HSC Topic One – The Global Economy

International economic integration

 The global economy
 Gross World Product
 Globalisation
- trade in goods and services
- financial flows
- investment and transnational corporations
- technology, transport and communication
- international division of labour, migration
 the international and regional business cycles

Trade, financial flows and foreign investment

 the basis of free trade – its advantages and disadvantages
 role of international organisations – WTO, IMF, World Bank, United
Nations,
OECD
 influence of government economic forums – G20, G7/8
 trading blocs, monetary unions and free trade agreements
- advantages and disadvantages of multilateral (EU, APEC, NAFTA,
ASEAN) and bilateral agreements

Protection
 reasons for protection – infant industry argument, domestic
employment,
dumping, defence
 methods of protection and the effects of protectionist policies on the
domestic
and global economy – tariffs, subsidies, quotas, local content rules,
export incentives

Globalisation and economic development

 differences between economic growth and economic development
 distribution of income and wealth
 income and quality of life indicators
 developing economies, emerging economies, advanced economies
 reasons for differences between nations
 effects of globalisation
 trade, investment and transnational corporations
 environmental sustainability
 the international business cycle.
Chapter 1: Introduction to the Global Economy:

International economic integration

Trade, investments, finance, labour, ideas and technologies are flowing

around the world, so much so that economies now share each other’s ups
and downs (to different levels). Governments, international organisations
businesses have encouraged this process because they believe that
globalisation has more benefits than downsides. The Global Financial
Crisis has shown us the dangers of having such closely integrated
economies.
- From an economic point of view, the major indicators of integration
between economies include:
 International trade in goods and services
 International financial flows
 International investment flows and transactional corporations
 Technology, transport and communication
 The movement of workers between countries.

 The global economy

Economic theories traditionally focus on individual economies, assuming

they operate separately and are primarily influenced by local
developments, which does not accurately represent the real world.
- No economy exists independently, and economies around the role
are tightly linked.
- So, what happens in one country can affect other countries, but it
depends on how closely integrated you are with the other country.
- We live in a global economy – where the economies of individual
countries are linked to each other and changes in a single economy
can have a ripple effect on others.
- For many advanced and developing countries, the value of what
they buy and sell (imports and exports) from overseas so often
greater than half of the value of the economy’s annual output.
- Changes in the conditions of the global economy can immediately
have an impact on the economies of far-flung countries.
- The importance of global factors in driving economies can impact
the global economy on supply chains, production and prices.

 Gross World Product

GWP is the monetary value of all goods and services that have been
produced by individual countries collected together.
- Gross World Product (GWP) refers to the sum of total output of
goods and services by all economies in the world over a period of
time.

 Globalisation
In the past the decades, Globalisation has become a dominant economic,
political and social theme.
- Globalisation is the integration between different countries and
economies and the increased impact of international influences on
all aspects of life and economic activity.
- Globalisation is the breakdown of man-made and natural barriers to
the movement of labour, investment, technology, finance and trade,
allowing an increase of cross-border transactions.
- Previous times in world history, one major empire often dominated
economic relationships, in recent decades globalisation has involved
layers of influence in all directions.

- trade in goods and services

Trade in goods and services:

- International trade in goods and services is an important indicator of
globalisation because it is a measure of how goods and services
produced in an economy are consumed in other economies around
the world.
- Composition of trades (the mix of what goods and services are
traded) can have an impact on individual economies.
- Inflation has lowered consumption of imported goods and reduced
real incomes, especially in the European Union (EU) due to energy
price spikes.
- The goal is to have freer trade (because some restrictions on trade
will always be there) and fairer trade (making sure that world trade
helps ALL countries (instead of developing countries being exploited
by richer countries)).
- Causes of growth in trade flows:
 Reduction in man-made barriers:
i) Since the 1970s, there has been a significant reduction in
protectionist policies, such as tariffs (taxes on imports),
quotas (maximum numbers of imports), and subsidies (help
local business) allowing more open trade.
 Reduction in natural barriers:
i) Advances in transport systems and telecommunication
technologies have decreased costs, time lags, and the
difficulty of trading goods and services globally.
- Effects of globalisation on trade flows:
 Composition and Value:
i) ETMs (elaborately transformed manufacturing)  % of
world trade has increased
ii) STMs (Simply transformed manufactures)  % of world
trade has decreased
iii) Mining and Oil  % of world trade has increased
iv) Agriculture  % of world trade has not increased,
mainly due to continued trade barriers
v) Services  % of world trade has MASSIVELY increased
  Direction:
i) Trade blocs: Countries in trade blocs, such as the EU
and ASEAN, reduce barriers between them, increasing
trade. However, this can lead to trade diversion, where
countries outside the bloc are disadvantaged.
ii) Regionalism: Countries in the same region, like East Asia
and Europe, tend to trade more with each other, though
this may limit global specialization.
iii) Political shifts in the world: The U.S. remains a dominant
trading power, but China is rapidly overtaking it,
exporting more than the U.S. while importing less
deliberately to reduce reliance on other countries.

- financial flows

Financial Flows:
- International finance plays a leading role in the global economy,
because finance is crucial to so many aspects of how modern
economies work, a major impact in terms of linking economies
around the world is through the globalisation of finance. Money
moves between countries more quickly than goods and services or
people because finance is the most globalised sector of the world.
- There is no single measure of international financial flows, there has
been an exponential growth of financial flows since globalisation.
- Derivatives are financial contracts whose value depends on an
underlying asset like stocks, bonds, or commodities. They are used
internationally for managing risk or hedging, and common types
include futures and options.
- While global financial flows can boost investment and economic
growth in countries with low savings, speculative activity often
causes volatility, leading to risks like currency crises.
- Causes of growth in financial flows:
 Reduction of man-made barriers:
i) Financial deregulation has played a significant role in
increasing global financial transactions. Governments
have removed restrictions on international capital
movements, central control over exchange rates, and
limits on bank lending.
 Reduction of natural barriers:
i) Technological advancements have transformed the
speed and ease of moving money globally. The
introduction of computers and global communication
networks has enabled instant transactions, overcoming
previous challenges like time zones and distance.
- Effects of globalisation on financial flow:
 Composition and value:
i) Direct Investment: Involves purchasing at least 10% of a
foreign business’s shares to exert control. Global FDI
 flows have increased due to fewer restrictions on foreign
ownership.
ii) Portfolio Investment: Refers to buying less than 10% of
shares or bonds for profit without controlling the
business. Financial deregulation has allowed individuals
and institutions to invest globally through foreign stock
markets and superannuation funds.
 Direction (reasons for change):
i) Trade blocs: Organizations like the EU promote intra-
member investment, often offering incentives like lower
taxes to encourage financial flows between member
countries.
ii) Regionalism: Like trade blocs but within broader
regions, increasing investment within specific
geographical areas.
iii) Political shifts in the world: The rise of major economies
like China and India has redirected global investments
towards these countries. With large trade surpluses,
they have become major global investors, financed
foreign projects and purchased foreign securities.

