Lesson 2 Global Economy (Updated) - GROUP 1

LESSON 2
Global
Economy
GLOBAL ECONOMY
• The global economy has changed in very significant ways
during the past several decades, and these changes are
rooted in how the global economy is organized and
governed. These transformations affect not only the ﬂows
of goods and services across national borders, but also the
implications of these processes for how countries move up
(or down) in the international system.
• United Nations defines economic globalization as
“increasing independence of world economies as a
result of the growing scale of cross-border trades of
commodities and services, flow of international
capital and wide and rapid spread of technologies. The
rapid growing significance of information in all types
of productive activities and marketization are the two
major driving forces for economic globalization.”
•The global economy can be studied at different levels
of analysis. At the macro level are international
organizations and regimes that establish rules and
norms for the global community. These include
institutions like the World Bank, the International
Monetary Fund, and the World Trade Organization.
These three institutions that underwrite the basic rules
and regulations of economy, monetary, and trade
relations between countries.
Characteristics of
Global Economy
Globalization:
These developments led to the advent of the global economy.
Due to the global economy and globalization, domestic
economies have become cohesive, leading to an
improvement in their performances.
International trade:
International trade is considered to be 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.
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).
Importance of
Global
Economy
Economic importance at a micro and macro
level:
The increase in the world’s population has led to
emerging markets growing economically, making them
one of the primary engines of world economic growth.
The growth and resilience shown by emerging markets is
a good sign for the world economy.
GROSS DOMESTIC PRODUCTS
Long-term world economic outlook:
According to financial and economic projections based on demographic
trends and capital productivity models, the GDP in emerging market
economies in 2019 are likely to keep increasing at a positive rate.
According to an emerging markets economic forecast for 2019 conducted
by Focus Economics, the economy is set to increase by 7.5% in India,
6.6% in Philippines, 6.3% in China, 5.3% in Indonesia, 5.1% in Egypt,
4.9% in Malaysia, 3.8% in Peru and 3.7% in Morocco.
world economy or global economy
• Is the economy of all humans of the world, considered as the
international exchange of goods and services that is
expressed in monetary units of account. In some contexts, the
two terms are distinct "international" or "global economy"
being measured separately and distinguished from national
economies while the "world economy" is simply an
aggregate of the separate countries' measurements. It is
inseparable from the geography and ecology of Earth.
Advantages
and
Disadvantages
of Global
Economy
Advantage
• A global economy is significant in the elimination of local
control within various nations of the world. Increased
importation per capital is a significant advantage of a
practicing global economy. Therefore, economic development
is enhanced through direct capital investment generating
increased national income. The inset of a global economy is
an indicator of increased innovation and intervention.
Disadvantage
Undeveloped countries’ overdependence on donations and
aid is a disadvantage of the globalized economy. The reliance
influences the developed countries to suppress a development
affecting a country economic growth rate.
Benefits of
Global Economy
Free trade:
More growth
Free trade is an excellent method for countries to exchange
goods and services without any tariff or non-tariff barriers.
It also allows countries to specialize in the production of
those goods in which they have a comparative advantage.
Tariff – schedule of duties imposed by a government to export
and import goods.
Without these barriers, the trading in every country became
much faster and easier.
Free trade enables lower prices for consumers, increased
exports, benefits from economies of scale and greater choices of
goods
Movement of labor:
Increased migration of the labor force is advantageous for the
recipient country as well as for the workers. If a country is
going through a phase of high unemployment, workers can
look for jobs in other countries. This also helps in reducing
geographical inequality.
Increased economies of scale:
The specialization of goods production in most countries has
led to advantageous economic factors such as lower average
costs and lower prices for customers.
Increased investment:
Due to the presence of global economy, it has become easier
for countries to attract short-term and long-term investment.
Investments in developing countries go a long way in
improving their economies.
Factors
Affecting
Global
Economy
development and growth are influenced by four
factors:
• Human resources
• Physical capital
• Natural resources
• Technology
The Impact of Human Resources
• The skills, education and training of the labor force have a
direct effect on the growth of an economy. A skilled, well-
trained workforce is more productive and will produce a high-
quality output that adds efficiency to an economy. A shortage
of skilled labor can be a deterrent to economic growth. An
under-utilized, illiterate and unskilled workforce will become a
drag on an economy and may possibly lead to higher
unemployment.
Investment in Physical Capital
• Improvements and increased investment in

physical capital – such as roadways, machinery
and factories – will reduce the cost and increase
the efficiency of economic output. Factories and
equipment that are modern and well-maintained
are more productive than physical labor.
Good and Bad Effect
GOOD BAD
• Mass production • Less opportunity for unskilled
• Higher technology has higher workers that leads to high
accuracy of making good quality unemployment rate in a certain
products community
• Less physical labor
• Faster and easier way to trade
goods
Quantity and Availability of Natural Resources
• Affect the rate of economic growth. The discovery

of more natural resources, such as oil or mineral
deposits, will give a boost to the economy by
increasing a country's production capacity. Skilled
and educated workers are able to use these natural
resource to spur the growth of the economy.
Improvements in Technology
• Have a high impact on economic growth. The application of
better technology means the same amount of labor will be
more productive, and economic growth will advance at a
lower cost. Technological innovation and more education for
workers will improve economic output which lead to a better
living environment for everyone. Increases in labor
productivity are much easier to achieve when investments are
made on better equipment that require less physical work
from the labor force.

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LESSON 2

• Improvements and increased investment in

• Affect the rate of economic growth. The discovery

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