The Rise Of The Global Economy

Globalisation is the process by which the countries of the world are being gradually drawn into a single global economy by a growing network of economic, communication and transport links. It is a process controlled by more powerful nations and huge business empires. It result in countries becoming increasingly dependant on each other. This means that economic decisions and economic activity in one part of the world can have important effects on what happens in other parts of the world.

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Globalisation is not a new process, for centuries countries have been trading with each other, often over long distances. What has changed in recent decades is the scale of international trading and of the other economic links that are creating this interdependence shown by the image above. Four significant developments have helped this scaling up:

  • The appearance of large transnational corporations (TNCs) with diverse business interests literally spread across the globe
  • The growth of regional economic or trading blocs, such as the European Union (EU) and the North American Free Trade Agreement (NAFTA). By encouraging free trade between member countries, the barrier effects of national boundaries are broken down. In short, there is much more global trade.
  • The development of modern transport networks (air, land and sea) to become capable of moving people and commodities quickly and relatively cheaply. Due mainly to the aircraft, making physical distances worldwide much less significant, causing a ‘shrinking world`.
  • Advances in information technology and communication technology mean that important data and decision can get anywhere in the world in seconds. A TNC with its headquarters in London or another major city can closely monitor market trends around the world. It can easily check up on what is happening in its branch offices and factories around the world, therefore decisions and information can be given faster than ever before.

The outcome of these developments is today’s global economy. There is scarcely a country in the world that is not participating in it someway or another. The workings of the global economy involve five different forms of flow (also shown by the image above):

  • Trade – Through the export of import of raw material, food, finished goods or services.
  • Aid – Either as a donor or receiving nation. Much aid is of an economic nature i.e. large loans.
  • Foreign Investment – Through investment, TNCs are able to exploit economic opportunities around the world, it might be oil in the west of Africa or sugar in brazil.
  • Labour – Labour is vital to the working of the global economy. Economic migration is commonplace as people move in search of work and a better life. Equally, TNCs are constantly on the look-out for cheaper labour.
  • Information – The fast transfer of data and decisions are crucial to the working of the global economy.

Through the growing global economy and its flows we are all being drawn into a global village of interdependent nations, with products and materials coming from all over the world found in many different countries. A commodity, supply or production chain consists of a number of stages involved in the making of a particular product. At each stage, value is added to the emerging product. The reason for a company to set up a transnational production chain is so that raw materials can be taken from wherever it may be and transported somewhere else more convenient or necessary to be used in the manufacturing and/or producing of an overall product and then taken to be distributed and retailed.

Other evidence of the workings of global economy include:

  • The call centres for UK and USA companies are located in places such as India, Philippines and Thailand.
  • The outsourcing of food production and manufacturing in LICs.
  • The growing volumes of economic migration and international tourism.