Globalisation, International Organisations and Forums

The global economy / GWP

1. World economy, referring to sum of interactions between economies of nations that are linked together into 1 economic unit → interactions are the things underlined below → lead to greater international economic integration
2. GWP (gross world product) - is the combined gross domestic/national income of all the countries in the world
3. Three main groups of countries in global economy:
4. Advanced economies → high economic development, market based economies, free enterprise economic systems of resource allo, limited govt intervention
5. Emerging Market/Middle income → process of raising economic development and growth, lower per capita income than advanced
6. Low income developing countries - fairly underdeveloped, third world countries

Globalisation

Definition and indicators

Definition - integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity

Trade in G/S

1. Measures how G/S produced in an economic are consumed in other economies around the world
2. Global trade has grown strongly due to new tech in transport/comms → cheaper to export → more trade thru global trade groups like WTO
3. Global trade changes faster than GWP (more volatile) - e.g. covid
4. Trade has grown 13x from 1980
5. Economies do not produce all the goods they need, only their comparative advantage and import the rest
6. Composition of trade: mix of what G/S are traded
7. Direction of trade flows: changes between export and import trade relationships

Financial flows

1. Refers to the movement of funds between nations
2. Most globalised sector of world economy because money moves around nations quicker than G/S → expanded substantially after financial deregulation in 70s and 80s
3. New tech + comms networks linked financial markets throughout the world
4. Main drivers of financial flows → speculators and currency traders who shift billions in and out of financial markets for short term investment in assets
5. Speculators aim for gaining short term movements in currency/shares and generating profit (criticised for creating volatility in market, follow herd mentality in crises) while currency traders hedge against future movements/ minimise losses for clients and firms
6. Main benefit → allow countries to obtain funds and invest → economic growth

Investment and TNCs

1. Short term speculative shifts of money = finance, long term flows of money to buy/establish businesses = investments
2. Foreign direct investment (FDI) measures expansion of investment → refers to movement of funds between nations for establishing a new firm/buying shares in an existing company
3. TNCs account for 80% of global trade → largest 100 employ 20m people and own 21tril in assets (half held outside host country)
4. Cross-border cartels between large corps/TNCs reduce competition and disadvantage local firms
5. Cause of growth of investment is the increased level of international mergers/ acquisitions and takeovers (acquisition: the outright purchase of one company by another; merger: the two businesses combine to form a new firm)
6. FDI types: Greenfield investments are when a nation/firm builds a new TNC overseas instead of buying an existing one; Brownfield investments is when a firm buys another firm/a share of the firm overseas (e.g. mergers and acquisitions)

Technology, transport and communication

1. Tech allows extreme integration between countries and drives trade and investment
2. Economies that adapt to new tech are also best adapted to adversities (e.g. covid → adapted through digital markets, virtual meetings and online edu)
3. Trade spreads new technologies from developed economies, as developing nations desire to use this tech to become innovators in the future
4. Internet provides backbone linking firms, people and nations → allows better comms and lower business costs
5. Transport allows cheaper exports and more G/S from around the world, raising consumer sovereignty
6. Downside is that cyber attack costs rise globally due to more technology

International division of labour and migration

1. Labour markets are less international as its harder to move people between countries
2. Growth of migration reflects push and pull factors (reasons people leave and enter countries)
3. Migration trends depict international division of labour → people move to the jobs where their skills are needed → reflects comparative advantage theory (economies should specialise in G/S that they can produce at lowest opportunity cost rather than producing some of everything) → migrants move to where their skills are most needed
4. Developing nations should focus on labour intensive manufacturing while developed on services
5. Globalisation of labour is increasing but still significant barriers like immigration restrictions, language, culture, education and qualifications

Trading blocs, monetary unions and FTAs

EU

1. Goals are to mainly promote peace, values and wellbeing of citizens; offer freedom, security and justice without internal borders; sustainable development based on balanced economic growth and price stability; full employment; enviro protection etc
2. Common currency of Euro reduced cross border transaction costs, increasing intra bloc trade and financial flows
3. Members are more coordinated through one central bank
4. During 2011 sovereign debt crisis, major bailout lender was the central bank, showing that the region is more financially safe when working together
5. Trade diversion and lower market access for non-members and developing nations

