The Global Economy
An Overview
An overview
• There are 189 countries belonging to UN
with a diverse range of political systems.
• Holly See, Switzerland, and Palestine have
permanent observers to the UN.
• The World Bank identifies over 200
countries/entities.
• 75% of the world’s population live in
developing countries (including some with
transitional economies)
World Bank’s Classification
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P/C Inc Pop% Output%
Low Income
$500
40%
3%
Lower Middle Income $1,320
34%
7%
Upper Middle Income
$5,600
11%
10%
High Income
$32,111
15%
80%
< $766 ; $766 - $3036 ; $ 3036 – 9366 ; $9366 >
Structural Differences
• Natural/Land Resources
• Labor
• Labor force Participation
• Female labor force participation
• Skilled and semiskilled labor
• Capital
• Physical capital
• Human Capital
• Infrastructure
» Physical infrastructure
» Institutional Infrastructure
» Social/Cultural Infrastructure
• Capital stock and labor productivity
< 10% ; 10%-20% ; 20% -29% ; 30% 40%; >50%
Low
Lower Mid
Upper Mid
High
GDP
1,253,353
3,941,575
2,988,438
32,715,777
Low
Lower Mid
Upper Mid
High
POP
2,338,083
2,430,310
575,920
1,000,814
Worl
40,887,837
World
6,345,127
World's Household Consumption Pie-1999
4%
18%
78%
Low Inc
Mid Inc
High Inc
Source: The World Bank
GDP
Low
Low er Mid
3%
POP
Upper Mid
High
Low
Low er Mid
10%
16%
7%
37%
9%
80%
Upper Mid
38%
High
Capital Stock & Labor Distribution
100
90
80
70
60
CapStock
50
Labor
40
30
20
10
0
LowInc
Source: World Bank
LowerMid
UpperMid
High
CO2 PER CAPITA 2003 (MT)
14
12.3
12
10
8
6
3.2
4
2
0.8
0
Low
Middle
High
CO2 TOTAL 2003: 23,800,414 M. Tonnes
Low
Middle
High
8%
52%
40%
Capital Accumulation per Labor Unit
12000
10000
8000
6000
4000
2000
0
Low
LowerMid
UpperMid
High
Some Important Post-WWII Developments
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The formation of the United Nation : Oct 24, 1945
The Marshal Plan
The Bretton Woods System
The IMF and the World Bank
The formation of the European Common Market gradually evolving into the European Union
The GATT Rounds
The division of the world into two/three blocks
The formation of NATO and the Warsaw Pact
The Cold War
Emergence of new independent nations as old colonies gained their independence
The end of the Cold War and the collapse of the Soviet regime
Emergence of the old soviet republics and the Eastern Block countries as new “independent”
nations
Economic liberalization (Marketization) in China
Emergence of newly industrialized countries
The global privatization movement/Deregulation in trade and finance
The formation of WTO
The growth of international investment/multinational business entities/the globalization
movement
Developments since the mid 1970s toward an
economically more integrated world:
• Lower tariffs have led to increased trade (GATT)
• Regional economic agreements: free trade zones, the common market, the
European economic union, NAFTA, CAFTA, etc.
• Financial deregulation within and among nation states leading to freer
movements of capital (portfolio investments as well as FDIs) and the
creation of new financial instruments
• Technological evolution leading to better and more efficient communication
and higher productivity
What is globalization?
