RIZAL TECHNOLOGICAL UNIVERSITY

Cities of Mandaluyong and Pasig

SESSION NO. 4 / WEEK NO. 4

MODULE 4: WORLD ECONOMIES

1. World Economies
2. Classification of World Economies
 Understanding the Developed World
 Developing World
 Emerging Markets
3. Differences Between Developing Countries and Emerging Markets

Overview

The term world economy refers to all of the economic activity within each
country and between countries around the world. It makes sense that as the population
of the world has increased, and as technologies such a air travel and the Internet have
made communication between people throughout the world easier, that the world
economy has grown. It has also become more important and more complex. When
one country does well, other countries see a boost in their economies. Conversely,
when one country does poorly, other countries can suffer. The countries of the world
are now interdependent. Basically, this means that we all have an interest in working
together.

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Learning Outcomes

CO4: An understanding of how the role of managers diverges across different forms
of economic systems.
LO1: Identify how economies are classified.
LO2: Identify the major developed economies and the major developing economies
and regions.
LO3: Identify key emerging markets.
LO4: Understand the emerging markets and BRIC countries.

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Topic Presentation

WORLD ECONOMY

The world economy or the global economy is the economy of all humans of the
world, referring to the global economic system which includes all economic activities
which are conducted both within and between nations, including production,
consumption, economic management, work in general, exchange of financial values
and trade of goods and services. In some contexts, the two terms are distinct
"international" or "global economy" being measured separately and distinguished
from national economies while the "world economy" is simply an aggregate of the
separate countries' measurements. Beyond the minimum standard concerning value in
production, use and exchange, the definitions, representations, models and valuations
of the world economy vary widely.

What is a global economy?

The global economy refers to the interconnected worldwide economic activities that
take place between multiple countries. These economic activities can have either a
positive or negative impact on the countries involved.

The global economy comprises several characteristics, such as:

 Globalisation: Globalisation describes a process by which national and

regional economies, societies, and cultures have become integrated through
the global network of trade, communication, immigration, and transportation.
These developments led to the advent of the global economy. Due to the
global economy and globalisation, domestic economies have become
cohesive, leading to an improvement in their performances.
 International trade: International trade is considered to be an impact of
globalisation. It refers to the exchange of goods and services between different
countries, and it has also helped countries to specialise in products which they
have a comparative advantage in. This is an economic theory that refers to an
economy's ability to produce goods and services at a lower opportunity cost
than its trade partners.
 International finance: Money can be transferred at a faster rate between
countries compared to goods, services, and people; making international
finance one of the primary features of a global economy. International finance
consists of topics like currency exchange rates and monetary policy.

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 Global investment: This refers to an investment strategy that is not

constrained by geographical boundaries. Global investment mainly takes place
via foreign direct investment (FDI).

Who controls the global economy?

Many people think that the global economy is controlled by governments of the
largest economies in the world, but this a common misconception. Although
governments do hold power over countries’ economies, it is the big banks and large
corporations that control and essentially fund these governments. This means that the
global economy is dominated by large financial institutions. According to world
economic news, US banks participate in many traditional government businesses like
power production, oil refining and distribution, and also the operating of public assets
such as airports and train stations.

CLASSIFICATION OF WORLD ECONOMIES

How are countries classified?

A country’s level of development is how far it has grown economically,
technologically and the quality of life people typically have.
Economic factors include income (how much money people earn), how secure
people’s jobs are and standard of living (housing, personal mobility). It also includes
physical factors such as diet, nutrition, fresh water supply, climate, environmental
quality and hazards.
In terms of quality of life, we consider family/friends, education and health. Also
included in this is psychological factors such as people’s level of happiness, security
and freedom.
Gross national income (GNI) is a common way of calculating a country’s level of
development. GNI shows the average wealth of the citizens of a country. GNI allows
comparisons to be made between countries. To calculate GNI you add together the
total value of all the goods and services produced by the people within the country to
the income earned from investments that its businesses and people have made in other
countries.
As countries have different population sizes a further calculation needs to be made in
order to make comparisons. This involves dividing the GNI by the population of the
country to arrive at the GNI per capita. Then the value is converted into US dollars to
allow comparisons to be made between countries. Finally, each figure must be
adjusted based on its income. In low-income countries (LICs) goods and services
often cost less than in high-income countries (HICs).