USMCA

1. Preferential trade agreement between Canada, USA and Mexico which eliminates all tariffs and most non-tariff barriers on goods produced and traded in North America
2. Most tariffs were phased out in 10 years
3. Increasing purchasing power for consumers in the bloc and higher GDP of all members combined
4. Large number of GWP increase would have been achieved if tariff reductions weren’t preferential
5. Structural change occurred in all economies, with adverse structural UE impacts in USA

ASEAN

1. ASEAN united Indonesia, Malaysia, Philippines, Singapore and Thailand as a military strategic bloc to fight communist-led insurgencies during Vietnam war
2. Original purpose was promoting peace, friendship and cooperation, before they moved to integrate their economies to mitigate future economic turmoil, allowing free flow of G/S
3. Resulted in higher economic growth and intra-ASEAN trade benefiting their position in the global eco

APEC (forum)

1. Regional forum for economic cooperation in the Asia-Pacific, as they aim to improve prosperity by accelerating sustainable economic integration and growth
2. Isn’t a preferential trade bloc as they aim for free and open trade within and outside of APEC
3. Investment has increased in APEC economies as a result and it has exceeded world GDP growth as well, while tariffs have declined significantly too
4. APEC has helped reduce average tariffs in the region from 17% in 1989 to 5.3% in 2018, boosting economic growth and raising per capita income.
5. Its "Ease of Doing Business" action plans have led to improvements in areas like starting a business and getting permits + simpler customs procedures have increased trade / investment flows

Pros and Cons of Trade Agreements

International organisations

WTO

1. (world trade organisation) - 166: 1995 to replace GATT (general agreement on tariffs and trade)
2. Provides a forum for negotiating agreements that reduce obstacles to international trade
3. Ensure fair playing field and improve economic growth and dev
4. Provide legal and institutional framework for implementation/monitoring of agreements + settling disputes that arise (useful for small nations, big nations avoid solutions)
5. Halving in tariffs since 1995 + more free world trade (rose by 35%) + 5% rise in trade vol/value
6. Pros - effective dispute resolution in small nations + making progress on voluntary agreements like reducing trade barriers → (2022 geneva package for fishery subsidy, 2015 nairobi package for cotton access to LDCs (lol), lower ag sector prot and increased funds to LDCs)
7. Cons - can’t conclude a comprehensive global trade agreement (e.g. Doha Round aimed for lower tariffs on goods and lower restrictions on trade in services, failed cuz of disputes/arguments & production restrictions) + weakening role over time due to rise of protectionism

IMF

1. (international monetary fund) - 190: made in Washington in 1944
2. Monitors economic and financial developments and provides policy advice (eg reduce govt size, balance govt budgets, deregulate markets) aimed at crisis prevention/financial stability + temporary financing to correct underlying problems during crises
3. Provides technical assistance and training in areas of expertise (lent 226bUSD to 86 countries in ‘22 + debt service for catastrophes of 800mUSD to developing economies)
4. Maintains international financial stability, mainly in relation to forex markets
5. Established short term liquidity line in 2021 → provided one off payment + interest free loans for nations to design policy responses to covid (requested by 100+ nations)
6. Provided 650b USD (emergency fund) in 2021 to low income countries for vaccines and debt payment
7. 122b USD support package to Ukraine during Feb 2022 in war to manage economic impacts of war
8. Pros - addresses financial crises in countries + assists with economic policy advice for supporting FT
9. Cons - policies have led to adverse economic impacts for borrowers in long term as they were too restrictive (eg 1990s asian financial crisis) + demands harm vulnerable groups in society and protect financial institutions (led to protests in Kenya in 2024 due to strict measures)

