The Global Economy And Globalisation Overview Economics Essay

While there is a great trade of talk about the ‘Global Economy ‘ and ‘Globalisation ‘ , they are frequently spoken of, as if everyone understands what is meant by the footings or, instead, as elephantine cryptic forces that control the universe, that no 1 has any cognition or apprehension of. The purpose of this paper is to analyze the ‘Global Economy ‘ and ‘Globalisation ‘ and to see what is go oning in these countries.

The Global economic system is the universe economic system. It is the economic activity traveling on in the universe. It is the combined economic activity that takes topographic point in each single economic system plus the activity between states. It includes all production, trade, fiscal flows, investing, engineering, labor and economic behavior in states and between states.

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The estimated entire end product of the universe economic system in 2001 was valued at about $ 44,000 billion US ( IMF, 2002 ) . A concern when covering with the planetary economic system is the sharing of this planetary end product. The Human Development Report ( 1999 ) estimated that in 1997, 86 % of World GDP was owned by the richest 20 % of the planetary economic system, with the poorest 20 % owning merely 1 % between them.

Is the Global Economy Growing?

The universe economic system has been turning, averaging 3.4 % one-year per centum growing during the 1990 ‘s. In 2000 it grew by 4.7 % but harmonizing to the IMF ( 2002 ) planetary growing slowed to 2.5 % in 2001. In 2001 advanced economic systems grew, on norm, by merely 1.2 % , with GDP growing in the United States revised downward to1.1 % , the lowest degree for a decennary.

The rate of growing has besides been inconsistent over the period. World Economic Growth was slow at the start of the 1990 ‘s, due to low growing rates in much of Europe, the USA and Japan. The planetary economic system so grew by an norm of 4 % per annum in the ninetiess but suffered another lag after the Asiatic currency crisis in 1997 and the portion market downswing and terrorist onslaughts in 2001, as shown in Graph 1. The IMF predicts the universe economic system to turn by 2.8 % in 2002.


Graph 1. World GDP

Old ages

Beginning: IMF ( 2002 )

The planetary economic system, like single economic systems, goes through rhythms of growing and diminution. These rhythms are referred to as the International Business Cycle. The ups and downs of this rhythm have a major impact on most of the economic systems in the universe. The phases of the rhythm are the same as national concern or trade rhythms, see Graph 2.

Graph 2. The International Business Cycle.






Old ages

What is Globalisation?

For the intent of this paper and in visible radiation of the new HSC Economics Syllabus ( 2000 ) , I will specify Globalisation as holding two cardinal facets.

1. The existent motion across states of




Finance and


2. The capacity to travel and the possible motion across states of




Finance and


The existent motion across states of Trade

The degree of planetary trade has been turning dramatically since the terminal of World War II. The rate of growing in universe trade doubled from 9 % in the 1960 ‘s to 20 % in the 1970 ‘s. It continued to turn by 5 % in the 1980 ‘s and by over 6 % in the 1990 ‘s. ) . Overall universe trade growing in the 1990 ‘s was more than double the growing in GWP. Despite a lag after 1997 due to the Asiatic economic crisis, universe trade grew by 12.4 % in the twelvemonth 2000 but fell by 1.4 % in 2001 ( see Graph 3 ) .

Graph 3. World Trade in Goods and Services

Annual Percentage Growth in Trade Volumes

Old ages

Beginning: IMF, World Economic Outlook, 2002.

The growing in export volumes in advanced economic systems averaged 6 % per annum in the 1990 ‘s compared to 8 % for developing economic systems. A similar form occurred in respect to import growing. While this might look positive, the United Nations Human Development Report ( 1999 ) finds that the richest 20 % of states have 82 % of the goods and services exported in the universe. This compares to merely 1 % for the poorest 20 % of states. A major concern for developing economic systems is their Footings of Trade, ie the comparative monetary values of exports compared to imports –

Export Price Index

Import Price Index

The Footings of Trade for developing economic systems fell on norm by 0.8 % per annum, compared to an addition of 0.2 % per annum in advanced economic systems, during the 1990 ‘s. This followed on from an one-year diminution of 2.7 % per annum in the 1980 ‘s for developing economic systems and a 0.8 % addition per annum for advanced economic systems ( IMF,1999 ) . While trade is increasing in the development states the diminution in the Footings of Trade can take to a greater debt load for the underdeveloped economic systems and increased income transportations to advanced economic systems.

