Globalisation, Trade, and International Economic Integration: Study Notes

THE GLOBAL ECONOMY

Definition and Features

The global economy refers to the increased interdependence between individual economies, where changes in one can impact others. This integration is driven by reductions in trade barriers and advances in technology, leading to:

• Greater economic integration: Liberalisation of trade and synchronisation of business cycles.

• Growth of multinational corporations (MNCs): MNCs play a significant role in global trade and investment.

GROSS WORLD PRODUCT (GWP)

Definition and Trends

Gross World Product is the total value of goods and services produced globally each year.

• Measured by the IMF using purchasing power parity (PPP).

• GWP has increased 9 times in nominal value since 1980, while the volume of work traded has increased 12 times.

• Advanced economies (e.g., USA, EU, Australia) make up 15% of the global population but 42% of GWP.

• Recent growth has been driven by emerging markets and developing economies.

GLOBALISATION

Definition and Aspects

Globalisation is the integration of different countries and economies, increasing the impact of international influences on all aspects of life and economic activity.

• Labour: International division of labour.

• Investment: Foreign direct investment (FDI) and transnational corporations (TNCs).

• Financial flows: Movement of capital between countries.

• Trade: Exchange of goods and services.

• Technology: Transport, communication, and information technology.

INTERNATIONAL DIVISION OF LABOUR

Definition and Implications

The international division of labour refers to the allocation of production tasks to different people in different countries. This is influenced by:

• Money and goods/services can move quickly; however, people move jobs less freely.

• Immigration policies have become more restrictive in developed countries.

• Skilled workers are attracted to higher-income economies, leading to a 'brain drain' in developing countries.

FOREIGN DIRECT INVESTMENT (FDI) & TRANSNATIONAL CORPORATIONS (TNCs)

Definitions

• Foreign Direct Investment (FDI): Movement of funds directly invested in economic activity or in purchasing companies through shares. FDI accounts for about 20% of total domestic investment.

• Transnational Corporations (TNCs): Large companies that dominate global product and factor markets.

FINANCIAL FLOWS

Globalisation of Finance

• Money moves rapidly between countries.

• Lifting controls on financial activity and technological development have expanded international financial flows.

• Financial flows fluctuate with global conditions.

Foreign Exchange Markets

• Exchange rate: Value of a currency expressed in terms of another currency.

• Speculation: Investors buy or sell financial assets to profit from currency value changes.

Main benefit: Enables countries to obtain funds for domestic investment.

TRADE IN GOODS AND SERVICES

Definition and Trends

• Trade is the exchange of goods and services between economies.

• Covid-19 affected services such as tourism and international education.

• Emerging Asian economies are increasing their share of global trade.

TECHNOLOGY, TRANSPORT, AND COMMUNICATION

Role in Globalisation

• Technological developments have made shipping and logistics faster and cheaper.

• Advanced computer systems and the internet have enabled global connectivity and remote work.

• Advances in transport (e.g., high-speed rail, air travel) have improved labour mobility and tourism.

INTERNATIONAL AND REGIONAL BUSINESS CYCLES

Definition and Factors

International business cycles refer to fluctuations in the level of economic activity in the global economy over time. As economies become more synchronised, economic shocks are transmitted globally.

• Regional business cycles reflect local economic conditions and may differ from the global cycle.

Factors that Strengthen the International Business Cycle	Factors that Weaken the International Business Cycle
Trade flows Investment flows Financial flows Transnational corporations Technology	Domestic interest rates Government policies Other domestic economic policies Exchange rates Structural factors Regional factors

FREE TRADE AND PROTECTION

Definitions

• Free Trade: No government-imposed barriers to trade.

• Comparative advantage: Countries should specialise in goods where they have the lowest opportunity cost.

• Absolute advantage: A country can produce more output using fewer inputs than another.

Advantages and Disadvantages of Free Trade

Advantages	Disadvantages
Access to goods and services not produced domestically Specialisation and efficiency International competitiveness Higher standards of living Consumer choice	Increased unemployment in uncompetitive industries Harder to establish new industries International competition may lower prices unsustainably Environmental concerns from irresponsible production

THE ROLE OF INTERNATIONAL ORGANISATIONS

Major Organisations and Their Roles

Organisation	Role	Effectiveness
World Trade Organisation (WTO)	Implement and advance global trade agreements; resolve trade disputes.	Effective: Disputes have reduced, free trade increased. Ineffective: Can undermine countries' development by settling with unrealistic goals; little power over large nations.
World Bank	Reduce global poverty by funding economic development projects; provide financial and technical support to developing countries.	Effective: Helps eliminate poverty, promotes education, gender equality, and social development. Ineffective: Too much pressure on reducing spending; not engaged with civil society.
United Nations (UN)	Support greater linkages between economies; promote global peace and security; reduce inequality and poverty.	Supports globalisation and peace.
Organisation for Economic Cooperation and Development (OECD)	Coordinate economic policy and promote economic stability among member nations.	Provides policy advice and data; not hugely important to developing countries.

INFLUENCE OF GOVERNMENT ECONOMIC FORUMS

• G20: Influences global economic policies; platform for global challenges. Members include USA, China, India, UK, Australia, etc.

• G7: Similar to G20; members include USA, France, Japan, UK.

TRADE BLOCS, MONETARY UNIONS, AND FREE TRADE AGREEMENTS

Definitions and Examples

• Free Trade Agreements (FTA): Formal agreements to reduce trade barriers between nations (e.g., EU, NAFTA).

• Monetary Unions: Countries adopt a common currency (e.g., Eurozone).

• Trading Blocs: Groups of countries with preferential trade agreements (e.g., ASEAN, EU).

• Bilateral agreements: Trade agreements between two countries.

Example: The European Union (EU) is both a trading bloc and a monetary union, facilitating free movement of goods, services, and capital among member states.

Additional info: Some explanations and examples have been expanded for clarity and completeness.