The Global Economy

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Nature of the global economy and globalisation

The global economy/world economy consists of all the countries of the world that contribute to gross world product through the production of goods and services. It is often discussed in relation to the increased integration of economies.

Gross world product (GWP)/world GDP is the sum of the total output of goods and services by all economies over a given period of time. It is measured at purchasing power parities (PPP) which adjust exchange rates to equalise the price of identical goods and services across economies.

Globalisation is the increasing integration of countries and their economies, resulting in the increased impact of international influences on all aspects of life and economic activity. The economic indicators of globalisation include:

* international trade flows

* international investment and transfers of technology

* international finance

* international labour markets


* Greater growth but with greater volatility than GWP

* Growth of world trade has been around twice growth of real GWP since the 1970s, but contractions in the growth of world trade have also been more severe (World Economic Outlook, IMF, 2009)

* Greater growth in developing and emerging economies

* Exports from developing and emerging economies grew 9.8% from 2002 to 2008 cf. 5.2% growth in developed economies

* Greater market share for high income countries

* Low income countries contribute 1.7%

* Middle income countries contribute 28.2%

* High income countries contribute about 77.1%

* Decline due to the GFC

* IMF forecasts -11% growth in world exports


* Foreign direct investment (FDI) is the long term movement of funds between…...

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