The Global Economy

• Economic Globalization
It is the increasing integration of economies
around the world particularly through the movement
of goods, services and capital across borders.
It is the movement of people and knowledge
across international borders.
Economic Globalization vs Internationalization
• The latter is about the extension of economic activities
of nation state across borders while the former is
functional integration between internationally
dispersed activity.
• Economic globalization is rather a qualitative
transformation that just a quantitative change.
• Economic term globalization is nothing but a process
making the world economy an organic system by
extending transnational economic process and
economic relations to more and more countries and
deepening the economic interdependence among
them.
Interconnected Dimensions of Economic
Globalization
• The globalization of trade of goods and services
• The globalization of financial and capital markets
• The globalization of technology and
communications
• The globalization of production
Economic Globalization Phenomenon
• Silk Road
The best known example of archaic
globalization, which connected Asia, Africa and
Europe. Adopting Fernand Braudel’s innovative
concept of long duration, i.e. slow moving,
almost imperceptible, framework for historical
analysis. World system analyst identify the
origin of modernity and globalization with the
birth of 16th century long-distance trade.
The International Monetary System
• The most central area in international economy
(important transactions in the international
economy all depend on the availability of money
and credit.)The IMF's primary purpose is to ensure
the stability of the international monetary system—
the system of exchange rates and international
payments that enables countries (and their citizens)
to transact with each other. Is a system that forms
rules and standards for facilitating international
trade among the nations in the world.
The International Monetary System
• Functions
• Current account surplus
• Capital accounts
• Balance of payments
• Statistical discrepancy
• Change in Reserves Requirements
• The total of a country’s account, capital account,
statistical discrepancy and change of reserves =
zero – balance of payments
The International Monetary System
• Functions
1. Current account surplus
A current account surplus indicates that the value
of a country's net foreign assets (i.e. assets less
liabilities) grew over the period in question, and a
current account deficit indicates that it shrank.
Both government and private payments are
included in the calculation. When credits exceed
debits, the country enjoys a current account
surplus, meaning that the rest of the world is in
effect borrowing from it. A current account
surplus increases a nation's net assets by the
amount of the surplus. Capital accounts.
The International Monetary System
• Functions
2. Capital accounts
The capital account is part of a country's
balance of payments. It measures financial
transactions that don't currently affect a
country's income, production, or savings. Their
value is based on what they are expected to
produce in the future. is the part of the
balance of payments which records net
changes in a country's financial assets and
liabilities.
The International Monetary System
• Functions
3. Balance of payments
The difference in total value between payments
into and out of a country over a period. These
transactions consist of imports and exports of goods,
services and capital, as well as transfer payments such
as foreign aid and remittances. is the record of all
international financial transactions made by a
country's residents. A balance of payments deficit
means the country imports more goods, services and
capital than it exports. It must borrow from other
countries to pay for its imports. The main body of the
balance of payments therefore informs us about a
state’s over-all position in terms of financial assets and
liabilities.
The International Monetary System
• Functions
4. Statistical discrepancy
It is equal to gross domestic product less gross
domestic income. These two measures are, in
principle, the same. The difference reflects less
than perfect source data. is the difference
between demand and supply in national accounts.
Even though by definition the items should be
equal in the national economy, they usually
deviate from one another due to deviation
In statistical sources and they are not forced to be
equal in the Finnish system of accounts.
The International Monetary System
• Functions
5. Change in Reserve Requirements
The reserve requirement is the proportion of
customers' deposits a bank is required by the
Fed to hold in reserve without loaning
out required reserve ratio is sometimes used
as a tool in monetary policy, influencing the
country's borrowing and interest rates by
changing the amount of funds available for
banks to make loans with.
Central Bank
• A central bank, reserve bank, or monetary
authority is an institution that manages
a state's currency, money supply, and interest
rates. Each country has a central bank (oversees the
monetary system the country)
Four Monetary Regime
• Classical gold standard (1870 – 1914)
• Gold exchange standard
• Bretton Woods system (1944-1973)
• Non-system of floating and fixed exchange rate –
1973 to present
Global Actors in Economic
Globalization
• International Government Organization (IGO)
• International Non-Government Organization
• Multinational Corporation
Effects of Economic Globalization on
Developing Countries
• Increased Standard of Living
• Access to New Markets
• Decreased Employment