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Based on GNI countries are classified into three main groups. These are high-
income (developed) countries, newly emerging economies (emerging) and low-
income countries (developing).

Developed Economy
A developed economy is typically characteristic of a developed country with a
relatively high level of economic growth and security. Standard criteria for evaluating
a country's level of development are income per capita or per capita gross domestic
product, the level of industrialization, the general standard of living, and the amount
of technological infrastructure.
Noneconomic factors, such as the human development index (HDI), which quantifies
a country's levels of education, literacy, and health into a single figure, can also be
used to evaluate an economy or the degree of development.
Characteristics of Developed Countries
1. Has a high income per capita. Developed countries have high per capita incomes
each year. By having a high income per capita, the country’s economic value will be
boosted. Therefore, the amount of poverty can be overcome.
2. Security Is Guaranteed. The level of security of developed countries is more
secure compared to developing countries. This is also a side effect of sophisticated
technology in developed countries. With sophisticated technology, security facilities
and weapons technology also develop for the better.
3. Guaranteed Health. In addition to ensuring security, health in a developed country
is also guaranteed. This is characterized by a variety of adequate health facilities, such
as hospitals and medical staff who are trained and reliable. Therefore, mortality rates
in developed countries can be suppressed and the life expectancy of the population
can be high. In addition, with adequate health facilities, population development in
developed countries can also be controlled.
4. Low unemployment rate. In developed countries, the unemployment rate is
relatively small because every citizen can get a job.
5. Mastering Science and Technology. The inhabitants of developed countries tend
to have mastered science and technology from which new useful products such as the
industrial pendant lights were introduced to the market. Therefore, in their daily lives,
they have also used sophisticated technology and modern tools to facilitate their daily
lives.
6. The level of exports is higher than imports. The level of exports in developed
countries is higher than the level of imports because of the superior human resources
and technology possessed.
Examples of developed countries include the United States, Germany, and Japan.

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Emerging Market Economies

An emerging market is also called a rapidly developing economy, such as the UAE
and Chile. Emerging markets have relied on industrialization and improvements in the
IT and telecommunication sector for economic growth. The idea here is to produce a
surplus for the domestic needs, and further export the extra for fiscal advantage.
Emerging markets are the newly industrialized countries that have increased
productivity through technological innovations. In Asia, China and India are
prominent emerging markets. These countries are more trade-friendly due to
calculated policies, healthy cash balance, and cheap labor and capital. They, therefore,
leverage high foreign investment and employment growth.
Emerging markets are the countries that have stepped aside from the traditional
mediums of sustenance and have witnessed massive economic growth.
Characteristics of Emerging Markets
Some common characteristics of emerging markets are illustrated below:
1. Market volatility
Market volatility stems from political instability, external price movements, and/or
supply-demand shocks due to natural calamities. It exposes investors to the risk of
fluctuations in exchange rates, as well as market performance.
2. Growth and investment potential
Emerging markets are often attractive to foreign investors due to the high return on
investment they can provide. In the transition from being an agriculture-based
economy to a developed economy, countries often require a large influx of capital
from foreign sources due to a shortage of domestic capital.
Using their competitive advantage, such countries focus on exporting low-cost goods
to richer nations, which boosts GDP growth, stock prices, and returns for investors.
3. High rates of economic growth
Governments of emerging markets tend to implement policies that favor
industrialization and rapid economic growth. Such policies lead to lower
unemployment, higher disposable income per capita, higher investments, and better
infrastructure. On the other hand, developed countries, such as the USA, Germany,
and Japan, experience low rates of economic growth due to early industrialization.

