International economic integration

The global economy uniquely referred to as the economies of individual

countries linked to each other and changes in a single economy can have
a ripple effect on others.
Gross World Product is referred to as the aggregate value (sum) of total
output of goods and services by all economies in the world over a period
of time.
Globalisation; trade in goods and services, financial flows, investment and
transnational corporations, technology transport and communication,
international division of labour and migration.
Globalisation refers to the integration between different countries and
economies and the increased impact of international influences on all
aspects of life and activity. Economies are more closely unified thus the
linkages between economies are stronger and more far-reaching than ever
before. The movement of global influences washing across the world
affects wholly thus economies embrace the global economy and pursue
policies to integrate their economy with those round the world. There are
many statistics that examine the measures of globalisation; an indication
of the extent of globalisation can be presented through social or cultural
indicators, the proportion of television programming taken by shows
produced overseas or the influence of global fashions on what people
wear in countries such as Australia. Indicators of integration b.w.
economies include:
Trade in goods and services (g & s); international trade in g & s is a
measure of how goods and services produced in an economy are
consumed in other economies around the world. Trade in g & s has grown
rapidly increasing from 38% of global output in 1990 to 70% of global
output in 2009. The GWP is over ten times its 1950 level and world trade
volume over forty times its 1950 level. Growth of world trade has been
twice the level of real GDP (world economic growth). The size of global
trade reflects the fact that economies do not produce all the items they
need, inefficient production, therefore will import g & s. The greater
volatility (growth) of trade reflects the impact of technology developments
(transport/communication) which reduce costs. Regional trade groups
such as the World Trade Organisation (153 member countries implement
global trade agreements/resolve trade disputes), European Union, and
Association of South East Asian Nations encourage trade by removing
trade barriers (government implement policies/get rid of barriers, regional
trade groups back them up). The composition of trade is the mix of traded
g & s. Manufacturers (vehicles, clothing and electronic goods), finance and
communication services is seen as the global trade dominator thus
economies that specialise in manufacturing will excessively grow.
Direction of trade flows reflects the economies of the worlds overall share
of global trade thus seen a global trade fall in high income economies
from 82% to 70% contrasting the fast growing economies rise from 7% to
14%. Trends seen is preparing for closer ties with rapidly growing

economies (Australia encouraging trade with China, Australian students

are taught mandarin).
Financial flows; international finance is playing a leading role in the global
economy. Finance most globalised world economy feature, money moves
between countries more quickly than g & s and people. Financial
deregulation (controls on foreign currency markets, flows of foreign
control, banking interest rates and overseas investments) expanded
substantially. The rapidly changing technological change allows for links in
financial markets. Forex (foreign exchange) markets are important
features of international finance that are networks of buyers and sellers
that exchange one currency for that of another nation to facilitate finance
flows. Forex markets determine the value of currencies through the
interaction of the forces of demand and supply. The value of one currency
in terms of another is known as the exchange rate. Speculators are
investors in the financial markets that intend to buy/sell financial assets
with the aim of making profit from short-term price movements but can
create significant volatility. Global financial flows allow countries to obtain
funds to finance domestic investment, allows for higher levels of
investment, economic growth (large-scale businesses, investment
projects). The International Monetary Fund; an agency 187 members,
oversees stability of global financial system, ensures stability of exchange
rates, exchange rate adjustment and convertibility.
Investment and transnational corporations; while the short term global
growth is finance (speculative shifts of money) the long term is
investment (flows of money to buy or establish businesses). Foreign Direct
Investment is the movement of funds that are directly invested in
economic activity or the purchase of companies. Although developed
economies continue to dominate FDI funds, developing economies in 2010
received more funds for the first time in history. FDI accounts for 20% of
total investment. TNCs (global companies that dominate global
product/factor markets) facilitate production around the world to source
inputs, manufacturing, packaging and marketing this brings foreign
investment, new technology, skills and knowledge. International
investment continues to grow; new inputs include the idea of international
mergers and takeovers e.g. Volkswagen and Porsche teaming up to thus
reducing global companies and formation of companies.
Technology, transport and communication; technology allows for greater
integration within countries e.g. shipping and cargo tracking-facilitate
greater trade, cheaper/reliable communicationbroadband/commercial
services, aircraft/high speed rail networks-tourism/travel/labour mobility.
Innovators and exporters allow for trade in technology to operate as a
means of spreading new technology; technological superiority.
International division of labour, migration; people are looking to move
overseas to take advantage of better work opportunities, 3% of the
worlds population look to migrate (movement of people between
countries permanent/long term basis 12mths+) to work in different
countries thus the rising labour supply pressures and increases income
inequality as 60% go to high-income countries. The movement of labour
appears to be concentrated at the top (high-skilled workers look to richer

