The Global Economy

International Economic Integration
1. Gross World Product
  1. AKA Aggregate Value
    1. Total Output of G & S of all economies
2. The Global Economy
  1. Ripple Effect
3. Globalisation
  1. International Division of Labour
    1. high income economies attract highly skilled workers
    2. Barriers include: Immigration restrictions, language, culture, incompatible education
    3. search for most efficient and costless
  2. Technology, Transport and Communication
    1. Technology ultimate driver
      1. transfer money globally
    2. transport = less time, money, efficiency
  3. Investment and TNC
    1. TNC's include: Shell, Toyota,
      1. Mergers and Acquisitions: Microsoft and Skype
    2. Foreign Direct Investment
      1. global investment
        >10% in firm
        Long-term
      2. Approx. 20% of investment
    3. Portfolio Investment
      1. Global Finance
        Short- Term
        <10% in firm
  4. Increased Trade in Goods and Services
    1. more volatile than GWP
      1. Contracts faster in downturns
    2. Trade Flows changed to South/ East Asia
    3. ATM: vehicles, clothing, electrical goods.
      1. Forecast: finance and communication, services, oil, gas.
4. Financial Flows
  1. Most Globalised Feature
    1. FOREX turnover $4Trillion, 2011.
  2. Deregulation 70's/80's
    1. Speculators create excessive volability
5. The International and Regional Business Cycle
  1. 63% of changes in level of output in Aust. linked to changes of interest rates, growth and inflation of G7
    1. Factors weakening the international business cycle: interest rates, fiscal policies, exchange rates, structural factors, regional factors.
      1. Factors strengthening the international business cycle: Trade flows, Investment flows, TNCs, financial flows, financial market and confidence, global interest rates, commodity prices, international organisations.
  2. Cross-border integration
  3. regional economies are integrates
    1. USA, Canada, Mexico
    2. East Asia, Australia
Trade, Financial Flows and Foreign Investment
1. Basis of Free Trade
  1. No Barriers
    1. Comparitive advantage
      1. Opportunity Cost
  2. Advantages
    1. Obtain G&S unable to produce
      1. specialise in G&S=> better Allocation of resources
        Economies of scale => decreased average cost
        international Competitiveness
        Higher Global Standard of Living
        Encourage Innovation
  3. Disadvantages
    1. ^ in short term unemployment due to domestic firms not being able to compete
      1. Infant Industries Suffer
        'Dumping' of products on domestic markerts
        environmental costs due to irresponsible production to reduce costs
2. Influence of Government Forums
  1. G7/8
    1. 60% GWP, 14% world pop.
      1. consists of largest industrialised Nations
        Losing power due to China
  2. G20
    1. 80% of GWP, 2/3 world Pop.
      1. Since GFC, emerged as leading forum for coordinating Global Response to avoid recession
3. Role Of International Organisations
  1. OECD
    1. 34 members
      1. committed to democracy & Market economy
        ^ standard of living, ^ employment. ^ sustainable growth
    2. Conduct & publish research on a wide range of economic policy issues, coordinating economic cooperation among member nations
  2. World Bank
    1. provide assistance to poorer countries with their economic development
      1. Millenium Development Goals
    2. Act as a leader in times of need
  3. United Nations
    1. 193 members
      1. Broad range agenda': international security, Environment, Poverty and Development, International Law, Global health Issues
  4. IMF
    1. Maintain international financial stability, particular in FOREX Markets
      1. 188 members
        Before Deregulation, oversaw fixed exchange rates
        helps minimus effects of recessions
        > stimulus packages
        When helping economies, they must change policies in accordance with IMF, or Structural Adjustment Policies
        1990's AFC, IMF forced Asian Countries to use contractionary macro policies
        This caused structural issues in other countries
  5. WTO
    1. Free up Global Trade by removing barriers, & to solve disputes between nations
      1. Has power to enforce trade agreements
        155 nations
        Doha Round:
        > reducing average protection
        > Lowering tariffs on manufactured goods
        > reducing trade restrictions, services
        Complete abolition of aggregate export subsidies
        giving 50 poorest members tariff and quote free access to high income nations for at least 97% of goods.
4. Trading Blocs, Monetary Unions & Free Trade Agreements
  1. Trading Bloc
    1. joining together a formal preferential trading agreement
      1. > Bilateral
        >Multilateral
  2. Free Trade Agreements
    1. formal agreement between countries to reduce trade barriers & restrictions
      1. AKA Preferential Trade Agreement
        Global Free Trade Agreements (WTO) designed to breakdown all trade restriction & free up world trade
  3. Monetary Unions
    1. two or more countries sharing same currency
      1. creating a 'single market' due to no need to exchange currencies
        efficient trade
  4. European Union (EU)
    1. Trading Bloc: 33% GWP
    2. Advantages
      1. removed trade barriers
        single currency= more efficient
        single market, surge in economic growth
    3. Disadvantages
      1. smaller agricultural trading countries find more difficult to be competitive
        significant decrease exports into Europe e.g.Agricultural Products
        Increased tariff barriers non-member countries
  5. APEC
    1. Regional Trade Bloc: 54% GWP, 41% world pop.
    2. Advantages
      1. Member countries tariffs decrease
        retaliation to EU
        An open trading bloc
        Greater Cooperation
    3. Disadvantages
      1. minimal decrease tariffs
        losing significance
  6. NAFTA
    1. USA, Canada, Mexico: 13% GWP
      1. Advantages
        USA shifted production to Mexico- cheaper labour
        Significant increase in exports for Canada and Mexico
        agricultural free trade
      2. Disadvantages
        Arguments it caused trade diversity instead of trade creation due to reallocation of labour
        Unfair for domestic firms
  7. ASEAN
    1. Emerging nations
    2. Advantages
      1. Eliminating tariffs on 96% Aus. Exports to region.
        Resulted in AANZFTA
        Counterweight APEC
    3. Disadvantages
      1. Limited in its influence in Global Economy due to small number of nations
  8. Bilateral
    1. Advantages
      1. provide flexibility
        enhance regional free trade
    2. Disadvantages
      1. divert resources from efficient uses
        Introduce trade distorting tariffs
Protection
1. Reasons for Protection
  1. Infant Industries
    1. in some cases barriers not removed -> no incentive
      1. ^ in market share, capacity, economies of scale
        Protected Short-term until able to compete
        new industries cannot compete globally
  2. Dumping
    1. when foreign firms attempt to sell their goods in another countries market at unrealistically low prices

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