- investment and transnational corporations

Investment and transnational corporations:

- Another indicator globalisation is the rapid growth of investment
between countries. The global economy has witnessed rapid growth
in movements of capital.
- While global finance and global investment have similarities, they
can be distinguished by describing shorter term, speculative shifts
of money as finance, and the longer-term flows of money to buy or
establish business as investment.
- One measure of the globalisation of investment is the expansion of
foreign direct investment (FDI), which involves the movements of
funds that are directly invested in economic activity or in the
purchase of companies.
- Foreign direct investment (FDI) refers to the movement of funds
between economies for the purpose of establishing a new company
or buying a substantial proportion of shares in an existing company
(10 per cent or more).
- FDI is generally considered to be a long- term investment and the
investor normally intends to play a role in the management of the
business.
- TNCs in digital industries have experienced particularly rapid growth
due to increased adoption of digital solutions during the pandemic.
- As TNCs continue to increase in both volume and significance, there
has been an associated increase in cross-border cartels between
large corporations, which reduces competition in economies and
disadvantages local consumers.
- Transnational Corporations and Investment:
 - A transnational Corporations (TNC) is a company which operates in
two or more countries. A company for example, produce its goods in
one country and sell them in another.
- TNCs don’t have to try to increase globalisation – they increase
globalisation just by operating TNC’s distribute goods and manage
production  increased world trade + increased investment +
increased financial flows.
 Reduction of man-made barriers:
i) Trade liberalization and deregulation have allowed TNCs
to expand globally, increasing access to global markets
for labour, finance, and production.
 Reduction in natural barriers:
i) Advances in transport and information technology have
reduced natural barriers, and improved understanding
of different cultures has facilitated investment across
borders, although some cultural barriers remain (e.g.,
between Japan and the US).

- technology, transport and communication

Technology, transport and communication:

- Technology plays a crucial role in globalisation. In part, this is
because of technological developments facilitate the integration of
economies.
- Technology is one of the strongest drivers of globalisation because it
allows integration at a depth unthinkable in previous decades and
centuries.
- Freight Technology: Micro warehouses and blockchain are improving
logistics, making trade more efficient and potentially cutting costs
by 6%.
- International Communication: High-speed broadband has made
global services cheaper and more reliable, with internet usage rising
from 7% in 2000 to 67% in 2023, reducing trade costs significantly.
- Finance Investment: Technology enables fast, secure global money
transfers, and online portals make it easier for countries to attract
foreign investment.
- Mobile Technology: Smartphones and mobile internet are
transforming industries like retail and education, with over 8 billion
mobile subscriptions worldwide.
- Transportation Advances: Nonstop flights and high-speed rail are
boosting labour mobility and tourism, increasing global connectivity.
- Tech-adapting Economies: Economies that quickly adopt new
technologies tend to integrate more closely with global markets and
regional economies.
- Technology drives globalization by boosting trade and investment,
creating major opportunities for tech innovators and exporters.
Trade spreads new technologies, allowing leading countries to
maintain technological superiority over time.
 - Companies like Google and Salesforce expand globally to sell
products, contributing to the global economy by bringing knowledge
and investing in local markets. These corporations, especially digital
TNCs, invest in education and training, boosting foreign investment
while relying less on physical assets.
- The internet acts as a communication backbone for global
businesses, reducing costs and promoting economic integration. The
rise in internet users to over five billion highlights the rapid spread
of technology and global interconnectedness.
- Transportation:
 Advances in transportation have revolutionized the movement
of goods and people. Larger, safer ships and standard
shipping containers have made trade more efficient.
 Planes, roads, and trucks have also improved, enabling faster
and cheaper delivery of products. High-speed rail and nonstop
flights enhance labour mobility and global tourism, further
strengthening global connections.
- Telecommunication:
 Communication technology has evolved dramatically. In the
past, trade was limited by slow communication methods like
letters and telegraphs.
 Today, the internet, high-speed broadband, and mobile
technology have reduced trade costs and made global
services more reliable.
 Internet usage skyrocketed from 7% in 2000 to 67% in 2023,
enabling secure global financial transactions, faster
coordination of world trade, and investment opportunities.

- international division of labour, migration

International division labour and migration:

- Internationalization of Labor Markets: Labor markets are less
internationalized than those for goods, services, and finance. Job
mobility is slower, with industrialized nations increasingly restricting
immigration from poorer countries.
- Migration Trends: More individuals are moving for better job
opportunities due to "push" factors (conflict, economic issues) and
"pull" factors (demand for workers in economies with shortages).
- Labor Market Segmentation: Migration is concentrated among highly
skilled workers moving to larger economies for better pay, while
low-skilled labour is also in demand in advanced economies that
struggle to fill certain positions.
- Brain Drain: Smaller advanced economies, like Australia and New
Zealand, experience "brain drain" as skilled workers seek better
opportunities abroad. The services sector employs the most migrant
workers globally.
- Remittances: Low-skilled labour migrants send significant earnings
back home, with $790 billion in remittances recorded in 2022,
benefiting countries like India, Mexico, and the Philippines.
 - Barriers to Labor Mobility: Despite globalization trends, barriers such
as immigration restrictions, language differences, and cultural
factors remain. Most people prefer to stay in their home countries
due to familiarity with culture and language.
- International Division of Labor: This concept is reflected in
offshoring, where companies move production to reduce costs,
taking advantage of low-skilled labour in developing economies.
- Comparative Advantage: Comparative advantage suggests that
production should occur in the most efficient country, and ideally,
workers should move freely. Although migration limits have relaxed,
challenges like geographic distances and language barriers persist.
 Reduction of the migration of labour:
i) Governments have usually limited the level of migration
– made it harder for workers to enter. Now, these limits
have been relaxed, but many remain.
 Reduction of natural barriers:
i) Geographic distances made it difficult for workers to
move (as well as language and cultural differences). The
spread of English has helped, but workers still feel like
‘immigrant workers’.

 the international and regional business cycles

The international and regional business cycle:

- Economic growth cycles reflect fluctuations in economic activity,
alternating between periods of above-average and below-average
growth.
- The international business cycle describes the global fluctuations in
economic activity over time. Economic growth in countries is
typically stronger during global expansions and weaker during
downturns. For example, Australia is heavily influenced by
international trends, with 63% of its output changes tied to G7
countries.
- The international business cycle illustrates how interconnected
economies share growth and downturns, influenced by various
factors. However, the distinctiveness of each country's conditions
leads to differing economic growth patterns, showcasing the
complexity of global economic interactions.
- Impact of Globalization:
 Increased integration of economies has heightened the
transmission of economic conditions:
i) Trade Flows: Economic booms or recessions affect
demand for goods and services internationally.
ii) Investment Flows: Economic conditions influence
domestic investment in foreign operations.
iii) Transnational Corporations (TNCs): TNCs spread global
economic trends, impacting job markets (e.g., layoffs in
tech companies).
 iv) Financial Flows: Australia’s openness to global capital
markets connects it to shifts in international financial
conditions.
v) Consumer Confidence: Global events influence investor
sentiment and stock market trends.
vi) Global Interest Rates: Changes in one country’s interest
rates affect other countries’ monetary policies.
vii) Commodity Prices: Key commodities' prices impact
inflation and economic growth globally, with significant
events like sanctions affecting trade.
viii) International Organizations: Groups like the G20 and G7
coordinate macroeconomic policy and address global
economic uncertainties.
- Distinctive National Conditions:
 Despite global linkages, countries experience different growth
patterns due to:
i) Interest Rates: They affect economic activity differently
across regions.
ii) Government Policies: Fiscal policies and decisions can
enhance or dampen economic growth.
iii) Exchange Rates: Variations affect trade competitiveness
and economic confidence.
iv) Structural Factors: Different financial system resilience,
innovation rates, and demographic factors influence
growth.
v) Regional Factors: Some economies are closely
integrated and affected by their neighbours, while
others depend more on global economic performance.
- Strengthening the International Business Cycle:
 Trade flows
 Investment flows and sentiment
 Transnational corporations
 Financial flows
 Technology
 Global interest rates
 Commodity prices
 International organizations
- Weakening the International Business Cycle
 Domestic interest rates
 Government fiscal policies
 Domestic economic policies
 Exchange rates
 Structural factors
 Regional factors

Regional Business Cycle

- Regional business cycles refer to economic activity changes within a
specific region, influenced by both global and regional shifts.
 - Economic conditions in the US significantly impact Canada and
Mexico due to NAFTA. In Europe, growth is influenced by Germany
and France, while Asian economies look to China and Japan.

Chapter 2: Trade in the Global Economy:

Trade, financial flows and foreign investment

 the basis of free trade – its advantages and disadvantages

Advantages and Disadvantages of free trade:

Free Trade:
- Definition: Free trade is a situation where no artificial barriers (such
as tariffs, quotas, or subsidies) are imposed by governments,
allowing goods and services to move freely across national borders.
This eliminates protection for domestic producers from foreign
competition.
- Trade Liberalization: The process of reducing or removing these
barriers is called trade liberalization. Over time, the global economy
has generally moved toward greater free trade, although significant
barriers still exist, particularly in certain industries (e.g., agriculture
in the US, EU, and Japan).
- Economic Growth: Free trade is widely accepted among economists
as a driver of higher economic growth and living standards. For
example, between 1970 and 2021, average global growth in world
production (GWP) was about 3-4% per year, which led to significant
improvements in living standards.
Advantages of Free Trade
- Access to Goods and Services: Countries can obtain goods and
services that they either cannot produce themselves or cannot
produce in sufficient quantities. For instance, a lack of resources or
technology may prevent some countries from producing certain
goods.
- Comparative Advantage: Free trade allows countries to specialize in
producing goods in which they have a comparative advantage,
meaning they produce goods more efficiently than others. This
specialization leads to better resource allocation globally.
- Economies of Scale: By opening up larger markets, free trade allows
firms to grow and achieve economies of scale, lowering per-unit
costs of production and increasing efficiency. Firms can buy
materials in bulk and access larger consumer bases, lowering prices
for consumers.
- International Competition: Increased competition from foreign
producers forces domestic firms to innovate, improve efficiency, and
reduce costs. This boosts productivity and enhances product quality.
For example, Australia’s car market can’t support more than a few
domestic producers due to competition from global manufacturers.
- Innovation and Technology: Free trade encourages technological
advancement. Innovations in telecommunications and
 manufacturing lower production costs, reduce inflation, and increase
worker productivity.
- Political Benefits: Countries engaged in free trade are more likely to
have positive relationships, reducing the likelihood of conflicts and
promoting international cooperation in various sectors.
- Higher Living Standards: Free trade leads to lower prices, increased
production, and greater consumer choice, all of which raise living
standards. Increased global competition and trade also spur higher
economic growth and real incomes.
Disadvantages of Free Trade
- Unemployment: Some domestic industries may struggle to compete
with cheaper imports, leading to short-term unemployment.
Although resources may eventually shift to more efficient sectors,
certain regions, industries, or workers may be permanently affected.
- Challenges for Developing Economies: Developing economies often
find it difficult to establish new industries because they cannot
compete with more efficient foreign producers. This leads to calls for
protectionism to support infant industries.
- Dumping: Foreign producers may dump excess products on
domestic markets at artificially low prices, harming efficient
domestic industries. This can destabilize local economies and lead
to job losses.
- Environmental Concerns: Some countries may engage in
environmentally harmful production methods to reduce costs,
creating a "race to the bottom" in environmental standards. For
instance, producers may undercut competitors by ignoring pollution
control, contributing to environmental degradation.
- Dependence and Vulnerability: Relying heavily on international
trade can create vulnerabilities in times of crisis, such as during
wars or pandemics. For example, supply chain disruptions may
prevent access to essential goods like defence equipment and
medical supplies.
- Unequal Benefits: Free trade is not evenly distributed across the
globe. While some industries experience lowered barriers (e.g.,
textiles), others remain highly protected (e.g., agriculture). This can
widen the economic gap between rich and poor countries, leaving
developing nations more dependent on advanced economies.

 role of international organisations – WTO, IMF, World Bank,

United Nations,
OECD

International Organisations (IOs):

