Outputs
Time
- Transnational corporations
TNCs are an increasingly important means by which global upturns
and downturns are spread throughout the global economy. In 2011 for
eg, Toyota temporarily reduced its manufacturing operations in
Australia because of the impact of earthquakes and tsunamis in Japan
and on the company
- Financial flows
Short term financial flows also play an important role in transmitting
the international business cycle. A 2009 IMF paper how linkages fuel
fire, conclude that 70% of financial market volatility in advanced
economies is transmitted to emerging economies and the transition
takes one to two months
Never the less, it is important to note that despite these linkages, the pattern and the
pace of economic growth differ between countries. Even countries that are at similar
stages of economic development, such as the USA and European economies,
experience differing levels of economic growth. Despite the global linkages described
above, many of the factors that influence the business cycle differ between
economies:
Interest rates
Interest rates have a significant influence, through monetary policy, in
the stimulation or dampening of economic activity. therefore,
differences in interest rates between economies would reduce the
level of influences that economies have on each other
Our interest rate levels relatively high compared to other advanced
economies, reflecting our better economic position
Fiscal policies
Government fiscal policies also have significant effect upon the level of
economic growth in the short & medium term. For instance, an economy
that raises taxes and another that reduces taxes will have adverse levels
of economic growth
Our budget is returning to fiscal consolidation (returning to balance),
while other economies are struggling with record budget deficit as they
desperately attempt to stimulate their economies
Exchange rates
Exchange rates (value of currency) differ between countries and impact
on the level of trade competitiveness and confidence with economies
The Australian dollar is currently experiencing upward trend of
appreciation while other currencies after the GFC are struggling with a
depreciating currency. This reflects Australias strong trade performance
and confidence in our economy
Structural factors
Economies have different comparative advantage, resources and
attitude towards consumption and savings. They vary in terms of
reliability and resilience in their financial systems, population growth
rates and age distribution and different methods of regulating labour
markets, educating and training employees and regulating business.
These structural factors influence the competitiveness of economies and
their level of growth
Regional factors
The physical location of economies and their involvement in trade
relationships, trade agreements and international organisations, to a
large extent will affect an economys involvement in the global market
(e.g. Australia is geographically isolated)
World Bank
The World Banks role in the global economy is primarily concerned
with helping poorer countries with their economic development
The official title of its main organisation is the international Bank for
reconstruction and development
The focus of the main organisation (IBRD) is to:
- Fund investment in infrastructure
- Reduce poverty
- Help countries to adjust their economies to the demand of
globalisation
Other Organisations within the World bank that provide specific
assistance to lower income countries:
- The international Development Association provides soft loans
(i.e. loans at little or no interest to developing countries
- The International Financial Corporation has the role of attracting
private sector investment to the Banks project
- The Multilateral Insurance Guarantee Agency provides risk
insurance to private investors
The World Bank is funded by contributions from member countries and
from its own borrowing in global financial markets
The World Banks major aim (as set out in the millennium Development
Goals) has been to reduce the proportion of people living on less than
$1 a day to half the 1990 level by 2015 (from 29 precent to 14.5
precent of all people in low-and-middle income economies
In response to the GFC in 2008, the World Bank has provided over
US$280 in assistance to developing countries. Furthermore,
immediately after the GFC the World Bank tripled lending from $13.5
billion to 35 billion to assist lower income economies.
The World Bank in recent years has been its support of the Heavily
Indebted Poor Countries Initiative (where the World bank relieves
countries that are in debt because it has borrowed)
United Nations
Majd Abdulwali |Economics Notes 10 |
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The United Nations was established in 1945 aid has grown to cover 192
member states. Its agenda is broader than any other organisations,
covering the global economy, international security, the environment,
poverty and development, international law and global health issues
The UN has historically played an important role in supporting greater
linkage between economies and promoting globalisation
There are two major types of trade agreements existing in the global
economy
Preferential free trade agreements (which are regional or bilateral
agreements)
Multilateral agreements (which are open to all nations)
A trading bloc occurs when a number of countries join together in a formal
preferential trading agreement to the exclusion of other countries, such as
European Union (EU) and the North American free trade Agreement (NAFTA)
Monetary union is where two or more countries share a common currency
(EURO)
Free trade agreements (or preferential trade agreements) are formal
agreements between countries designed to break down barriers to trade
between those nations. When the agreement is between two countries it is
said to be bilateral and when the agreement is between two countries it is
said to be bilateral and when the agreement is between three or more
economies it is said to be multilateral or regional. While these agreements
are generally described as free trade agreements because in effect they give
more favourable access to goods and services from one nation or a group of
nations compared to another. Sometimes they can make it harder for nations
outside the preferential trade agreement to trade at all. In contrast, global
free trade agreements, conducted through the World Trade Organisation
(WTO), are designed to break down all trade restrictions and free up world
trade
Regional trade agreements have multiplied in recent decades, with the
number of agreements in force jumping from 27 agreements in 1990 to 278
in 2010. In fact, only one WTO member (magnolia) is not a party to a regional
or bilateral trade agreements in recent years had led to what some
economist have describe as the emergence of regionalisation, not
globalisation
Evidence: around two0thirds of European trade occurs within the
European Union, demonstrating both its vast size and its tendency to
be a more closed trade bloc due to protectionist policies
TradeAgreements
Trade Agreements
Protection
Protection can be defined as any type of government action that has the effect of
giving domestic producers an artificial advantage over foreign competitors. The main
protectionist measure include tariffs, import quotas and subsidies
While there is a large gap between rich and poor countries, it is also true that in
overall terms, living standards are improving in most countries rich and poor. This
evidence by the following facts:
- Between 1981 and 2005, those living extreme poverty in developing countries,
living on less than $us 1.25 per day, fell from 52% to 25%. if we exclude china
from these calculations, however, extreme poverty rates fell much less
significantly over the same periods
- Life expectancy in developing countries rose from 56 to 67 years between 1920
and 2009. Child mortality for those under five declined from 1 to 10 children in
1990 to 1 to 5 in 2009
- The primary education completion rate in developing countries increased form
78% in 1991 to *7% by 2009, while the adult literacy rate in developing
countries reached 80%
While these figure show progress they also demonstrate how wide the gap are for
many people in the developing world, compared to the one billion people in
developed countries who enjoy what is described as a high level of human
development
Institutional factors:
Political and economic institutions
- Political instability, corruption and a lack of law enforcement by
governments tend to undermine the confidence of investors who
will be reluctant to take risks if their business interests are
threatened by an inadequate structure for resolving legal
disputes, corruption or other institutional problems (i.e. Syrian
war)
Economic policies
- If all major decisions are left to market forces, a country may
achieve a high level of economic growth, but it may not improve
education, health care and quality of life. On the other hand,
excessive government control over economic decision making
can constrain entrepreneurship and innovation, reducing