wealth among the members of a population.

Australia's Gini --> 0.34 (closer to 0 better)

Advanced Economies

The most developed and well-off economies (e.g. Australia and Germany)

- Highest per capita incomes (individuals can satisfy individual needs and wants)

- Lower levels of economic growth (reach a level of output where its hard to grow anymore), already used up quick wins from implementing technology

- Often have sizeable service industries (e.g. finance and education)

- Sometimes feature niche manufacturing (e.g. medical equipment)

- Higher levels of development (HDI closer to 1)

Emerging Economies

Examples include China and Brazil

- High economic growth rates, often between 5 - 10% (sometimes higher) e.g. China's growth rate was at 10% during the 90s and 2000s

- Incomes are low but growing

- Large manufacturing industry

- Population with investors due to higher than average returns (high growth = high company profits)

- Shift of power toward stronger emerging economies

- Development --> lower

Developing economies

Examples include Peru and Nigeria

- Suffer from lowest levels of development

- Growth rates vary

- High population growth (any increase in GDP must be shared amongst more)

- Low per capita incomes --> high incidence of poverty (large rural and slum populations)

- Large agricultural industries

- Many manufacture cheap consumer goods

- Foreign aid may be vital

- HDI low --> poor living standards (around and below 0.5)

Causes of global inequality (Global Factors) --> TRADE FLOWS

Trade is a crucial part of wellbeing (export revenue drives economic growth and imports provide access to products otherwise not available). Access to trade is a huge determinant of wealth. Protection poses a problem to developing economies, as producers in developing economies lose export revenue. Trade agreements tend to be dominated by developed economies, and developing economies miss out on increased trade, but may also be disadvantaged by protections implemented against non-members. The round of WTO negotiations designed to support developing economies failed, and advanced economies refuse to cut protections in lucrative areas.

Causes of global inequalities (global factors) --> FINANCIAL FLOWS AND INVESTMENT

Investment tends to be directed towards emerging economies, pushing economies closer to 'developed' status, and developing economies still suffer. Developing economies often face significant debt burdens, and money must be directed towards repaying previous financial obligations, rather than productive and growth driving activities, high levels of debt make investors wary to arrest

Causes of global economies (global factors) --> FOREIGN AID

Effective aid is provided over the longer terms and is in the interests of the recipient economy. Aid can worsen the economy, as it can be short sighted, for example, food supplies in response to crisis. Aid only provides relief in the short term, and donors may have an economic or political motive. It is not given to those economies most in need - but rather, those who can provide something in return (e.g. military bases) --> enforced through tied or conditional aid. Phantom aid --> aid shrinks before reaching those in need, some goes to consultants, administration, and debt, misspent by recipients

Causes of global inequality (global factors) --> TECHNOLOGY

Technology is more readily absorbed in richer economies, as they have the infrastructure and skilled workers to implement it. Technology is also costly to implement due to Intellectual Property Rights, and if poorer economies can't afford to bring in new technology, they will slip further behind advanced economies.

Causes of Global Inequality (Domestic Factors) --> ALLOCATION OF RESOURCES

Varying allocation of resources between economies determines how much valuable stuff they have got. The factors of production are essential to production, and to economic growth and development. Economies that have fewer resources are less well off