- IOs are entities formed by sovereign states to facilitate cooperation
and coordination on global issues. They aim to regulate resources,
manage crises, and achieve common goals, such as promoting
peace, security, and economic development.
 - Major IOs include the World Trade Organization (WTO), International
Monetary Fund (IMF), World Bank, United Nations (UN), and
Organisation for Economic Cooperation and Development (OECD).
- The WTO focuses on international trade rules; the IMF promotes
monetary cooperation and financial stability; and the World Bank
provides financial and technical assistance for development
projects.
- IOs help address global challenges and foster dialogue between
member states, making them essential for managing interconnected
issues in the world.
World Trade Organisations (WTO):
- Role of WTO:
 The World Trade Organization (WTO) was created to establish
and maintain a structured, rule-based system that encourages
and facilitates international trade.
 Members hold “rounds” of discussion roughly every decade
(although rounds were initially shorter and more frequent), in
which new trade rules are negotiated.
 All decisions are binding for all WTO members.
 Since 1995, it has had an added role in boosting international
trade, through the creation of the WTO Dispute Settlement
Body. This is colloquially called the “World Trade Court” and
enforces existing trade rules.
- Importance of WTO:
 Before the 1990s, the WTO helped lower manufacturing
protection. In the 1990s, the WTO created trade rules for
goods such as textiles and agriculture, involving more
countries than ever before. Since 2001, the WTO’s importance
has declined because any new negotiations have ended up
stalling due to disagreements.
 The global importance of WTO can be broken down into three
broad “periods”:
i) First Period: There were seven rounds. During the third
round, tariffs were reduced by 25%.
ii) Second Period: This period featured the pivotal Uruguay
Round.
iii) Third Period: This period followed the Uruguay Round
and included all the failed attempts to set up a new
Doha Round.
 Second Period (Uruguay Round, 1986 – 1994):
i) This was the most important round in the WTO’s history,
expanding categories for which it reduced protection
and leading to the creation of the Dispute Settlement
Body.
ii) Freer Trade: This was the first time developing nations
clearly benefited.
iii) Services: The WTO reduced protection, benefiting
advanced economies most of all.
 iv) Agriculture: Agriculture was discussed for the first time
in a round; advanced nations agreed to cut average
agricultural tariffs and subsidies by 36%.
v) Intellectual Property: The WTO aimed to better enforce
and regulate intellectual property rights. This includes
aspects such as copyrights and patents, which primarily
benefited advanced countries.
vi) Textiles (Fibres): This was another positive outcome for
developing nations.
vii) Dispute Settlement Body: The dispute settlement body
makes rulings to enforce existing trade rules. This court
increased the WTO’s importance and ensured its
continued relevance in international trade. Even if the
WTO fails to create any new trade rules, the court can
help guarantee the gains achieved in its first eight
rounds.
 Third Period (Doha Round, 2001- ????):
i) The importance of the WTO has declined considerably
since the Uruguay Round; its members have been
unable to set up a new round.
ii) The Doha Round faced some of the largest anti-
globalization protests in history.
iii) Members have disagreed over several key issues, which
has prevented further progress in the Doha Round for
over two decades.
iv) Agricultural Subsidies: Some advanced nations,
especially the USA and the EU, pay their farmers high
agricultural subsidies, and governments have been
reluctant to reduce agricultural protection.
v) Agricultural Trade Liberalization: Some developing
nations, especially India, also oppose agricultural trade
liberalization, aiming to maintain self-sufficiency and
higher domestic prices.
vi) Pharmaceutical Agreements: The agreements would
allow advanced nations to enforce their patents in the
developing world, forcing them to buy the more
expensive original brands.
vii) Successes: The WTO has had significant success due to
advantages such as economies of scale and
comparative advantage.
viii) Failures: However, developing countries continue to be
disadvantaged because agricultural protection remains
high.
International Monetary Fund (IMF):
- Role of IMF:
 The International Monetary Fund (IMF) is an international
organization established to promote global monetary
cooperation, secure financial stability, facilitate international
 trade, promote high employment and sustainable economic
growth, and reduce poverty around the world.
 The IMF provides financial support to member countries facing
balance of payments problems by offering loans and
assistance in implementing economic reforms.
 It also conducts economic surveillance by monitoring the
economic and financial developments of its member
countries, providing policy advice and technical assistance.
- Importance of IMF:
 The IMF plays a critical role in stabilizing the global economy
by providing a financial safety net to countries experiencing
economic crises, helping to prevent contagion effects that
could destabilize other economies.
 Its surveillance activities help maintain international monetary
stability by identifying potential risks and advising member
countries on appropriate policies.
 The IMF supports economic reforms that aim to enhance
countries’ economic performance, promoting sustainable
growth and reducing vulnerabilities.
- Influence of IMF:
 The IMF’s influence is evident in the conditionalities attached
to its financial assistance, which often require borrowing
countries to implement specific economic policies and reforms
aimed at restoring stability.
 Its capacity to provide substantial financial resources positions
the IMF as a key player in global economic governance,
affecting national policy decisions and economic strategies.
 The IMF collaborates with other international organizations
and financial institutions, enhancing its influence on global
economic policy and decision-making.
The World Bank:
- Role of WB:
 The World Bank is a vital international financial institution
established to provide financial and technical assistance to
developing countries for development projects.
 Its primary focus is on poverty alleviation and promoting
sustainable economic development by funding projects that
improve infrastructure, health, education, and agriculture.
 The World Bank provides loans, grants, and expert advice to
help countries implement projects aimed at reducing poverty
and fostering economic growth.
- Importance of WB:
 The World Bank plays a crucial role in the global development
landscape, mobilizing financial resources to support projects
that improve living standards and economic opportunities in
developing nations.
 It is instrumental in addressing global challenges such as
climate change, inequality, and health crises by supporting
projects aimed at sustainable development.
  The World Bank's research and data collection efforts provide
valuable insights into development trends and effective policy
measures, guiding both national and international
development strategies.
- Influence of WB:
 The World Bank's influence is evident through its funding
decisions and project implementation, often setting priorities
for development agendas in recipient countries.
 Its extensive network of partnerships with governments,
NGOs, and the private sector amplifies its impact, facilitating
collaborative efforts to tackle development challenges.
 The World Bank's policies and funding conditions can shape
economic policies in borrowing countries, encouraging reforms
that align with its development objectives.
United Nations (UN):
- Role of UN:
 The United Nations (UN) is an intergovernmental organization
established in 1945 to promote peace, security, and
cooperation among its member states.
 The UN works to address a broad range of global challenges,
including conflict resolution, humanitarian assistance, human
rights promotion, and sustainable development.
 It serves as a platform for dialogue and negotiation among
member states to resolve disputes and foster international
collaboration.
- Importance of UN:
 The UN plays a vital role in maintaining international peace
and security through peacekeeping missions, conflict
resolution, and diplomatic initiatives.
 It addresses global issues such as poverty, health, education,
and climate change, providing a framework for international
cooperation and collective action.
 The UN fosters human rights by promoting the Universal
Declaration of Human Rights and establishing various human
rights treaties and mechanisms.
- Influence of UN:
 The UN’s influence stems from its ability to convene nations
and facilitate discussions on pressing global issues, making it
a central player in international diplomacy.
 Its resolutions and recommendations, while not legally
binding, carry significant moral and political weight,
influencing national policies and international norms.
 The UN can mobilize resources and coordinate responses to
global challenges, enhancing its impact on humanitarian
crises and development efforts.
- Aim of UN:
 The primary aim of the United Nations is to maintain
international peace and security and prevent conflict through
diplomatic dialogue and negotiation.
  The UN seeks to promote sustainable development and
improve the living standards of people worldwide, addressing
issues such as poverty, education, health, and gender
equality.
 The organization aims to uphold and protect human rights,
fostering fundamental freedoms and justice for all individuals,
irrespective of their background.
 The UN endeavours to enhance international cooperation on
global challenges, including climate change, humanitarian
crises, and economic inequality, through collaborative
initiatives among member states.
 The UN aims to provide a platform for addressing international
issues, facilitating discussions, and creating frameworks for
multilateral agreements on pressing global matters.
- The six main UN organs:
 General Assembly (GA): A deliberative body where all member
states have equal representation to discuss and make
recommendations on various international issues.
 Security Council (SC): Responsible for maintaining
international peace and security, with the power to authorize
military action and impose sanctions.
 International Court of Justice (ICJ): The principal judicial organ
of the UN that settles legal disputes between states and gives
advisory opinions on legal questions.
 Secretariat: Carries out the day-to-day work of the UN, led by
the Secretary-General, who acts as the spokesperson and
diplomatic leader of the organization.
 Economic and Social Council (ECOSOC): Facilitates
international economic and social cooperation and
development, coordinating the work of specialized agencies.
 Trusteeship Council: Established to oversee the administration
of trust territories, although its operations have been
suspended since the last trust territory gained independence.
Organisation for Economic Cooperation and Development (OECD):
- Aims of the OECD:
 The Organisation for Economic Cooperation and Development
(OECD) aims to promote policies that improve the economic
and social well-being of people around the world.
 It serves as a forum for governments to collaborate, share
experiences, and seek solutions to common problems in
economic development, social issues, and environmental
challenges.
 The OECD conducts research and analysis, providing data and
policy recommendations to help member countries make
informed decisions.
- Role of the OECD:
 The OECD plays a critical role in setting international
standards and guidelines in various areas, including economic
policy, taxation, education, and environmental sustainability.
  It provides a platform for discussion and collaboration among
member countries, facilitating the exchange of information
and best practices.
 The OECD supports member countries in implementing
effective policies through capacity building and technical
assistance.
- Importance of the OECD:
 The OECD is important for fostering economic growth and
stability among its member countries by promoting sound
economic policies and addressing challenges related to
globalization.
 Its work on improving education, innovation, and employment
contributes to enhancing the quality of life and social well-
being of citizens in member countries.
 The OECD’s analysis and reports are widely regarded as
authoritative and influential, shaping policy discussions and
decisions at national and international levels.
- Influence of the OECD:
 The OECD's influence is seen in its ability to bring together
policymakers and experts to discuss critical issues, facilitating
consensus-building and collaboration.
 Its recommendations often guide national policies and inform
international agreements, making the OECD a key player in
shaping global economic governance.
 The OECD’s focus on evidence-based policymaking enhances
its credibility and impact in promoting sustainable economic
growth and addressing pressing global challenges.

