World Economy: Stages of formation and modern situation

Definition of the Word economy The World Economy’s stages of Formation Open and closed economy

1) Definition of the Word economy The world economy, or global economy, generally refers to the economy, which is based on economies of all of the world's countries, national economies.

The World economy is world-wide economic activity between various countries that are considered intertwined and thus can affect other countries negatively or positively.

The World Economy is complex, dynamic system, which is always changeable World market is important component of The World Economy

What is the world market? The summary of national markets

International economics is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them.

It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.

International trade studies goods-and-services flows across international boundaries from supply-and-demand factors, economic integration, international factor movements, and policy variables such as tariff rates and trade quotas. International finance studies the flow of capital across international financial markets, and the effects of these movements on exchange rates. International monetary economics and macroeconomics studies money and macro flows across countries. International political economy from international relations studies issues and impacts from for example international conflicts, international negotiations, and international sanctions; national security and economic nationalism; and international agreements and observance.

2. The World Economy’s stages of Formation I- stage – s of XX century  Great October Revolution in Russia  Great Depression in USA and other countries  Instability in The World Economy

II – stage – the end of 40s and 80s of XX century  International capital outflow  Internationalization of industry  Process of growing up of TNC  Development of Western Europe  Decolonization (African countries)  Leadership of USA

III –stage – last decade of XX century  Increasing of integration process  Increasing of interdependence and interaction of countries  Destroying of USSR and emergence of new states

3. Open and closed economy An open economy is an economy in which there are economic activities between domestic community and outside, e.g. people, including businesses, can trade in goods and services with other people and businesses in the international community, and flow of funds as investment across the border

Advantages of an Open Economy Greater Choice for Consumers : In an open economy, the domestic markets are merged with international markets and so the consumers are not limited to consume domestically produced goods and services. They can choose the best from the world market. Increased competition and Lower Prices: A related benefit of an open economy is that the consumers have an increasing number of producers or goods and services competing for their business. Competition among producers results in lower prices and improved services. An open economy allows consumers to benefit from the lower labor and operating costs. Expanded markets and Customer bases :The benefits of an open economy are not limited to consumers. Global interaction allows companies to gain access to customers in other nations. This motivates them to produce world class products, expand their business and customer base. American brands as McDonald's, Apple and Starbucks, plus Finnish communications giant Nokia, have established worldwide customer bases.

Global Investment Opportunities:For investors, an open economy expands the opportunities for investing capital. Investors large and small can choose to invest in known domestic companies, or they can invest in established industrial giants of other nations. Investors with an appetite for risk, meanwhile, can invest in the emerging markets of Latin America, Africa and southern Asia.In an open economy, financial and goods markets are closely related. To understand this relationship, we look at the savings and investment identity. Gains from Trade : One of the key principles of economics is that trade benefits all parties involved. International trade involves interactions with other economies and is therefore possible only among open economies. English economist David Ricardo, argued that trade allows nations to specialize in producing the goods in which they have comparative advantages and trade with other nations to obtain goods in which other nations specialize. This in turn provides consumers with a greater array of goods from which to select.

Closed economy= Autarky Autarky is a policy of establishing a self- sufficient and independent national economy

Historical examples of Autarky Afghanistan under the Taliban, from 1996 to Albania became a near-autarky in 1976, when Communist Party leader Enver Hoxha instituted a policy of what he termed "self-reliance".[4] Outside trade increased after Hoxha's death in 1985, though it remained severely restricted until 1991.[5] Cambodia under the Khmer Rouge, 1975–1979. Guyana under Forbes Burnham's PNC dictatorship, from 1970 to 1985 India had a policy of near-autarky that began after its establishment as an independent state, around 1950; it increased until 1980 and ended in 1991 due to imminent bankruptcy. Italy, Benito Mussolini claimed to be an autarky, especially after the 1935 invasion of Abyssinia and subsequent trade embargoes. However, it still conducted trade with Germany and elsewhere. North Korea's official state ideology, Juche, is based heavily on autarky. Spain, under dictator Francisco Franco, was an autarky from 1939 until Franco allowed outside trade again in 1959, coinciding with the beginning of the "Spanish miracle ".