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Global Economy Analysis
  • Concept of Global Economy.
  • Advantages and Disadvantages.
  • World Economic Statistics .
  • Globalisation vs. regionalisation
  • Impact of globalisation on trade.

Concept of Global Economy.

The term Global Economy refers to an integrated world economy with unrestricted and free movement of goods, services and labour transnationally. It projects the picture of an increasingly inter-connected world with free movement of capital across countries, also. The concept of a global economy cannot be understood in isolation. For this, globalization nees to be defined first. Globalisation may be defined as the integration of production and consumption in all markets across the world.

It is a widely accepted view that globalization would not only benefit all countries across the world but would also work towards the betterment of the economy as a whole. Country specific economic and political decisions are being taken on a global scale in today’s world with global considerations becoming more important than narrow provincial ideals.

A global economy is characterized as a world economy with an unified market for all goods produced across the world. It thus gives domestic producers an opportunity to expand and raise capacity according to global demands Likewise, it also provides an opportunity to domestic consumers to choose from a vast array of imported goods. A global economy aims to rationalise prices of all products globally. A computer or a cup of coffee would cost the same amount of money in both the USA and India in real terms if identical units of both the goods are purchased. With the reduction in the level of tariffs and quotas under new WTO (World Trade Organization) restrictions, free flow of goods between the developed and the developing countries has become a distinct possibility. The emergence of Trans National Companies or Multi National Companies has been due to the direct impact of globalization.

Globalisation has boosted productivity and capacity of these companies to astronomical highs because of the stiff competition at the international level. Improvement in technology in the developed countries such as USA and Japan has permeated to those of the less developed economies of Asia, Africa and Latin America. This has enabled the people of the developing countries acquire requisite technical skills and knowledge for operating sophisticated equipments. These skills percolate throughout the economy and improves the general productivity of the labor in these countries thereby raising the income levels


World Economy at Start of the 21st Century
Perspectives and Structure of World Economy
Genesis of Current Global Economic System
Globalization and Development 
Globalization and cycles in modern world-system
Strategy, structure and Govt. in Global Economy
Framework for Assessing Global Imbalances
Impact of globalisation on developing countries.  
Globalization Structure of the World Economy
World Economic Situation and Prospects in 2008
USA and International Financial Institutions
Advantages and disadvnatages of Global Economy :

While a global economy or globalization has the distinct advantage of raising world productivity and incomes and bringing about an improvement in the standards of living for all people at a global level, it has the dangerous side effect of growth with inequality. This has been evidenced in the less developed economies of India, China and Brazil where the benefits of globalization have not percolated to the lowest levels. This has brought about a wide divide between the have-nots and the have-lots.

A Global Economy also leads to a shifting of jobs from the developed countries to the Third World Countries as wage rates are much lower here. This allows companies of the advanced nation to grow exponentially. For example, we might find computer chips produced in China be exported to USA for designing which may be subsequently used in Japanese computers supplied across the world. This process is called “outsourcing” and leads to exploitation of workers in Third World economies where income inequalities already exist.

Nonetheless, a global economy may be beneficial for the world at large. This may result in the economies of the world fighting issues such as global warming, climate change and environmental degradation collectively and effectively.

World Economic Statistics at a Glance :  (2011 Forecast)

World GDP (PPP): $78.092 trillion
GDP Growth Rate: 3.3%
GDP Per Capita (PPP): $11,100
GDP By Sector: Services 63.4%,
(Industry 30.8%, Agriculture 5.8%)
Growth In Trade Volume: 6.953%
Industrial Production Growth Rate: 4.6%
Population: 6.768 billion
Population Growth Rate: 1.133%
Urban Population: 50.5%
Urbanization Rate: 1.85%
(125 million people move to cities every year)
The Poor (Income below $2 per day):
Approx 3.25 billion (~ 50%)
Millionaires: Approx 10 million (~ 0.15%)
Labor Force: 3.232 billion
Inflation Rate - Developed Countries: 2.5%
Inflation Rate - Developing Countries: 5.6%
Unemployment Rate: 8.8%
Investment: 23.4% of GDP
Public Debt: 58.3% of GDP
Market Value of Publicly Traded Companies: $48.85 trillion, or 62.6% of World GDP

The World Economy in 2010 was worth $74.007 trillion in GDP terms, using the Purchasing Price Parity (PPP) method of valuation. This is expected to grow to $78.092 trillion in 2011.