 influence of government economic forums – G20, G7/8

Government economic forums:

- Government economic forums are international venues where
leaders, finance ministers, and central bank governors from major
economies discuss and coordinate global economic policies.
- They play a crucial role in addressing global economic issues,
especially during crises like the COVID-19 pandemic and the war in
Ukraine.
- Although their decisions are non-binding, these forums exert
considerable influence.
- Countries can pressure each other to adopt majority-supported
policies.
G20:
- Membership: The G20 comprises 19 of the world’s largest national
economies plus the European Union, representing around 85% of
global GDP and 64% of the world’s population. Unlike the G7, it
includes emerging economies like Brazil, China, and India, making it
more diverse and representative.
- Role and Influence:
  Since its founding, the G20 has been crucial in coordinating
responses to major economic crises. During the 2008 Global
Financial Crisis (GFC), it coordinated a global fiscal stimulus
and improved financial oversight.
 More recently, it played a role in negotiating a global
minimum corporate tax rate with the OECD in 2021, and it has
also taken steps to support debt relief for developing
countries in partnership with the IMF and World Bank.
- Challenges: The G20 has no permanent headquarters or formal
leadership, making it reliant on annual summits and the agendas set
by host nations. Although less central in post-pandemic economic
cooperation, the G20’s diverse membership gives it continued
relevance for addressing broad global challenges, from economic
growth to climate policy.
G7/8:
- Members: United States, United Kingdom, France, Germany,
Canada, Japan, and Italy.
- Role and Background:
 Since 1976, the G7 has functioned as an economic council for
the world’s wealthiest nations, addressing global economic
conditions and broader political issues like climate change,
global poverty, and security.
 It is the primary forum for coordinating macroeconomic policy
among advanced economies, leveraging influence over fiscal
and monetary policy.
- Criticism and Representation: The G7’s membership is viewed as
unrepresentative of the current global economy, as major
economies such as China and India are excluded. The G7’s share of
global GDP has decreased from 68% in 1992 to 44% in 2023, and its
population coverage is only about 10%.
- Recent Activities:
 The G7 has actively addressed contemporary global crises. In
2024, for instance, the G7 summit in Puglia, Italy, coordinated
efforts to provide a $50 billion loan to Ukraine using seized
Russian assets.
 Proposals to include observer nations, such as Australia, have
emerged to improve representativeness. Leaders from
countries like Ukraine, India, Brazil, and others were invited to
the 2024 summit, with Canada hosting the 2025 summit.

 trading blocs, monetary unions and free trade agreements

Trading Blocs, Monetary Unions and Free Trade Unions (FTAs):