The removal of regulatory, economic
and political barriers to the
movement of goods, services, capital,
and labor across national borders,
and the establishment of
international institutions (and norms
and regulations) to govern
international economic activities and
transaction
Recent Developments
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The collapse of the Soviet regime and the (partial/gradual)adoption of the
market system by the former soviet republics and the Eastern Block
countries
• The emergence of newly industrialized countries (with more
liberalized economies) in the international economic scene: the
shift in the distribution of the world’s industries
• The emergence of China (with a partially reformed economic
system) as a major participant in the global economy
• The formation of WTO and more active roles for IMF and the
World Bank in promoting economic liberalization especially
among developing economies and emerging transition economies
• The emergence non-American MNCs and US becoming a net
capital importer
Important political developments
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The war in the Middle East and the Oil Embargo (1970s)
The US leaving Vietnam
Continued negotiations on disarmament
Emergence of new nuclear powers (China, Pakistan and India)
The UN becoming more involved/active in the affairs of the world
The political dimensions of the function of WTO, IMF and World Bank
The collapse of the Soviet Union and the US being perceived as the sole super
power of the world
Expansion of NATO
The formation of EU and its expansion
Realignments in the alliances and movements toward a new political order
Democratic movements in the developing world
The emergence of international NGOs and “advocate” groups
China adopting a more active and visible role in international affairs
Radicalism and terrorism
Questions to be asked?
• Are nation states disappearing?
• Have most of the economic/political problems of
the world been caused by globalization and
inadequate international checks and balances ?
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Inequalities within and among countries
Exploitation of workers
Declining or stagnating real wages in developed countries
Environmental degradation
International conflicts/wars
Displacement of populations
Illegal immigration
How “globalized” have we
become? (2000)
Exports
$B
%
Ch
Extra-EU
813.2
20.1
0
United States 682.5 16.8
-1
Japan
387.9
9.6
-8
China
183.8
4.5
1
Korea
132.3
3.3
-3
Mexico
117.5
2.9
6
Singapore 109.9
2.7 -12
Imports
$B
944.4
800.7
280.5
140.2
93.3
129.0
101.6
% Ch
22.3 5
18.9
5
6.6 -17
3.3 -2
2.2 -35
3.0
14
2.4 -23
The Potentials
• Free trade will lead to more efficient use of economic
resources and thus making the global output pie grow
bigger
• Everyone’s share of the pie including the poor gets
bigger/reducing poverty
• Economic interdependence among nations lessens
international tensions and conflicts
• As economies grow and international communication
improves populations become more alike, allowing for
more cooperation among nations in protecting natural
resources and environment
The Problems
• Globalization and free trade have benefited mostly
developed countries, widening the gap between the
poor and the rich
• Transition costs with countries have not been equally
distributed; there have been losers and gainers
• Still protective trade policies in developed countries
continues, hurting some poor developing countries
• In pursuing their national interests, countries have
often sacrificed free trade/free market principles
• Capital market has benefited some countries including
some developing ones while hurting some other
countries that have been exposed to excessive
speculation
Gilpin:
The technological changes that have taken place
in recent years aided by political changes are
likely to have resulted in most of these problems.
Many of these problems would have occurred with
or without globalization. Besides, most of the
developments identified as part of the
globalization movement have taken place among a
handful of countries; they include mostly
developed countries, a few newly industrial
countries in Asia, China, and a few countries in
Latin America.
Exports-Imports as % of GDP
2003
Exports Imports
40
30
20
10
0
Low
Lower Mid
Upper Mid
High
Developing an approach to studying
the global economy
• Studying the global economy from a
“purely” economic perspective: the
Neoclassical approach
• The role and function of political systems as
well social norms and cultures in the
formation of economic goals and the
manners by which they are pursued
• Economic forces versus political forces
A Neoclassical Approach
• Market mechanism, specialization and trade
trade (free trade)
• The promise of capitalism/market
• Market, information, and knowledge
• Information and expectations
Dynamics of Globalization
• Costs of Economic transition
• How developing (poor) countries have fared in
the process of globalization
• What happened in Russia?
• Have western countries been true to the free
market/free trade principles?
• The conflicts between economic interests and
social and humanitarian concerns
• Economic growth at the cost of environment
• Different countries/different rules
The Performance of International
Organizations
• World Bank
• International Monetary Funds (IMF)
• World Trade Organization
• The United Nations