Looking back, the next generation’s economists may be puzzled by the structure of the world economy in 1995. Today, developing countries (DCs) and the former Soviet bloc account for about one half of world output and the rich industrialized countries for the other. But this picture is likely to change rapidly over the next 25 years: At current growth rates, the rich world’s share of global output could shrink to less than two fifths by 2020. Although the absolute magnitudes are uncertain, it is safe to assume that there will be an enormous shift of economic power from today’s rich countries to what are still labeled DCs, and especially to Asian DCs This shift is the likely result of the ongoing globalization of economic activities, i.e. the increasing worldwide integration of markets for goods, capital and, last not least, labour.
Globalization refers to an evolving pattern of cross-border activities of firms involving international investment, trade and cooperation for purposes of product development, production and sourcing, and marketing. Complex patterns of cross-border activities increasingly characterize the international economic system and distinguish it from the earlier predominance of arm’s length trade in finished goods. Taken at face value, globalization is by no means a principally new phenomenon, since the globalizing economy is first and foremost an expression for an increase in the international division of labour. What is different this time is the sheer weight of new competition, the new mobility of capital and technology, and the fact that more Third World workers are educated and so capable of operating complex machinery. Hence, economic power is dispersed among more actors, and inter-regional competition is heightened. Does this process end up in a deepening divide between rich and poor countries, or will the next 25 years be a time of unprecedented opportunity for DCs? And will globalization foster or retard their... [continues]
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