Detailed Notes on Topic 1 – The Global Economy

Resource Description

International economic integration

• the global economy
  – consists of all countries in the world which produce g&s (goods and services) contributing to GWP (global output)
  – Countries engage in world trade through foreign direct and portfolio investment
  – Reduction in trade barriers (tariffs and subsidies) > Economic Integration
  Economic Integration – the liberalisation of trade between two or more countries in a certain region
  – Liberalisation of trade may lead to an increase in free trade areas eg. NAFTA (North nAtlantic Free Trade Agreement), EU (European Union)
  – These Free trade areas have caused intra-regional trade between the European countries and north America. (These areas dominate world trade)
  – Benefits of EI;
•  Increased trade
• Rising living standards
  – World trade has increased through MNCs (multinational corporations), eg, Toyota,
  google
  – The IMF (international Monetary Fund) categorises countries into two groups;
• Advanced Economies – high levels of economic development and average incomes of $40,000 per capita. Eg. USA, Australia & Japan
•  Emerging & Developing Economies – levels of ED and EG are growing however living standards are poor and income is lower than an advanced economy. Normally communist countries. EG. China, India & Mexico

– The 39 advanced economies dominate trade and GDP. They accounted for 63% of exports and 40.8% of world GDP whilst being 14% of the global population
– 155 listed developing/emerging economies
– Many developing countries are a part of OPEC (Organisation of Petroleum Exporting
Countries) and have significant oil exports to the rest of the world.
– Developing countries are around the middle east, Asia and Africa

•  Gross World Product
  – The size of the economy is measured by the IMF which analyses data on a country’s GDP
  at PPP (Purchasing Power Parity – how much can be bought using consumers money)
  – World GDP at PPP = total market value of goods and services produced in one year
  which are adjusted to exchange rates
  – The overall world GDP at PPP = US$135,178bn with an annual growth of 3.6%
  – Smaller no. of economies (adv.) dominate world trade
  – National GDPs show the opposite where developing economies experience greater
  growth and their share of trade increases steadily
  – After the GFC (Global Financial Crisis 09-10), emerging economies sustained great
  growth (China, India, etc.) whereas advanced were experiencing lower rates
  – In 2018, global growth decelerated due to factors such as; China’s economy rebalancing
  and also trade tensions between China and the
•  Globalisation

– trade in goods and services
– financial flows
– investment and transnational corporations
– technology, transport and communication
– international division of labour, migration
Globalisation
Globalisation – refers to an increase in economic integration between countries, leading to a single
world market.
– Globalisation is reached through technology and also the purchasing and selling of G&S
– EI occurs when barriers such as quotas and tariffs are removed thus facilitating growth.
These may lead to FTA such as NAFTA, APEC etc.
– EI is enhanced through customisation of products and also a technological change (growth of internet or ecommerce)
– Globalisation has spread rapidly throughout the world by;

•  MNCs investment in other countries – they seek cheap/competitive areas to invest and do business in therefore increasing profit due to the shift in cost
•  Information, Communications Technology (ICT) revolution – lead to new products and services which can be sourced by all. Eg, ecommerce (ebay)
•  Asia Pacific region, Europe and North America being the drivers of global economic activity

– Federal governments adopt microeconomic reforms (labour markets etc) and also
policies to increase globalisation, seen predominantly in advanced economies therefore
increasing international competitiveness
– A problem with increased globalisation would be the widening gap between advanced and emerging economies, especially in the distribution of income and wealth
– 4 forces underpin globalisation;
1. Increased number of customisation of products and services has led to more distribution facilities being created by MNCs for the world market
2. improved levels of tech, transport and communications have led to a decrease in transport times and costs for the global business
3. the rapid liberalisation of the trading environment has occurred through, multilateral, bilateral and regional agreements
4. financial and trade linkages have been strengthened between countries however they have allowed shocks to occur (GFC 09)

Trade in goods and services
– globalisation has led to higher global output, trade and also investment, however, this
halted due to the GFC in 2009 due to contractions in many advanced economies
– the global recovery (2010-14) following the GFC was also halted due to the European
Sovereign Debt Crisis and also the Fiscal Cliff – USA where global growth reduced from
5.4% to 3.1%
– in 2009 the exports of advanced economies declined by -13.1% and -8.7% in developing
economies due to the global recession
– global trade recovered by 2017 to 5.7% increase annually however the US-China trade
tensions slowed it to 3.5% in 2018

– the major global exports are; food, manufactured goods, raw materials and oil
– major global service exports are; technology/communications, transport and travel
– North America increased its exports from 10.8% (2010) to 15.5% (2018) whereas Asia,
Europe and the pacific declined
– Services have risen due to the increase in income and demand as well as lower costs for
communications and technology
– Advanced economies accounted for 79.3% of global service exports
– Developing economies increased their % through outsourcing and offshoring