Global Economy

Global economy, or world economy, refers to the economic relations between countries in a world where markets are interconnected and there is a free movement of goods, services, labor and capital across countries.

In order to understand the term integrated world economy, the concept of globalization needs to be defined as well. Globalization refers to the integration of economics and societies of the world, namely production and consumption in all markets. It is a result of advances in communication, transportation and infrastructure and it influences not only national economies but also the world economy as a whole. There is a negative and a positive integration. Negative integration is the removal of trade and protective barriers such as tariffs and quotas thus reducing costs of imports and increasing sources of supply. Positive integration, in turn, is the standardization of international economic laws and policies which facilitates trade between different countries. As a result of globalization there is an improvement in international trade and progress in technology so that countries can be competitive on the world market. Due to globalization specific economic and political decisions are made on a global scale because in an integrated world they have not only national, but global effect on economy.

As a result of the elimination of trade barriers global economy is characterized by a unified market for all goods produced all over the world. Domestic producers have access to more markets and they have to improve their standards in order to be globally competitive. They also benefit from the lower prices of imported raw materials which reduce the cost of production and goods both on domestic and global markets. Because of high competition on the unified market prices more or less have to be the same and the global economy aims at equalizing prices of all products regardless of their origin. Thanks to positive integration and the reduction of tariffs and quotas free movement of goods between developed and developing countries became possible.

The opening of the markets further developed global economy because the number of countries where products can be sold and purchased increased dramatically. It also has led to the emergence of transnational and multinational companies as a direct result of globalization. Because of the free movement of goods, capital and services companies are able to open subsidiaries in different countries around the world. This improved both productivity and capacity of these companies and also created employment for local population and brought new services and goods on the local markets in developing countries. In order for developing countries to compete and be competitive on a global scale they had to upgrade their level of technology and people from developing countries acquired knowledge and skills which also made them competitive workers. The new acquired skills and upgraded knowledge have increased both productivity and income level of workers.

Global economy has increased the demand for goods and consequently the demand for qualified workforce in countries where there is a shortage of professionals. Globalization allows greater mobility of human resources across countries as well as outsourcing of business processes to other countries. Economies like China, India and the Philippines are the main outsourcing centers in the world and highly developed countries such as the United States and the United Kingdom take advantage of their cheaper labor force. This represents the negative effect of globalization and global economy because they enable developed countries to profit from less developed economies such as Brazil, India and China which further increases the gap between them. Developed countries outsource their companies in Third World countries because of the cheap labor force and as a result firms grow significantly and their profits are much higher because they save a lot of money from wages and other costs. Even though the creation of employment opportunities increases the standard of living in developing countries, the high profits of advanced nations further widen the "divide between the have-nots and the have-lots." The outsourcing process is viewed as an exploitation of workers in Third World countries where there are already great inequalities.

Despite its negative effects, global economy can be beneficial on a global scale because all economies of the world may work together in fighting global warming, climate change and environmental degradation. Globalization contributes to the developing of global civil society in the face of non-governmental organizations (NGOs). Their influence spreads across the world and they establish policies beneficial to both people and the environment.

Global Economy: Selected full-text books and articles

The Global Economy's Next Winners: What It Takes to Thrive in the Automation Age By Lund, Susan; Manyika, James; Spence, Michael Foreign Affairs, Vol. 98, No. 4, July/August 2019
A New World Paradigm: Global Trade Needs a Reboot to Expand the Global Economy By Abney, David International Trade Forum, No. 1, January-March 2018
How Climate Change Will Affect the Global Economy and Your Bank By Lafakis, Chris The RMA Journal, Vol. 102, No. 4, December 2019
Islamic Finance in the Global Economy By Ibrahim Warde Edinburgh University Press, 2010 (2nd edition)
Balancing the Banks: Global Lessons from the Financial Crisis By Mathias Dewatripont; Jean-Charles Rochet; Jean Tirole; Keith Tribe Princeton University Press, 2010
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