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4. Income per capita

Emerging markets usually achieve a low-middle income per capita relative to other
countries, due to their dependence on agricultural activities. As the economy pursues
industrialization and manufacturing activities, income per capita increases with GDP.
Lower average incomes also function as incentives for higher economic growth.

Developing Economies
A developing economy also called a less developed economy or underdeveloped
country is a nation with an underdeveloped industrial base, and a low Human
Development Index (HDI) relative to other countries. Developing countries are the
countries that have less developed industrial base alongside lower standards of living.
They are striving to become better with the help of other strong economies.
Characteristics of Developing Countries
1. Income per year which tends to be low. Annual income in developing countries is
not as high as in developed countries due to the high unemployment rate.
2. Security Not Guaranteed. Unlike in developed countries, security in developing
countries is still very minimal and inappropriate. Therefore, crime rates in developed
countries are still relatively high.
3. Minimal Health Facilities. Health facilities in developing countries are also
relatively minimal. The lack of proper health facilities makes the population in
developing countries more vulnerable to disease. Therefore, the mortality rate in
developing countries is also greater than the mortality rate in developed countries,
which then results in a low life expectancy.
4. Uncontrolled Population Development. Developing countries have a very large
average population compared to developed countries because of uncontrolled
population development. This is also a result of the lack of education and health
facilities.
5. The Unemployment Rate. In developing countries, the unemployment rate is still
relatively high because the available job vacancies are not evenly distributed. In
addition, the level of uneven education is also one of the factors causing the large
unemployment rate.
6. Imports are higher than exports. Due to the low management of natural
resources and human resources in developing countries, developing countries more
often buy goods from abroad.
Examples of developing countries include Indonesia, Brazil, and almost all African
countries.

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MAIN DIFFERENCES BETWEEN DEVELOPING COUNTRIES

AND EMERGING MARKETS

1. Developing countries constitute all the countries of the world that couldn’t
make it to the list of developed countries. They include emerging markets that
are on the threshold of becoming developed.
2. Developing countries are at the backdrop in terms of growth due to limited
investment in globalization, whereas emerging markets have witnessed high
economic growth due to technological innovations.
3. Developing countries have employed little to no industrialization, whereas
emerging markets have used industrialization to improve employment for the
masses.
4. Developing countries are not in a condition to export commodities due to
deficiency in meeting domestic demands. On the other hand, emerging
markets have an adequate amount of production to meet both domestic and
export requirements.
5. The developing countries have less foreign investment, trade deficits, and
higher rates of inflation, whereas emerging markets have high foreign
investment, trade surplus, and cheap capital.
6. The developing countries are fraught with challenges such as financial crises,
empty coffers, and insurgencies. On the other hand, emerging markets suffer
from fluctuating economic policies, and social and political unrest.

Guided Exercises / Learning Activities

The activity should be designed to reinforce or refine the understanding of the

learners.

Your exercises/activities should have the following:

 complete step by step instructions;
 specific task/activity; and
 rubric for performance-based task

Assessment

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This part evaluates the level of mastery in achieving the learning outcomes,
validates the concepts, and provides more opportunities to deepen the learning.
Your assessment tasks should have the following:
 complete instruction on how to accomplish the assessment task;
 specific assessment task; and
 rubric for performance-based assessment

Assignment

(This is an optional part to reinforce or advance the student’s learning. It is

relevant to the past, current, and future lessons. It includes clear instructions and
Submission date of the assignment)

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References

This should include the list of books, websites or guides used in preparing the
module or other materials that the student may consult for further understanding or
appreciation of the lesson presented.

Your references should be:

 In APA format; and
 Arranged alphabetically
https://study.com/academy/lesson/world-economy-definition-history.html
https://www.edology.com/blog/accounting-finance/how-does-global-economy-work/
https://www.internetgeography.net/topics/how-are-countries-classified/
https://askanydifference.com/difference-between-developing-countries-and-
emerging-markets/

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