2. International Investing

This relates to investing by Transnational Corporations ( TNC ‘s ) . This is besides known as International Direct Investment ( IDI ) . International direct investing continues to turn at a rate even faster than universe trade. Annual escapes of foreign direct investing expanded more than 30 times to make US $ 1270 billion at the terminal of the two decennaries to 2000 and the stock of direct investing has more than trebled in the last 15 old ages. There are about 60,000 multinational corporations ( TNC ‘s ) with over 500,000 foreign affiliates. They account for about one one-fourth of entire planetary end product and production of foreign affiliates presently exceeds the degree of universe trade by 1.3 times. In add-on UNCTAD estimations than 1/3 of all universe trade involves transportations within TNC ‘s.

3. Technology

New information and communicating engineerings are driving globalization. The cost of planetary communicating is worsening and advanced tools are going easier to utilize. The Internet, nomadic phones and electronic financess transfer are opening up the planetary market topographic point. The cyberspace had more than 140 million users in the center of 1998, but 93 % of users were in the richest 20 % of states ( UNDP, 1999 ) . Improved communicating can further great progresss in wellness attention and instruction. It besides breaks down barriers of size, clip, and distance. Costss are falling for little concerns, as they move from a domestic market topographic point to a planetary 1. Consumers can buy merchandises from any state in the universe through the cyberspace and Australia manufacturers have to vie against the monetary values that are on offer at that place. The cyberspace does, nevertheless, open the door for advanced Australian manufacturers to make a much larger market topographic point and take advantage of economic systems of graduated table. In the hereafter, Australian consumers may merely as readily expression at shopping catalogues on the cyberspace, as those delivered to their mail boxes at their places.

Improvements in engineering besides conveying up the issue of rational belongings rights. Tighter belongings rights are increasing the monetary value of engineering transportation, barricading many developing states from their usage, whether it is in production, communicating, instruction or wellness attention. This in bend increases the power and wealth of those who mostly own the belongings rights, the multinational corporations.

4. International Financial Flows

International fiscal flows have grown most quickly of all, at 10 times the rate of World GDP. Since the phasing out of controls on foreign exchange trading in the 1970 ‘s, international fiscal flows have grown exponentially. In 1980 planetary foreign exchange trading was 10 times the value of universe trade. In 1995, foreign exchange trading was estimated, by the Bank of International Settlements ( BIS ) to be 70 times the value of universe trade and turning. The degree and way of international fiscal flows are now the chief determiners of the value of most states ‘ exchange rates. Trade in goods and services has small impact on the exchange rate today, except possibly as a psychological influence on the behavior of international fiscal bargainers.

Fiscal flows take many signifiers. The fastest turning country has involved involvement rate, currency, equity and trade good derived functions. Interest rate and currency derived functions make up over 97 % of the entire value of derived functions traded see Graph 4. The turnover in the derived functions markets is now much larger than the hard currency markets. Merely 1 % of the foreign exchange market involves payments for trade. Most of it involves signifiers of derived functions merchandising.

What are Derived functions?

Derivates are simple fiscal contracts whose value is linked to or derived from an implicit in plus, such as stocks, bonds, trade goods, loans and exchange rates. They are international fiscal instruments for distributing hazard or fudging. They include:




frontward rate understandings and

other fudging instruments.

Futures: A currency hereafter is a contract that you can efficaciously lock in the monetary value at which you buy or sell a foreign currency, at a set day of the month in the hereafter.

