Module 4 - Global Economy

Global Economy

• It encompasses the economies of the individual countries considered together as a single economic system, as one economy affects the other.

• Refers to the worldwide economic activities that take place between countries.

• It focuses on the international marketplace where different economies trade goods, services, and financial assets with each other.

Key Features

Foreign Investment

Financial Markets

Global Value Chains

International Trade

Foreign Investment

• An investment with a controlling ownership made by a company or government from one country (investor) into a business or project in another country (recipient country).

• Injects capital into the economy, which can be used to finance infrastructure projects, create jobs, and stimulate overall growth in the recipient country’s economy.

Financial Markets

• Refer to a vast network of marketplaces where people and organizations trade financial instruments like stocks, bonds, currencies, and derivatives. These markets play a critical role in the global economy as they may lead to financial crises if left unchecked.

Types of Markets

Equity Market

Bond Market

Foreign Exchange Market

Commodities Market

Value Chains

• Networks of production that span multiple countries. They refer to cross-border collaborations that involve multiple firms and countries, each specializing in tasks where they have comparative advantages.

• Tasks are distributed across different countries based on factors like cost, skills, and regulations.

International Change

Refers to the exchange of goods and services between different countries. It connects countries, drives economic growth, and benefits consumers with wider choices and potentially lower prices.

International Trading System

• Refers to a set of rules and institutions that govern the flow of goods, services, and capital between countries.

• Its goal is to promote free trade and economic cooperation among states and international organizations, even.

2 Types of Trading System

Bilateral Trading System

Multilateral Trading System

Bretton Woods System

Formed at a conference in Bretton Woods, New Hampshire, was an international monetary system that existed from 1944 to 1971. It was based on the gold standard, which means that the value of each currency was fixed in terms of gold.

Fiat Money System

• Currency that is not backed by any physical commodity, such as gold or silver. Instead, the value of this money system is determined by the government that issued it.

• Is the system that is currently used by most countries around the world.

The International Monetary Fund

• Promotes international monetary cooperation, to facilitate international trade, and to promote exchange rate stability.

• Created at the Bretton Woods Conference.

• It’s an international organization that provides loans to countries in financial trouble.

The World Bank

• Created at Bretton Woods Conference in 1944

• Provides loans mainly to developing countries for projects such as infrastructure and education.

• Its goal is to reduce poverty and improve living standards in developing countries.

The World Trade Organization

• Created in 1995

• Headquartered in Geneva, Switzerland

• It is an intergovernmental organization that regulates and facilitates international trade.

Washington Consensus

• A set of ten economic policy recommendations considered to constitute the standard reform package of crisis-wracked developing countries. This was promoted by financial institutions like the IMF and World Bank.

• It advocates free trade, floating exchange rates, free markets, and macroeconomic stability.

Economic Policy Recommendations:

Fiscal Discipline

Redirection of Public Expenditure

Tax Reform

Financial Liberalization

Trade Liberalization

Privatization

Deregulation