- Globalisation relies on the reduction of barriers to economic
transactions around the world. This process facilitates increased
trade and investment between countries.
- Trade blocs are theoretically an effective means to achieve
globalization, as they can involve many countries working together
to lower trade barriers and promote economic cooperation.
 - However, a trade bloc may not necessarily develop into a free trade
area (FTA). Members might agree that retaining some level of
protectionism is beneficial, especially if there is a lack of
cooperation or trust among the members of the bloc. This can lead
to trade barriers that still exist even within the bloc.
- Additionally, some trade blocs, such as APEC (Asia-Pacific Economic
Cooperation), may not mandate the reduction of trade barriers,
allowing for varying degrees of participation and commitment
among member countries.
- The existence of trade blocs with differing aims and sometimes
opposing intentions complicates international trade and economic
relationships. This makes it increasingly challenging to effectively
and fairly promote free trade on a global scale.
Different level of Integrations:
- When countries collaborate to reduce economic barriers, they can
integrate at various levels. Each level offers distinct degrees of
economic cooperation and integration, catering to different
economic and political needs.
- Trade blocs (Lowest level of integration):
 A trade bloc represents the most basic level of economic
integration, involving three or more countries that form a
"bloc" or group to reduce trade barriers among themselves.
 Typically, countries in a trade bloc agree to:
i) Remove protectionism on certain categories of goods or
services.
ii) Lower overall levels of protectionism to encourage trade
among bloc members.
 However, it’s crucial to note that trade blocs do not eliminate
all barriers to trade. Some protectionist measures remain,
meaning that member countries maintain the freedom to
regulate certain aspects of their trade and economic policies
independently.
 Trade blocs allow for a gradual approach to integration,
balancing economic cooperation with national sovereignty.
This stage focuses primarily on boosting trade within the bloc
without fully committing to free trade principles.
- Free Trade Area (FTA) (Medium level of integration):
 A free trade area builds upon the concept of a trade bloc by
further intensifying economic integration among its members.
In an FTA, countries agree to remove almost all trade barriers,
though minor exceptions may exist based on specific goods or
sensitive sectors.
 Unlike a trade bloc, an FTA eliminates tariffs, quotas, and
other restrictions on the majority of goods and services traded
among member countries, allowing for freer cross-border
trade.
 While FTAs facilitate trade by creating a more seamless
market among members, each country retains control over its
trade policies with non-member countries. This means
 members of an FTA can individually negotiate tariffs and
regulations with countries outside the agreement.
 By doing so, FTAs encourage economic growth and
specialization within the area, as members gain access to
each other’s markets with fewer restrictions.
- Monetary Union (Highest level of integration):
 A monetary union represents the most advanced level of
economic integration, involving not only the creation of a
single market but also the adoption of a common currency
among members.
 In a monetary union, member countries establish a "single
market," enabling the free movement of goods, services, and
the factors of production (such as labour and capital) across
borders. This level of integration removes economic barriers
beyond just trade, fostering a deeply interconnected
economy.
 By using a common currency, a monetary union eliminates
exchange rate fluctuations among member states, which can
simplify trade and investment by reducing uncertainty and
transaction costs.
 The single market structure of a monetary union goes beyond
trade liberalization, aiming for complete economic integration
by aligning monetary policies and harmonizing economic
regulations across member countries.

- advantages and disadvantages of multilateral (EU, APEC,

NAFTA, ASEAN) and bilateral agreements

Bilateral Agreements:
- Bilateral agreements are trade deals between two countries
focusing on reducing trade barriers exclusively between them.
- These agreements are often termed preferential trade agreements
since they provide favourable treatment to the involved nations
while excluding others.
- While bilateral agreements support free trade, they have a limited
impact as they apply only to the two participating countries.
However, a large number of bilateral agreements worldwide
collectively contribute to reducing global trade barriers.
- Bilateral agreements offer flexibility, enabling two countries to
negotiate and agree on mutually beneficial terms more rapidly than
in multilateral settings.
- Increasingly, bilateral agreements are also formed between a
country and a trade bloc, or between two trade blocs, adding
complexity to international trade arrangements.
Multilateral Agreements: Case studies of trading blocs - APEC,
ASEAN:
- Asia-Pacific Economic Cooperation (APEC): Focused on promoting
free trade and economic cooperation throughout the Asia-Pacific
region.
 - Association of Southeast Asian Nations (ASEAN): Aims to promote
economic growth and regional stability among Southeast Asian
countries.
- Other significant agreements include the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the
Regional Comprehensive Economic Partnership (RCEP).
- While CPTPP and RCEP may not be directly included in some syllabi,
they are crucial in the context of multilateral agreements.
- Mentioning these agreements can enhance responses in exams
about multilateral agreements, showcasing an understanding of
current economic frameworks and their global impact.
Advantages of multilateral and bilateral agreements:
- Increase in trade and economic growth:
 Trade blocs and agreements are designed to foster global
economic growth by decreasing protectionist barriers, which
can improve resource allocation and enhance overall
efficiency.
 By reducing tariffs, quotas, and other restrictions, these
agreements help stimulate trade among member countries,
facilitating the movement of goods, services, and
investments.
 Despite their potential benefits, the economic advantages
have been unevenly distributed across nations. Some
countries have managed to negotiate more favourable
agreements, securing greater access to key markets and
economic benefits.
 For instance, countries like Australia face limitations as they
cannot join major trade blocs such as the United States-
Mexico-Canada Agreement (USMCA), the European Union
(EU), or the Association of Southeast Asian Nations (ASEAN),
which restricts their access to these powerful economic zones.
 Typically, large trade blocs inspire a network of additional
bilateral agreements, which can further boost trade. For
example, the European Union (EU) has entered into numerous
bilateral agreements to expand its trade relationships with
individual countries outside the bloc.
- Political benefits:
 Trade agreements are generally quicker and more flexible to
negotiate than agreements through international
organizations, such as the World Trade Organization (WTO),
which can take years to finalize a single trade deal.
 Bilateral and multilateral trade agreements allow countries to
tailor the terms of the agreement to meet each country’s
specific needs. This flexibility makes them especially
appealing because countries involved in these agreements
usually have similar political systems, economic goals, or
strategic interests.
 Bilateral agreements are often simpler and faster to negotiate
than multilateral agreements, as only two countries need to
 reach a consensus. This efficiency makes it easier for nations
to achieve favourable trade conditions swiftly.
- Increased ties with countries outside the box:
 Multilateral agreements often encourage members to
establish trade and diplomatic ties with countries outside their
immediate region.
 For example, the European Union (EU) has established
numerous trade agreements with countries outside the bloc,
strengthening global economic interdependence.
 This external engagement expands economic partnerships
and creates a network of alliances that can foster political
stability and cooperation beyond the regional bloc itself.
Disadvantages of multilateral and bilateral agreements:
- Trade diversion:
 One of the significant drawbacks of trade blocs and
agreements is trade diversion, which occurs when trade shifts
away from more efficient, lower-cost producers outside the
bloc to less efficient producers within the bloc.
 While trade agreements often promote stronger trade within a
specific region, they can inadvertently reduce global trade
efficiency by limiting free trade to within the bloc. This
restricts the benefits of global free trade, as countries may
prioritize trading within their bloc rather than sourcing goods
from the most cost-effective global suppliers.
 Trade diversion can lead to inefficient resource allocation
since products might be sourced from regional producers
within the bloc rather than from more competitive or cheaper
sources in other parts of the world.
 This is a considerable disadvantage for countries that lack
access to extensive trade agreements, like Australia, which
may be excluded from key trade networks and thus miss out
on the benefits of these trade arrangements. However, it’s
worth noting that concerns about trade diversion may
sometimes be overstated, depending on the context and
specific trade policies involved.

