Global Economy

GLOBAL ECONOMY
The global economy refers to the interconnected worldwide economic activities that take place
between multiple countries. These economic activities can have either a positive or negative impact on the
countries involved.
The global economy comprises several characteristics, such as:
 Globalization
 International Trade
 International Finance
 Global Investment
Globalization
Globalization describes a process by which national and regional economies, societies, and cultures have
become integrated through the global network of trade, communication, immigration, and transportation
International trade
International trade is an impact of globalization. It refers to the exchange of goods and services between
different countries, and it has also helped countries to specialize in products which they have a
comparative advantage in. This is an economic theory that refers to an economy's ability to produce goods
and services at a lower opportunity cost than its trade partners.
International Finance
Money can be transferred at a faster rate between countries compared to goods, services, and people,
making international finance one of the primary features of a global economy. International finance
consists of topics like currency exchange rates and monetary policy.
Global investment
This refers to an investment strategy that is not constrained by geographical boundaries. Global
investment mainly takes place via foreign direct investment (FDI).
Why is the global economy important?

We can understand the importance of the global economy by looking at it in relation to emerging markets:
Economic importance at a micro and macro level

Long-term world economic outlook
Who controls the global economy?

Many people think that the global economy is controlled by governments of the largest economies in the
world, but this a common misconception. Although governments do hold power over countries’
economies, it is the big banks and large corporations that control and essentially fund these governments.
This means that the global economy is dominated by large financial institutions.
How does the global economy work?
The functioning of the global economy can be explained through one word —transactions.
International transactions taking place between top economies in the world help in the continuance of the
global economy. These transactions mainly comprise trade taking place between different countries.
International trade includes the exchange of a variety of products between countries. It ranges all
the way from fruits and foods to natural oil and weapons. Such transactions have several benefits
including:
 Providing a foundation for worldwide economic growth, with the international economy set to
grow by 4% in 2019 (source: World Trade Organization);
 Encouraging competitiveness between countries in various markets;
 Raising productivity and efficiency across countries;
 Helping in the development of underdeveloped countries by allowing them to import capital goods
(machinery and industrial raw materials) and export primary goods (natural resources and raw
materials).

What are the effects of global economy?
Every country in the world is in some way affected by things that happen in what may seem at
times, like unrelated countries - due to the influence of the global economy. The main cause of
these effects is economics — based on the production and exchange of goods and services.
Restrictions on the import and export of goods and services can potentially hamper the economic
stability of countries who choose to impose too many.
What are the benefits of global economy?

 Free trade
 Movement of labor
 Increased economies of scale
 Increased investment
Factors affecting global economy

 Natural resources
 Infrastructure
 Population
 Labor
 Human capital
 Technology
 Law.
Economic Globalization and Global Trade
 Protectionism
 Trade Liberalization
Protectionism
Protectionism is defined as "a systematic government intervention in foreign trade with the goal
of encouraging domestic production, which includes preferential treatment for domestic producers and
discrimination against foreign competitors."
Trade Liberalization
The Trade liberalism practice lowered tariff rates and re- moved many import licensing regulations
intended to protect producers of import-substitutes.
Fair Trade
Fair trade, as defined by the International Fair Trade Association, is the "concern for the social,
economic, and environmental wellbeing of marginalized small producers"
Economic Globalization and Sustainable Development
The downsides of globalize trade
-its lack of sustainability or the degree to which the earth's resources can be used for our needs, even in
the future.
Environmental Degradation
-the rising demand for goods and services and the cycle of production has harm the planet in numerous
ways.
Economic Globalization, Poverty, and Inequality

-The multiplier effect means an increase in one economic activity can lead to an increase in other
economic activities. One of the best ways to help those in extreme poverty is to enable them to participate
in the economy.
Global Income Inequality
Wealth Inequality - wealth refers to the net worth of a country.
Income Inequality - Income inequality refers to how unevenly income is distributed throughout a
population.
The Third World and the Global South
-Third World countries came to be associated with impoverished states, while the First World was
associated with rich, industrialized countries.
The Third World and the Global South

First World countries, such as the United States, Canada, Western Europe, and developed parts of Asia
are regarded as the "Global North," while the "Global South" includes the Caribbean, Latin America, South
America, Africa, and parts of Asia.
The Global City
-A global city is an urban Centre that enjoys significant competitive advantages and that serves as a center
point within a globalized economic system.
Theories of Global Stratification
-Global stratification refers to the unequal distribution of wealth, power, prestige, resources, and
influence among the world's nations.
Modernization Theory- argues that the tension between tradition and technological change is the biggest
barrier to growth.
Walt Rostow's Four Stages of Modernization
1. Traditional stage refers to societies that are structured around small, local communities with production
typically being done in family settings.
2. The take-off stage where people begin to use their individual talents to produce things beyond the
necessities. This innovation creates new markets for trade.
3. Technological maturity in which technological growth of the earlier periods begins to bear fruit in the
form of population growth, reductions in absolute poverty levels, and more diverse job opportunities.
4. High mass consumption - where production becomes more about wants than needs.
Dependency Theory and the Latin American Experience
-Dependency is the condition in which the development of the nation-states of the South contributed
to a decline in their independence and to an increase in economic development of the countries of the
North.
The terms "core nations" and "peripheral nations" are at the heart of dependency theory.
The Modern World-System
-Modern world system suggests that while the world economy is ever changing, there are three basic
hierarchies of countries: core, periphery, and semi-periphery.

Global Economy

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GLOBAL ECONOMY

The global economy comprises several characteristics, such as:

Why is the global economy important?

Economic importance at a micro and macro level

Who controls the global economy?

What are the benefits of global economy?

Factors affecting global economy

Economic Globalization and Global Trade

Economic Globalization, Poverty, and Inequality

The Third World and the Global South

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