The Global Economy

The Global Economy

1. International Economic Integration

   • Gross World Product
     • AKA Aggregate Value
       • Total Output of G & S of all economies
   • The Global Economy
     • Ripple Effect
   • Globalisation
     • International Division of Labour
       • high income economies attract highly skilled workers
       • Barriers include: Immigration restrictions, language, culture, incompatible education
       • search for most efficient and costless
     • Technology, Transport and Communication
       • Technology ultimate driver
         • transfer money globally
       • transport = less time, money, efficiency
     • Investment and TNC
       • TNC's include: Shell, Toyota,
         • Mergers and Acquisitions: Microsoft and Skype
       • Foreign Direct Investment
         • global investment
           • >10% in firm
             • Long-term
         • Approx. 20% of investment
       • Portfolio Investment
         • Global Finance
           • Short- Term
             • <10% in firm
     • Increased Trade in Goods and Services
       • more volatile than GWP
         • Contracts faster in downturns
       • Trade Flows changed to South/ East Asia
       • ATM: vehicles, clothing, electrical goods.
         • Forecast: finance and communication, services, oil, gas.
   • Financial Flows
     • Most Globalised Feature
       • FOREX turnover $4Trillion, 2011.
     • Deregulation 70's/80's
       • Speculators create excessive volability
   • The International and Regional Business Cycle

2. Trade, Financial Flows and Foreign Investment

   • Basis of Free Trade
     • No Barriers
       • Comparitive advantage
         • Opportunity Cost
     • Advantages
       • Obtain G&S unable to produce
         • specialise in G&S=> better Allocation of resources
           • Economies of scale => decreased average cost
             • international Competitiveness
               • Higher Global Standard of Living
                 • Encourage Innovation
     • Disadvantages
       • ^ in short term unemployment due to domestic firms not being able to compete
         • Infant Industries Suffer
           • 'Dumping' of products on domestic markerts
             • environmental costs due to irresponsible production to reduce costs
   • Influence of Government Forums
     • G7/8
       • 60% GWP, 14% world pop.
         • consists of largest industrialised Nations
           • Losing power due to China
     • G20
       • 80% of GWP, 2/3 world Pop.
         • Since GFC, emerged as leading forum for coordinating Global Response to avoid recession
   • Role Of International Organisations
     • OECD
       • 34 members
         • committed to democracy & Market economy
           • ^ standard of living, ^ employment. ^ sustainable growth
       • Conduct & publish research on a wide range of economic policy issues, coordinating economic cooperation among member nations
     • World Bank
       • provide assistance to poorer countries with their economic development
         • Millenium Development Goals
       • Act as a leader in times of need
     • United Nations
       • 193 members
         • Broad range agenda': international security, Environment, Poverty and Development, International Law, Global health Issues
     • IMF
       • Maintain international financial stability, particular in FOREX Markets
         • 188 members
           • Before Deregulation, oversaw fixed exchange rates
             • helps minimus effects of recessions
               • > stimulus packages
                 • When helping economies, they must change policies in accordance with IMF, or Structural Adjustment Policies
                   • 1990's AFC, IMF forced Asian Countries to use contractionary macro policies
                     • This caused structural issues in other countries
     • WTO
       • Free up Global Trade by removing barriers, & to solve disputes between nations
         • Has power to enforce trade agreements
           • 155 nations
             • Doha Round:
               • > reducing average protection
                 • > Lowering tariffs on manufactured goods
                   • > reducing trade restrictions, services
                     • Complete abolition of aggregate export subsidies
                       • giving 50 poorest members tariff and quote free access to high income nations for at least 97% of goods.
   • Trading Blocs, Monetary Unions & Free Trade Agreements
     • Trading Bloc
       • joining together a formal preferential trading agreement
         • > Bilateral
           • >Multilateral
     • Free Trade Agreements
       • formal agreement between countries to reduce trade barriers & restrictions
         • AKA Preferential Trade Agreement
           • Global Free Trade Agreements (WTO) designed to breakdown all trade restriction & free up world trade
     • Monetary Unions
       • two or more countries sharing same currency
         • creating a 'single market' due to no need to exchange currencies
           • efficient trade
     • European Union (EU)
       • Trading Bloc: 33% GWP
       • Advantages
         • removed trade barriers
           • single currency= more efficient
             • single market, surge in economic growth
       • Disadvantages
         • smaller agricultural trading countries find more difficult to be competitive
           • significant decrease exports into Europe e.g.Agricultural Products
             • Increased tariff barriers non-member countries
     • APEC
       • Regional Trade Bloc: 54% GWP, 41% world pop.
       • Advantages
         • Member countries tariffs decrease
           • retaliation to EU
             • An open trading bloc
               • Greater Cooperation
       • Disadvantages
         • minimal decrease tariffs
           • losing significance
     • NAFTA
       • USA, Canada, Mexico: 13% GWP
         • Advantages
           • USA shifted production to Mexico- cheaper labour
             • Significant increase in exports for Canada and Mexico
               • agricultural free trade
         • Disadvantages
           • Arguments it caused trade diversity instead of trade creation due to reallocation of labour
             • Unfair for domestic firms
     • ASEAN
       • Emerging nations
       • Advantages
         • Eliminating tariffs on 96% Aus. Exports to region.
           • Resulted in AANZFTA
             • Counterweight APEC
       • Disadvantages
         • Limited in its influence in Global Economy due to small number of nations
     • Bilateral
       • Advantages
         • provide flexibility
           • enhance regional free trade
       • Disadvantages
         • divert resources from efficient uses
           • Introduce trade distorting tariffs

3. Protection

   • Reasons for Protection
     • Infant Industries
       • in some cases barriers not removed -> no incentive
         • ^ in market share, capacity, economies of scale
           • Protected Short-term until able to compete
             • new industries cannot compete globally
     • Dumping
       • when foreign firms attempt to sell their goods in another countries market at unrealistically low prices