Topic 1 Topic 1 The Global Economy

The global economy The global economy can be divided into a four main categories: Advanced Economies Emerging Economies Developing Economies Least Developed Economies

The global economy (GWP) and world trade is dominated by USA, EU, Japan and China Africa, South America, Eastern Europe and sections of Asia play a much smaller role 1.4 billion live in extreme poverty (less than $US1.25/day The richest 5% earn 165 times more than the poorest 5%

Gross World Product The IMF compiles data on world production by using countries GDP figures adjusted for variations in prices paid for goods and services. The is called GDP (PPP). PPP stands for purchasing power parity. Can Mr Rodger explain it?

GNI What is GNI? Why is PPP used for GDP and GNI? Why are /capita statistics used to compare living standards?

Globalisation Definition: increasing economic integration between countries leading to the emergence of a single global market place in a new global economy. Globalisation occurs via Trade Investment and TNCs Finance Labour Technology

Trade in goods ands services World trade is increasing rapidly- much faster than GDP growth. Trade is an important component of aggregate demand and economic growth for every country- particularly poor countries Trade barriers limit trade – the EU and USA have very high trade barriers What do these points tell us about world trade?

International Trade trends and statistics (Page 4-7)

Investment and transnational corporations TNCs have played and are playing a significant role in FDI – equity investment Historically TNCs have invested in advanced economies. FDI is growing rapidly in developing and emerging economies Investment is a key component of aggregate demand and economic growth

Investment and TNCs trends and statistics (Page 9-11)

Financial flows Huge increase in foreign exchange transactions on FOREX markets. Buying and selling foreign exchange has become a major speculator activity Stock exchanges are global- huge increase in share trading (equity markets) Derivative markets have grown incredibly

Financial Flows trends and statistics (Page 8-9)

Labour and migration Labour movements have increased significantly in spite of tight migration laws Labour moving is usually highly trained and skilled (doctors/finance) or unskilled (domestic/construction) Labour is very mobile between advanced economies and usually involves highly skilled workers

Labour movements trends and statistics (Page 13-14)

Technology, transport and communications The internet has played a major role in the global economy - Trade - Finance - Investment - Labour

Technology trends and statistics (Page 11-12)

The International and Regional Business Cycles What does figure 1.10 on page 15 indicate about business cycles? This is due to globalisation… international trade (recession or growth in USA), investment (TNC decisions), financial flows (global interest rates), international confidence (animal spirits), international organisations (IMF)

BUT What does Figure 1.10 indicate about Australia in 2008/2009? This was due to domestic factors and globalisation … expansionary Monetary policy and Fiscal policy, strong demand for mineral exports by China, safe financial system

Regional Business Cycles Explain why regional business cycles are becoming very important in the globalisation process (Pages 17-18)