Protection
 reasons for protection – infant industry argument, domestic
employment,
dumping, defence

Reasons for protection:

- Protection refers to government policies that provide domestic
producers with an artificial advantage over foreign competitors
through tools like tariffs, subsidies, or quotas.
- Despite the clear benefits of free trade, most countries have a long
history of using protection to shield their local markets.
Governments often introduce protection to protect domestic
industries from more efficient foreign producers.
 - Protectionism can lead to retaliation, where countries facing
restrictions impose similar measures. This can neutralize the
advantages of free trade and harm international relationships.
- Effects of protection typically causes:
 An increase in the price of imports,
 A reduction in the price of exports,
 A restriction in the quantity of imports allowed.
Infant Industries: (not economic argument)
- The infant industry argument supports using protection to shield
new domestic industries from foreign competition until they can
grow big enough to compete on an international level.
- New industries often struggle due to their smaller scale, higher
costs, and limited experience compared to established competitors.
- Temporary protection is justified to help these industries build
capacity, establish markets, and achieve economies of scale.
- The government should only provide temporary assistance to
industries with a genuine chance of becoming competitive.
Prolonging protection leads to inefficiency, as industries become
dependent on support rather than becoming self-sufficient.
- While some economists argue that the infant industry argument can
benefit developing economies, the risk is that industries never
"grow up" and remain inefficient, negatively affecting consumers
through higher prices.
- Governments can often mismanage this process, leading to long-
term inefficiency and protection of industries that do not deserve
support.
Prevention of dumping: (an approved economic argument)
- Dumping occurs when goods are sold in a foreign market at a price
lower than their domestic price or even below their cost of
production. This is typically done to clear excess stock or gain a
foothold in a foreign market.
- While consumers benefit in the short term from lower prices,
dumping can devastate domestic producers by eliminating
competition.
- Protectionist measures against dumping are widely accepted, even
by economists, as they prevent foreign companies from unfairly
dominating markets.
- The WTO oversees disputes to ensure countries do not misuse anti-
dumping measures to unfairly shield domestic industries from
legitimate low-cost foreign competition.
- Anti-dumping measures are often applied in industries such as base
metals, chemicals, plastics, and rubber.
Protection of domestic employment: (not an economic argument)
- Protection is often justified to save local jobs, especially during
times of recession. By reducing foreign competition, domestic
industries can expand, leading to higher employment.
- Protection leads to higher domestic employment in the short term,
as consumers shift from foreign goods to locally produced goods,
increasing demand for local labour.
 - However, in the long run, protectionism can make domestic
industries less efficient. Eventually, the economy will need to adapt,
with workers shifting to more productive and internationally
competitive sectors.
- If one country imposes protection to save jobs, others may retaliate,
leading to a cycle that reduces the benefits of trade and limits job
creation in more efficient industries.
Defence, national security and self-sufficiency: (not an economic
argument)
- Some industries, especially those related to defence, energy, and
essential goods like food and medical supplies, are considered too
important to national security to be left vulnerable to foreign
dependence.
- In times of conflict, countries may not be able to rely on foreign
suppliers for crucial goods, making self-sufficiency in these
industries vital.
- In light of recent global crises (e.g., pandemics), the argument for
self-sufficiency has gained momentum. Governments now
emphasize strengthening domestic production capacities for
essential goods to ensure economic security during future
emergencies.
- Economists argue that countries that trade more are less likely to
engage in conflict, thus reducing the need for defence-related
protectionism. Furthermore, protectionism in non-defence industries
can limit efficiency.

 methods of protection and the effects of protectionist

policies on the domestic and global economy – tariffs,
subsidies, quotas, local content rules, export
incentives

Methods of protection:
Tariffs:
- A tariff is a government-imposed tax on imports, making imported
goods more expensive and domestic producers more competitive.
- Tariffs protect local industries by raising the price of imports,
encouraging consumers to buy domestic goods. For example, a 10%
tariff on imported cars increases their price, allowing local producers
to compete.
- The economic effects of tariffs include stimulating domestic
production and employment, but also attracting resources to less
efficient industries. Tariffs raise prices for consumers, reducing their
purchasing power and lowering living standards.
- Although tariffs raise government revenue, this isn't the primary
goal. Revenue decreases as fewer imports come in due to the
tariff’s effectiveness.
- Tariffs can provoke retaliation from other countries, leading to trade
wars, as seen in Australia’s tariff on Chinese steel in 2014, which led
China to retaliate with tariffs on Australian barley and wine.
 - Tariffs are often discouraged by the WTO, and new tariffs are
typically banned or limited. Some exceptions include countervailing
measures (e.g., 240% tariffs on Australian wines by China) and
carbon tariffs, used to discourage imports that contributes to

pollution
Quotas:
- A quota limits the amount or value of goods that can be imported,
protecting domestic industries by restricting foreign competition.
- Quotas, like tariffs, stimulate domestic production but can lead to
higher prices and fewer choices for consumers. Unlike tariffs, they
do not generate direct revenue for the government.
- A tariff quota combines tariffs and quotas: goods imported beyond
the quota limit are subject to higher tariffs.
Quotas are generally seen as more restrictive than tariffs, and the
WTO prohibits the introduction of new quotas.
- Quotas reallocate resources toward protected industries, as seen in
the EU's quota on high-quality beef, which has led to 95% of beef
consumed being domestically produced.
Subsidies:
- A subsidy is a financial grant from the government to domestic
producers, allowing them to lower their production costs and sell
their goods at more competitive prices, both locally and globally.
- Subsidies stimulate domestic production and employment, while
lowering prices for consumers. However, they impose a cost on
government budgets, reducing funds available for other priorities
like education or healthcare.
- Economic effects include an increase in domestic production,
reallocation of resources, and indirect costs for consumers through
higher taxes.
- While subsidies are seen as less restrictive than tariffs or quotas,
they still limit international trade and can make it harder for
developing countries to compete. The WTO discourages subsidies
for this reason, and they are often subject to international criticism.
- The EU, USA, and Japan, for example, provide large agricultural
subsidies, making it difficult for poorer countries to compete in
global markets.
Local Content Rules
- These rules require a percentage of a good to be made locally. For
example, Australian free-to-air TV must have 55% Australian-made
content, and some industries like construction may require the use
of a minimum percentage of local materials.
- Local content rules protect domestic producers by guaranteeing
them a market share and reducing the market for imports.
- In some cases, governments provide tax concessions to businesses
that comply with local content rules.
Export Incentives:
- Export incentives aim to encourage domestic businesses to export
their goods by offering financial assistance, such as grants or tax
cuts, or providing support like marketing advice.
- By supporting exports, governments aim to bring money into the
economy and improve the nation's global reputation.
- Export incentives do not protect businesses from foreign
competition domestically but help them capture a larger share of
global markets. Australia's Export Market Development Grant
(EMDG) program, for instance, has helped over 51,000 businesses
promote their exports globally.
- While not directly a form of protectionism, export incentives can act
as a trade barrier by giving domestic businesses an advantage in
international markets.
Additional Information:
- Protectionism reduces global trade and economic growth by
encouraging inefficient production and limiting countries' ability to
specialize in industries where they have a comparative advantage.
- High tariffs and quotas lead to trade retaliation, making goods more
expensive and reducing living standards.
- Protectionist policies disproportionately affect developing countries,
which rely on exports to richer nations. The WTO and World Bank
emphasize that free trade promotes economic growth and poverty
reduction, as seen in the increased share of global exports by
developing countries from 16% to 30% between 1990 and 2017.