World Bank

1. 189: made in Washington in 1944, 5 institutions, 10k employees, 120 offices
2. Aims to help poorer nations with economic development, reduce poverty, promote sustainable development and address climate change
3. Includes IDA providing soft loans, IFC attracting private investments, MIGA (multilateral insurance guarantee agency) providing risk insurance to private investors and ICSID (int centre for settlement of investment disputes) settling investment disputes between states and corps
4. Goals by 2030: end extreme poverty to under 3% (living on >1.9USD/day) + promote income equality by fostering its growth for bottom 40% of each country
5. Pros - provides low interest loans/grants to developing countries to support edu, health, defence etc (extended financial assistance of 345b in 3174 projects in 155 countries)
6. Committed 157b for 100+ developing countries (70%+ world population) helping obtain vaccines
7. Total portfolio of 300b+ with 128b in 2023
8. Support of heavily indebted poor countries initiative (HIPCI) aiming to reduce debt by ⅔ in world’s poorest nations in Africa, Latin America and South Asia → saved 100b debt relief by 2023
9. 35% investments to reduce carbon emissions (spent 30b in 2023 for aiding w/climate change)

UN

1. 193: made in 1945 in cali
2. Covers global economy, international security, enviro, poverty and development, law and health
3. Supports linkages between economies + promotes globalisation → easing trade and investment flows
4. Overseen development of international agreements for human rights and political freedom
5. Sustainable Development Goals which aim to reduce poverty and inequality between 2015-2030 (17 goals covering poverty, hunger, wellbeing, edu, gender, sanitation and more) → inc 169 targets that UN members pledged to take action towards but in 2024, 16% on track with 84% below par
6. Calculates the HDI index reporting development of individuals in a country

OECD

1. (organisation for economic cooperation and development) - 38: 1961 Paris
2. 38 most advanced economies committed to democracy and open markets
3. Goal: promote policies to achieve highest sustainable economic growth/employment and a rising standard of living in member countries while maintaining fiscal stability → developing world economy
4. Main role is to conduct/publish research on economic policy issues and coord economic coop between members (e.g. provided forum to share research and policy responses during covid)
5. Has influenced global economic policies and had a key role in int agreement in ‘21 to reform corporate tax rules (minimum global corp tax of 15%, ensuring firms pay tax rather than using tax havens to avoid)
6. Pros - very highly regarded research on economic issues + good recommendations on economic policies
7. Cons - didn’t predict GFC + forecasts after GFC over-predicted the strength of recovery

Influence of government economic forums

G20 (Group of 20 nations)

1. 19 world’s largest national economies + EU (85% world GDP and 64% population) → includes many emerging economies and has driven economic growth since 2008
2. Played a key role in global response to GFC, coordinating fiscal stimulus and improving supervision of the global financial system and international financial institutions
3. Spent 4 tril to revive economies, rejected trade barriers and implemented reforms during GFC
4. Int economic co-op weakened recently as countries determined economic policies at national level
5. G20’s role weakened in covid as high and low income nations diverge further - many promises not kept (e.g. not curbing methane emissions after ‘21 Rome summit)
6. In 2021, G20 agreed on a global tax reform with OECD, creating minimum global corp tax + reduction of tax avoidance + they did debt relief for developing countries with world bank and IMF
7. G20’s main activity is the annual summit and it doesn't have permanent leadership/HQ
8. Deals with issues and doesn’t advance specific economic goals

G7/8 (Group of 7/8 nations)

1. US, UK, France, Germany, Canada, Japan, Italy - economic council of world’s wealthiest nations, meeting annually to discuss global economic
2. Coordinate global macro policy due to influence over fiscal/monetary policies in world’s largest economies → agenda includes political issues + climate change, poverty, trade, terrorism and security
3. G7 isn’t as important as before as China and India aren’t included, as their share of GWP fell from 68% to 44% (‘92 to ‘23)) → didn’t provide much leadership during covid but gave 50b to Ukraine in war
4. Proposals have addressed expansions to include Aus, India, China; Canada hosts ‘25
5. Used to be G8 but Russia left due to conflict
6. 2018 - Trump attacks on allies during elections, 2019 - fighting gender inequality, enviro issues and online/irl terrorism, 2021 - focusing on covid vaccines and health, 2022 - Russia Ukraine war, climate