The overall global economy averaged a 3.2 per cent growth rate between 2000 and 2007, suffering a slight dip in 2001 - 2002 thanks to the Dot Com Crash, but continuing to grow throughout that period. In fact 2004 - 2007 were boom years. The Emerging Markets, led by the giants of China, India, Russia and Brazil (the BRIC countries) had been posting 7 per cent - 10 per cent growth rates for years. Property and stock market booms had brought consistent growth in North America and Europe. Investment was bringing economic development to much of the Middle East and Africa, and even Japan was recovering from its deflationary 'Lost Years'.

Economic conditions within these countries play a major role in setting the economic atmosphere of less well-to-do nations and their economies. In many aspects, developing and less developed economies depend on the developed countries for their economic wellbeing.
Theories were even circulating that thanks to the growth of the developing world, we might enjoy years of unfettered growth, as new markets would go through successive growth spurts and counter the effects of slowing growth elsewhere. It was suggested that Asia was 'decoupling' from the US and able to grow under its own steam thanks to its two 'Awakening Giants'.

Globalisation vs. regionalisation.

The difference between the concepts is linked to the debate between people that see regionalisation as building block for the process of globalisation versus people feeling that regionalisation is a barrier in the process of globalisation.
Regionalisation can be linked to the increased integration of economies of countries in a region . There are five steps in the process of regional integration namely free trade areas, customs unions, common markets, economic unions and a monetary union. Economic integration is seen as a synonym for regionalisation.

This process of integration ends with political unity. Regionalisation is compatible with globalisation is its provides enough protection until economies of scale improves the efficiency of regional companies to enable them to compete internationally. Before this stage of universal economic integration is reached, the exclusivity of the regional grouping can be detrimental for the process of globalisation.

Globalisation is an extension of the process of regionalisation because of the fact that it leads to the diminishing of borders between countries and regional blocks.
The process of globalisation has received a lot of critique that can cause leaders of countries to try and reverse the process of globalisation. Globalisation can be opposed by returning to regionalism and regional integration. It is thus clear that a no clear relationship exists between regionalism and globalisation.

Impact of globalisation on world trade.

Opponents to the process of globalisation indicated that the impact of globalisation on developing and developed countries differed.

Brittan (1998:8) indicated that globalisation led to an increase in the wealth of developed countries and also not to bigger poverty in the developing countries. As an example of the improvement in the developing countries Brittan referred to the improvement in the economic situation in the Asian countries. The improvement in economic growth in the Asian countries led to a reduction in the skewed distribution of income between developed and developing countries. Despite these rather positive developments in some developing countries many countries are still in poverty and risks marginalisation if they does not very soon become part of the international trade system.

Some others differ from the view of Brittan that the distribution of income between developed and developing countries has become less skewed by indicating that globalisation in the integrated world economy has lead to industrial growth in a limited number of developed countries.

A big number of countries developed serious financial problems, which led to an increase in the income gap between developed, and developing nations. Between 1980-1990 more that 90% of all financial transactions of the world were executed in 25 of 121 countries world wide . Die low-income countries share in the globalised capital flows were less than 1% of the total worldwide transactions. These developments is seen by Gill en Law (1988:127) as the transnational stage in the development of capitalism.

It is observed that the global economy is dominated by three regional blocks namely America, Europe and Japanese dominated Asian block. These three regional blocks were responsible for 43% of all global capital transactions and for 56 % of all portfolio transactions between 1980 en 1990 (Hak-Min, 1999:4). Despite the process of globalisation was 77.29% of Germany’s exports and 77.81 % of imports were still to Western industrialized countries between 1980 en 1990. South Africa’s most important export partners is also the European Union, America and Asia. The conclusion can bee made that the developing countries did not get the advantage of the process of globalisation.

(Sources: Economic Statistics Database, CIA World Factbook, IMF, World Bank)

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