economies-higher pay, better opportunities, Australia loses skilled

employees as they seek the US to gain pay/knowledge) and bottom
(difficulty in attracting skilled /sufficient people, locals working because
pay/skills/knowledge is low). International division of labour (tasks in
production process being allocated to different people in different
countries) has contributed globalisation because of the migration of
workers to contribute where there are jobs and pay and because of the
shift of business for most efficient/cost effective labour (offshoring allows
economies to shift production at lower costs globally).
The international and regional business cycles
The extent to which economies tend to experience similar booms,
downturns and recovery (the pattern at similar times). Business cycles
show the fluctuations of economic growth (boom, recession) both
internationally (strengthen trade flows, investment flows, financial
market confidence, TNCs, technology, global interest rates, international
org./ weaken domestic interest rates, exchange rates, fiscal policies) and
regionally.
Trade financial flows and foreign investment

The basis of free trade - its advantages and disadvantages

Free trade can be defined as the governments imposing no barriers to
trade that restrict the free exchange of goods and services.
Advantages; allows countries to obtain goods and services they
cannot produce, allows countries to specialise in production they are
most efficient, encourages efficient allocation of resources and
economies of scale will lower average costs of production and
increased productivity and efficiency, international competitiveness,
encourages innovation and new technology, higher living standards.
Disadvantages; short term unemployment increases, difficulty in
establishing new businesses and industries, countries that had
production surpluses "dumped", encourages environmentally
irresponsible production methods

Role of international organisations - WTO, IMF, World Bank, United

Nations, OECD
World Trade Organisation; (1995, 153 countries) implements and
advances global trade agreements and resolves trade disputes
between economies. General Agreement on Tariffs and Trade (GATT)
> Uruguay Round > WTO Agreement > Doha (development) round.
International Monetary Fund (IMF 1944- 187 members) maintain
international financial stability particularly forex markets. The IMF
oversee stability of exchange rates , ensure stability of foreign debt
crises. Long term ideals > support free trade, free movement of
finance, structural adjustment policies (privatisation, deregulation).

World Bank (1944) economic development within developing

countries, foreign aid to developing nations, funds investment in
infrastructure, reduce poverty, help countries adjust to demands of
globalisation. Millennium Development Goals - universal primary
education, reduce child mortality, improve maternal health, treating
epidemics, improve women status.
United Nations (1945, covers 193 states) aims to cover global
economy, international security, environment, poverty/development,
international law, global health issues.
Organisation for Economic Cooperation and Development; (34
countries) democracy and market economy, promotes policies to
achieve highest sustainable economic growth and employment, rise
standard of living in member countries, maintain fiscal stability,
coordinate economic cooperation.

Influence of government economic forums - G20, G7/8

Group of 20 nations; leads the role in global economic policy coordination, provides forums that government leaders meet and
negotiate agreements on global economic challenges
Group of eight nations; (US, UK, France, Germany, Canada, Japan,
Italy, Russia) operate as economic council of worlds wealthiest
nations and discuss global economic conditions, fiscal + monetary
policy, influence > climate change, global poverty and security

