What is meant by the term globalization? What are the features of the new global economy? What effects as globalization had on world trade and financial flows?

Only available on StudyMode
  • Download(s): 502
  • Published: November 30, 2006
Read full document
Text Preview
The global economy is the world economy. It reflects the total amount of economic activity which can be measured by GWP (Gross World Product) and PPP (purchasing Power Parity). PPP aims to get a more accurate method to compare the value of different currencies. This is done by focusing on the quantity of goods and services that can be purchased by one unit of the currency. For a global economy to exist there should be a rising share of economic activity in the world between people living in different countries. This process is known as globalization.

Globalization refers to the increasing integration between countries. This occurs when national boundaries are reduced or removed and world wide changes are taking place to things such as; trade, investment, finance, labour and technology. Globalization means that people in different countries are becoming increasingly linked by common technologies (for example: Internet, fax, etc.) and through goods and services sold on a global basis rather than national.

The size of the world economy can be measured with GWP (Gross World Product). The result of GWP is reached by adding together the outputs of the world economies. In simpler terms you add all the contributing countries GDP (Gross Domestic Product) together.

The total world GDP is hard to measure accurately because each country has different methods of measurements and units of measure. The figures may vary because inflation rates vary from country to country, differences in exchange rates, variations in statistical methods for calculating asset values, government policies relating to taxation can vary from country to country and inaccuracies in collecting data all contribute to the varying statistics of total GWP.

In the table on the previous page, we can see a clear domination by a few economies. In 5 nations which make up 45.3% of the world's population, over half the world's products are produced by them. Australia is ranked 16th in the globes major producing nations which is a great figure considering the mere 20 million population, compared to competing countries.

The table shows which countries export goods and services compared to the total output of every contributing country. The USA, China and Germany have been clearly the biggest exporters of the world's goods and services. Australia's economy is ranked 25th largest in the world even though it is less populated than many other countries in the world. For example India has a population of 1080 million and is in position 29.

Economic globalization can be identified when trends appear in areas such as; trade, investment, technology, finance, labour and business cycles. These trends involve:

* When there is an increase in trading of goods and services beyond national boundaries this is known as a global market.

* The increase in movements of capital, labour and technology between nations which is also known as global flows of factors of production.

* The related increase in interdependency between national economies.

* The growth of the size and number of transnational corporations which have business operations in many nations.

* Consumer trends becoming worldwide. E.g.: coke, fast foods, jeans, etc.

* Need for more inter-government consultations and agreements to facilitate the increase in economic contacts and to deal with the unavoidable increase in disputes.

* Increasing environmental damage which does not stop at national boundaries. E.g.: air pollution and water pollution which can flow into neighbouring countries even though they didn't cause the problem.

The drivers of globalization are the factors or reasons to why globalization moves along. The three main drivers are:

- Improved levels of technology, communications and transport.

- Increased customization of products and services.

- Rapid increase in global trading environment through trade agreements (e.g. NAFTA, TAFTA, AUSFT, APEC, etc.) and micro economic...
tracking img