Global

Economy
Global Economy or Economic Globalization

 Refers to trans-national increase in trade and capital

transfers across national boundaries.
 It is concerned with globalization of production,
finance, markets, technology, organizational regimes,
institutions, corporations and labor.
 The creation of world trade organizations made
countries cut down trade barriers and open up their
current accounts and capital accounts.
 Global Trade or International Trade
 Considered to be an impact of globalization.
 simply refers to the import and export of goods and
services across international boundaries.

 Imports – goods and services that enter into a country for

sale.
 Exports – goods and services that leave a country for sale
in another country.
 A fundamental concept underlying global trade is the
concept of comparative advantage.

 Comparative advantage – an economy's ability to

produce a particular good or service at a lower opportunity
cost than its trading partners.
 Opportunity cost – is the benefit one gives up in making
an economic choice.
 Economic Globalization, Poverty, and
Inequality
 Globalization is the growing integration of economies and
societies around the world (Collier and dollar, 2001).
 It ranges from the issues of trade and services, movement of
capital, growth and poverty of the world population,
international migration to easier transportation and
communication around the world.
 It is a complex process that affects many lives and above all,
increase economic interdependence among countries.
 4 basic aspects of globalization outlined
by the International Monetary Fund
(IMF)
(IMF- major financial agency of the United Nations, and an international financial institution)

 Capital and investment movements

 Trades and transactions
 Dissemination of knowledge
 The migration and movement of people
 The process of globalization affects and are affected by
political, economics, socio-cultural, legal and natural
factors.
 Globalization has in many ways been linked to
development across the globe, of which one of the ultimate
goals of development is poverty reduction.

 Scholars and economists debate on whether globalization is

the cause or cure for poverty.
 Poverty
 Is generally explained as the scarcity or the situation in which a
person lacks a certain amount of material possessions or money.
 It is a condition in which a community or a person lacks the
essential needs to enjoy a minimum standard of living in the
society (Lister, 2004).
 The United Nations defines poverty as the inability of getting
choices and opportunities.
 United Nation- intergovernmental organization whose stated purposes are to maintain
international peace and security, develop friendly relations among nations, achieve
international cooperation, and be a centre for harmonizing the actions of nations.
For example : having no access to education and schools to go
to, there’s not enough food to feed a family, no clothe to wear,
not having access to medical facilities or no clinic to go to, not
having the land to grow food for personal consumption and/or
not having the opportunities to hold a job to earn one’s living.
 The United Nations sees this a violation of human rights as
the lack of basic capacity to participate effectively in society
results in insecurity, powerlessness, and exclusion of
individuals, households and communities into the societies
'mainstream.
 According to the World Bank, poverty is a deprivation in
well-being of which many dimensions are considered.

These includes: low income and the inability to acquire basic

goods and services deemed necessary for survival with dignity.
Other dimensions included are poor access to clean water and
sanitation, low levels of health and education, inadequate
capacity and opportunity to better one’s life.
 Poverty is usually measured as absolute or relative.

Absolute poverty – condition where household income is

insufficient to afford basic necessities of life such as food,
shelter, clothing, etc.
- Extreme poverty measure.

Relative poverty – is when households receive 50% less than

average household incomes.
 Global Inequality of Opportunity
 Strikes people as inherently unfair that some people are able to
enjoy healthy, wealthy, happy lives whilst others continue to live
in ill-health, poverty and sorrow.
 For them it is inequality of outcomes of people’s lives that
matters. For others it is the inequality in opportunity – the
opportunity to achieve good outcomes – that is unfair.
 Tony Atkinson said it clearly: “Inequality of outcome among
today’s generation is the source of the unfair advantage received
by the next generation. If we are concerned about equality of
opportunity tomorrow, we need to be concerned about inequality
of outcome today.”
 Extent of Global Inequality
 Today’s global inequality of opportunity means that what
matters most for your living conditions is the good or bad
luck of your place of birth.
 The inequalities between countries is not the only aspect to
be considered. Inequalities within countries and societies –
regional differences, racial differences, gender differences,
and inequalities across other dimensions – can also be large,
and are all beyond any individual’s own control and unfair in
the same way.
This visualization shows the inequality in living conditions
between the worst and best-off countries in the world today in
a number of aspects:
 Health
 Education
 Income
Global North and the Global
South
 Global North – developed or high-income
countries/wealthy industrialized countries
 Global South – developing or low income countries/less
developed countries

(the issue with this classification is that not all countries in

the Global North can be called “developed”, while some of
the countries in the Global South can be called “developed”)
 Global North, some examples of the developing countries
include: Haiti, Nepal, Afghanistan, and many of the
countries in Northern Africa.

 Global South, some examples of well-developed countries

include: Australia, South Africa, and Chile.
 Developed and Developing Countries

 Developed Country
- a country having an effective rate of industrialization
and individual income.
- refers to the sovereign state, whose economy has highly
progressed and possesses great technological
infrastructure, as compared to other nation.
 Developing Country

- is a country which has a slow rate of industrialization

and low per capita income.
- countries with low industrialization and low human
development index.
 The terms “First World,” “Second World,” and “Third
World,” countries were used to differentiate between
democratic countries, communist countries, and those
countries that dot not align with democratic and communist
countries.
 First World – encompasses all industrialized , democratic,
and capitalist countries. The First World included most of
North America and Western Europe, Japan, and Australia.

 Second World – described the communist-socialist states.

These countries were, like first World countries,
industrialized. Included, the Soviet Union, Eastern Europe,
and China.
 Third World – described those countries that did not align
with either the First or Second world countries after World
War II and are generally described as less-developed
countries. The Third World included the developing nations
of Africa, Asia, and Latin America.
 Fourth World – was coined in the 1970’s, referring to the
nations of indigenous people that live within a country.
These groups often face discrimination and forced
assimilation. They are among the poorest in the world or
the most underdeveloped regions of the world.
 Global City
 An urban centre that enjoys significant competitive advantages
and that serves as a hub within a globalized economic system.
 A city that has international political influence, home to
multinational corporations and non-governmental
organizations, in addition to a globally influential mass media,
and well-developed communication and transportations.
 Home to major stock exchanges and indexes.
 Example: New York, Toronto, London, Tokyo, Paris
 Theoretical Perspective on Global
Stratification
Global Stratification – refers to the unequal distribution of
resources among nations

 Modernization Theory
 Dependency Theory

 Modernization Theory suggests that traditional societies will

develop as they adopt more modern practices.
 According to Modernization Theory, low-income countries
are affected by their lack of industrialization and can
improve their global economic standing through the
following factors:

 1. an adjustment of cultural values and attitudes to work

 2. industrialization and other forms of economic growth
 Dependency Theory was created in part as a response to the
Western-centric mindset of modernization theory.
 It states that global inequality is primarily caused by core
nations (or high-income nations) exploiting semi-peripheral
and peripheral (or middle-income and low-income nations),
which creates a cycle of dependence.
 As long as peripheral nations are dependent on core nations
for economic stimulus and access to a larger piece of the
global economy, they will never achieve stable and
consistent economic growth.