Trading blocs, monetary unions and free trade agreements;

advantages and disadvantages of multilateral (EU, APEC, NAFTA,
ASEAN) and bilateral agreements;
Trading blocs occur when a number of countries join together in a
formal preferential trading arrangement to the exclusion of other
countries
Free trade agreements formal agreements between countries
designed to break down protection barriers, when the agreement is
between two countries it is said to be bilateral, when agreement is
between three countries or more regional.
Monetary unions look after finance floating around economy, how it
travels etc.
European union(late 1950s); regional trading bloc, member countries
span across the European continent, advantages: helps to dismantle
trade barriers within Europe, establishment of euro currency, strong
protection for agricultural. Disadvantages; closed trading bloc,
economies retaliating with similar eu protectionist policies.
Asia-Pacific Economic Cooperation (early 1990's); regional forum
trading blocs of asia-pacific area. Advantages; 45% of world trade,
good for aust as merchandise exports go to members of forum,
reduce barriers to non-member economies, objective to free and open
trade, non-discriminatory will trade with economies outside forum on
basis of equality, disadvantages; lost momentum, delivering free
trade promises

North American Free Trade Agreement (1994); regional bloc , free

trade agreement in which agricultural protection is completely
eliminated tariffs phased out, Advantages; significant export increase,
increased trade, shifting production facilities, lower wage cost
Association of South East Asian Nations; organization of countries in
southeast Asia set up to promote cultural, economic and political
development in the region. ASEAN was officially formed in 1967 with
the signing of the Bangkok Declaration.
Bilateral agreements; CERTA (New Zealand - Australia), AUSFTA
(United States - Australia),
United nations; global agenda that cover international activity; security,
environment, law, poverty and development
Trading blocs, monetary unions and free trade agreements
Trading blocs occur when a number of countries join together in a
formal preferential trading arrangement to the exclusion of other
countries
Free trade agreements formal agreements between countries
designed to break down protection barriers, when the agreement is
between two countries it is said to be bilateral, when agreement is
between three countries or more regional
European union(late 1950s); regional trading bloc, member countries
span across the European continent, advantages: helps to dismantle
trade barriers within Europe, establishment of euro currency, strong
protection for agricultural. Disadvantages; closed trading bloc,
economies retaliating with similar EU protectionist policies.
Asia-Pacific Economic Cooperation (early 1990's); regional forum
trading blocs of Asia-pacific area. Advantages; 45% of world trade,
good for Aust. as merchandise exports go to members of forum,
reduce barriers to non-member economies, objective to free and open
trade, non-discriminatory will trade with economies outside forum on
basis of equality, disadvantages; lost momentum, delivering free
trade promises
North American Free Trade Agreement (1994); regional bloc , free
trade agreement in which agricultural protection is completely
eliminated tariffs phased out, Advantages; significant export increase,
increased trade, shifting production facilities, lower wage cost
Association of South East Asian Nations
Bilateral agreements; CERTA (New Zealand - Australia), AUSFTA
(United States - Australia),
Protection
Reasons for protection - infant industry argument, domestic
employment, dumping, defence

Protection can be referred to as any type of government action that

has the effect of giving domestic producers an artificial advantage
over foreign competitors.
New industries being faced with many difficulties as they enter the
market, business world, short term protection to expand their scale,
reduce their costs of production, it is argued governments should only
provide temporary assistance
Saving local jobs, being protected from competition with cheaper
foreign imports, demand for local goods.
Preventing the occurrence of dumping, foreign firms attempting to
sell their goods in another country's markets at unrealistically low
prices, used to dispose of large production surpluses, establish
market position,
Being self sufficient on defence , retaining own defence industries not
wanting to rely on other countries,
Methods of protection and the effects of protectionist policies on the
domestic and global economy - tariffs, subsidies, quotas, local
content rules, export incentives;
The main methods of protection are tariffs (tax on imports), subsidies
(payment to local producers0, local content rules (requirement that a
proportion of goods are made locally), quotas (limit on quantity of
goods imported), export incentives (encourage local production),
voluntary export restraints agreement between two countries.
Protection aims to reduce trade between nations, reduce living
standards, reduce global economic growth, help developing
economies.
Tariffs are government imposed taxes on imports, it raises the price of
imported goods making the domestic producer more competitive .
Economic effects; stimulates domestic production and employment,
attraction to protected industries > reallocation of resources, higher
price fewer goods, revenue for government, retaliation effect.
Subsidies are cash payments from governments to business to
encourage production of good/service and influence allocation of
resources in an economy enables business to reduce selling price,
compete with imported goods. Economic effects; stimulate domestic
production and employment, reallocation of resources, lower price
more goods, direct costs on government budgets.
Quotas refer to restrictions on the amounts or values of various kinds
of goods that may be imported. It controls the volume of a goods
allowed to be imported over a period of time. Economic effects;
stimulate domestic production and employment, reallocation of
resources, higher price receive fewer goods, do not directly generate
government revenue.
Local content rules; specify that goods must contain a minimum
percentage of locally made parts Aust. Uses local content rules to
protect television broadcasting to promote Aust. Culture.
Export incentives; give domestic producers assistance such as grants,
loans, technical advice, encourage businesses to penetrate global
markets, expand market share. Technically export incentives dont