Options: A currency option gives the purchaser or holder of the option the right to purchase or to sell foreign currency at some clip in the hereafter, at a monetary value set today.

Barters: A currency barter is an understanding to interchange currency during a specified period of clip. For illustration, trading 100 million Australian dollars for US dollars now and an understanding to change by reversal the barter within 3 months. The Reserve Bank of Australia ( RBA, 1999 ) engaged in a currency barter to cover a deficit of hard currency in the money market, during the natation of Telstra 2 in October 1999. The Reserve Bank raised $ 5 billion in financess by prosecuting in a currency barter, with the financess mostly returned in the first half of 2000.

Forward Rate Agreements: This is a contract between two parties to lock in a given involvement rate or exchange rate get downing at some clip in the hereafter for a fit period of clip. For illustration guaranteeing to impart $ 10 million at 8 % involvement in 6 months clip for 12 months.

Other fudging instruments include publishing debt securities and set abouting redemption

Graph 4: Derivative Trading

An of import point to observe is the sum of foreign exchange traded in one twenty-four hours is the equivalent of all the militias of the universe ‘s Cardinal Banks. This severely limits the ability of Cardinal Banks to act upon the flow of finance in the planetary economic system and therefore the impact these flows can hold on a state ‘s exchange rate, as was seen in the Asiatic currency crisis in 1997. The astonishing rate of growing in the fiscal flows, and as a consequence their ability to impact on the planetary economic system, can be seen in Graph 5. The entire estimated fanciful sum of outstanding derivative contracts stood at $ 111 trillion at the terminal of December 2001.

Graph 5. The Growth of Derived functions

Global Derived functions Markets ( $ USbn, sums outstanding )

Old ages

Beginning: BIS, Annual Reports ( assorted )

5. The International Movement of Labour

The international motion of labor has been turning since the 1960 ‘s. About 2.3 % of the universe population live outside their state of birth and 1.5 % of the universe ‘s work force works in states other than those of its citizenship ( Bryan, 1999:5 ) . This tendency is on the addition with the World Wide Web opening the door for skilled persons to use for places in any about any state in the universe. Newspapers, such as the Australian or Sydney Morning Herald, offer Australian school instructors occupations in topographic points such as China, Indonesia, Saudie Arabia, England, Canada and the USA at pay degrees, frequently, more than double, that which they presently receive. In developing states, pupils are analyzing topics that will give them a transition, from their current being, to one of expected wealth in a rich state, instead than those that would assist their ain state ‘s development. This encephalon drain will speed up as the planetary economic system expands.

The capacity to travel and the possible motion across states

The 2nd constituent of globalization involves the possible impact of alterations in the planetary market on economic systems. It means concerns consider the possible entry of international rivals into their markets. Businesss plan pricing schemes and employment policies based on what could go on if inexpensive foreign manufacturers or TNC ‘s entered the market. It besides means concerns see, or endanger to put up, their operations in states where net incomes are expected to be greatest, eg low pay states, where brotherhoods are suppressed and there are low corporate revenue enhancement rates. Governments and employers use these frights to force for labour market and workplace reforms. Governments cut down concern revenue enhancements to guarantee revenue enhancement fight to pull multinational corporations and international finance, while the mean revenue enhancement of workers rises to equilibrate the budget.

The globalised fiscal market, and the easiness with which financess can be transferred, means that finance is allocated harmonizing to international standards of expected profitableness and hazard. Governments, concerns, affluent persons and fiscal administration brand determinations based on delighting international fiscal markets and deriving greatest income and wealth. This frequently generates plus rising prices and bad bubbles that go through periods of roar and flop, without needfully adding to the productive capacity of a state.

Globalization has the possible to profit all of humanity or create income and employment insecurity, destroy traditional values and civilizations, create environmental debasement, addition offense, lessening wellness criterions and increase the spread between the rich persons and the have nots. The willingness and ability of authoritiess to cover with the spread and impact of globalization could good find the eventual result.



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