Impact of Globalisation. Economic Growth v Economic Development Economic growth measures GDP… how much is the economy producing. Economic development.

Impact of Globalisation

Economic Growth v Economic Development

• Economic growth measures GDP… how much is the economy producing.

• Economic development measures standard of living. eg life expectancy, literacy as well as GDP

• The HDI is often used to measure economic development

Figure 3.4 on page 49 shows HDI for selected countries

Development Statistics

• Use the statistics in figure 3.1 to explain the importance of the US economy to global trade

• Use the statistics in figure 3.2 to describe global income inequality

• Use figure 3.5 to discuss the trends in global poverty

Characteristics of Economies

Advanced Economies Emerging Economies Least Developed Economies

Developed Economies are rich because….

Global factors Domestic Factors

Global Trade Quality labour supply

FDI and TNCs Entrepreneurial culture

Trading blocs and protection Industrialisation

Technology and communications Well developed services

Labour Mobility Access to domestic savings

Access to global finance Political stability

Market based economies

Structural change

Least Developed Economies are poor because …

Global Factors Domestic Factors

International Convergence

• economic systems –free enterprise/ market based

- economic growth-more like divergence (Asia 7.5%,AIEs 3.4%, Transition –1% over the last 10 years).

Economic Growth, Development and quality of life

• Globalisation has benefited global economies and specific sectors within economies- winners and losers.

• There hasn’t been a dramatic increase in economic growth over the last 15 years – GWP has increased by about 3% per annum.

Trade/Investment/TNCs

• Massive increases in trade and investment –still dominated by AIEs although Asia (particularly China is of growing significance).

• TNCs are spreading more rapidly into developing economies creating costs and benefits.

Distribution of income and wealth

• Globalisation has increased inequality within countries and between countries - due to the large increases in living standards in global economies

• Inequality has become even more extreme in developing countries.

• Absolute and relative poverty continue to be extreme in South Asia, South America and Africa

Poverty

• Absolute Poverty – income of less than $1US per day.

• Relative Poverty – determined by individual poverty lines- Australia poverty is defined as 54% of average income

• The following tables shows relative poverty

1985 1990 1995 2005East Asia

60% 35% 25% 17%

EasternEurope

8% 8% 22.0% 20%

SouthAmerica

40% 43% 39% 38%

South Asia

58% 41% 36% 30%

Africa 45% 47% 48% 50%

Environmental Consequences

• High income economies are the major consumers of resources – also the major producers of negative externalities.

• However, they also have the greatest capacity to improve the quality of the environment.

• Developing economies often experience environmental degradation because economic growth is their major priority

Financial Markets

• Financial markets are far more unstable as a result of globalisation – exchange rates are extremely volatile and often smaller economies are affected by the decisions of only a few speculators – the Asian financial crisis is a great example of this problem.

International Business Cycle

• Global trade now has a significant impact on domestic economies. A slowdown in the USA will have an impact on Japan and consequently any economy that depends on US and Japanese markets.

Domestic Policies

• Domestic Policies must be sensitive to global economic conditions.

eg. Increasing interest rates will slow the domestic economy, however it will attract foreign savings and probably increase the exchange rate.

Washington Consensus

• Internet Search