protect businesses from foreign competition in domestic market but

are an artificial barrier to free trade. Export incentives have grown
considerably and nations move to focus on capturing foreign markets,
rather than protecting import-competing businesses to achieve high
economic growth and employment.
Globalisation and economic development
Economic growth is an increase in the real GDP over a specific period
of time. Per capita GDP growth Is the most common traditional
measure used to compare the performance of economies. Economic
development is concerned with economic growth alongside other
quality of life factors such as income distribution in a population,
education levels, health standards, environmental quality. The most
common measure of economic development is the United Nations HDI
which is based on a combination of GNI per capita, life expectancy at
birth and levels of educational attainment.
The distribution of income and wealth can be closely contrasted with
the causes of equality/inequality in the global economy. In terms of an
economy such as the USA the richest earn more than 40% of
America's income where as the poorest ( more than 30% of the
population) earn less than 7% of America's income. This can be
configured in the fact that the distribution of income in USA is not
equally distributed thus wealth is not equally given thus inequality is
a major cause in America.
The income and quality of life indicators are a substantial indication of
the money received and how it is spent around the economy in the
particular country. While higher incomes play a crucial role in
improving well being especially for those in poverty development also
takes into account other quality of life indicators such as health
standards, education levels, domestic work not given at a financial
value, environmental damage, income distribution inequality.
Developing economies; experience low income levels, high levels of
inequality, and generally have agriculture based economies with poor
infrastructure and economic and political institutions. Emerging
economies; are in the process of industrialisation and experiencing
sustained high levels of economic growth. advanced economies;
refers to high income, industrialised or developed economies. The
group of advanced economies includes 33 economies across North
America, Europe and the Asia-Pacific.
Reasons for differences between nations may include; the levels of
income inequality, dependence on agricultural productions,
employment standards, income standards and trade opportunities, an
economies reliance on foreign aid, assistance, , low levels of labour
productivity, industrialisation, technological innovation and
infrastructure development and political and economic institutions.
The main reason for differences between nations includes the causes
of inequality in the global economy. Global factors; global trade

system (works to reinforce rather then reduce global inequalities),

global financial architecture (enabling free flow of funds to create
development opportunities), global aid and assistance, global
technology flows, domestic factors - economic resources, institutional
factors.
The forces of Globalisation affect economic growth, development,
changing production process, influencing the gap between rich and
poor, the impact on the natural environment, foster improved
economic outcomes.
Trade, investment and transnational corporations; globalisation has
resulted in substantial increases in the size of trade flows and foreign
investment. An important feature of trade growth during the
globalisation era is how goods are produced in different stages in
different countries, a concept known as vertical specialisation. The
globalisation of financial markets has seen an increased reliance on
foreign sources of finance for investment, more countries now have
greater access to overseas funds for investment. Growing TNC
accounts for the removal of restrictions on foreign ownership and the
development of global capital markets.
Environmental sustainability; globalisation can have negative
environmental consequences, low-income countries that are
desperate to attract foreign investment and earn higher export
revenue may engage in economic behaviour that has devastating
environmental consequences e.g. deforestation of paper, depletion of
marine life, pollution by manufacturing etc.
The international business cycle; integration allows production
specialisation, trade, faster economic growth. globalisation has
contributed to a greater synchronisation of economic growth through
the international business cycle reflecting the increased integration of
economies through trade and financial flows, shows downturns and
upswings between economies in terms of globalisation.