Chapter 3: Globalisation and Economic Development

Globalisation and Economic Development

  differences between economic growth and economic
development

Economic Growth:
- Definition: Economic growth is the increase in a nation’s output,
specifically measured by an increase in real GDP. This is a
quantitative measure reflecting the rise in goods and services
produced within an economy over time.
- Example: A country achieving higher production levels each year
signifies an improvement in its economic capacity, demonstrating
growth.
- Economic growth is the main reason globalisation is supposed to be
helpful (and why it is promoted so much by governments and
business)
- More trade opportunities + more investment sources = more
production = higher GDP growth.
Economic Development:
- Definition: Economic development goes beyond mere growth,
encompassing improvements in the standard of living and quality of
life. It is a qualitative measure assessing factors like health,
education, and overall well-being.
- Example: An increase in the Human Development Index (HDI) can
reflect economic development, as it takes into account life
expectancy, education levels, and adjusted GNI per capita
(accounting for purchasing power and foreign debt).

 distribution of income and wealth

Effects of globalisation on the three development groups:

- globalisation affects all countries, some more than others and some
more positively than others. It has fundamentally changed the way
that economies operate  International Convergence
- This is one of the most worrying effects of globalisation:
 Some countries are still stuck in poverty, get exploited by
wealthier countries, are underdeveloped, and are stuck in
debt traps and poverty cycles.
 While other countries are very wealthy  inequality is
beneficial for these countries (especially in the short term)
 In the short term ‘other countries’ will face no real competition
by trading with the 3rd world. Developing countries rely on
wealthier countries for aid and imports (making them easy to
exploit and control).
- Emerging economies:
 Greatly benefited from globalisation, thieve had the political
and economic capabilities to engage with and use the new
globalisation world economy to their advantage.
 E.g. China: HDI in 1975 was 0.523 and HDI in 2020 was 0.761.
- Advanced economies:
  Some of the main beneficiaries of globalisation (but were
already well developed)
 HDI for USA in 1980 was 0.810 to 2005 was 0.895 to 2020 was
0.926.
Effects of globalisation on distribution of income and wealth:
- Distribution of income and wealth:
 Inequality has increased because of globalisation. even
though, on the whole, absolute poverty has fallen in many
places, the gap between the rich and the poor is rising. This is
happening on both domestic and international levels.
 Within countries, inequality in the distribution of income and
wealth has become greater because only certain groups have
benefited from globalisation. Some companies benefit greatly,
while others go out of business. Certain kinds of workers,
especially high skilled ones, receive higher wages, while
others lose their jobs.
 The GINI Coefficient (a number between 0 and 1), closer to 0,
the country is more equal, but if closer to 1 then unequal
(income).

 income and quality of life indicators

Measuring quality of life:

- Human Development Index (HDI):
 HDI scores range from 0 to 1, combining life expectancy,
average and expected years of schooling, and GNI per capita
adjusted for PPP (purchasing power parity). In 2020, the global
HDI was 0.739.
- Human Suffering Index:
 Focuses on factors such as infant mortality, access to clean
water, malnutrition, GDP per capita, and personal freedom.
- Measure of Economic Welfare (MEW):
 This index adjusts GDP based on how it contributes to
population welfare, considering aspects like healthcare
accessibility and environmental impact.

 developing economies, emerging economies, advanced

economies

Developing economies:
- Alternate names:
 Third World, less developed countries (LDCs),
underdeveloped, non-industrialised.
- Characteristics:
 Low GDP per Capita and HDI: Developing economies typically
struggle with low-income levels and minimal social
infrastructure, leading to low rankings on the HDI.
  Poor Living Standards: Most citizens in these nations face
limited access to basic needs such as healthcare, clean water,
and education.
 Labour-Intensive Production: Many developing economies rely
on labour-intensive industries like agriculture and low-value-
added industries, which generate lower profit margins.
 Trade Barriers: Often, wealthier nations impose high trade
barriers and subsidies on sectors where developing nations
could be competitive, such as agriculture. This limits trade
opportunities and can impede growth.
 Unstable Governance: Developing economies often
experience political instability, undemocratic governance, or
both, which can further limit economic development.
- Examples:
 Many countries in Sub-Saharan Africa face challenges like high
foreign debt, inequality, corruption, and weak governance,
trapping them in low-growth cycles.
- Subcategories:
 High-Growth Developing Economies:
i) Characteristics: These economies are growing rapidly
and undergoing industrialisation, gradually moving
towards higher value-added industries.
ii) Example: Countries like China have experienced rapid
development, benefitting from industrialisation and
integration into global trade networks.
 Low-Growth Developing Economies:
i) Characteristics: These economies make up most of the
developing category and face persistent poverty due to
issues like high foreign debt, economic inequality,
crime, corruption, and resource exploitation by foreign
interests.
ii) Example: Countries like Zimbabwe continue to face
these obstacles, struggling to achieve sustained growth
and development.
Emerging Economies:
- Alternate names:
 Newly industrialised economies (NICs), emerging markets,
transition economies (for countries moving from communism
to capitalism, e.g., Russia).
- Characteristics:
 Rapid Economic Growth and Development: Emerging
economies are typically experiencing high growth rates and
significant improvements in living standards and
infrastructure.
 Transition from Developing to Advanced: These economies are
moving beyond low GDP per capita and low HDI, though they
are not yet at advanced levels.
 Utilizing Globalisation to Their Advantage: Many emerging
economies have embraced global trade, foreign investment,
 and technological advancements to accelerate their
development.
 Low GDP per Capita and HDI but Rising Quickly: While they
still face challenges like low HDI and GDP per capita, these
indicators are improving more rapidly compared to developing
nations.
- Examples:
 BRICS Countries: Brazil, Russia, India, China, and South Africa
represent some of the most prominent emerging economies.
These nations have leveraged globalisation, improved
infrastructure, and growing industries to position themselves
as influential players in the global economy.
 Other Notable Emerging Economies: Turkey, Mexico, and
Indonesia, among others, are also seeing rapid development
and are expected to transition to advanced status in the near
future.
Advanced Economies:
- Alternate names:
 High-income economies, developed economies, First World
countries.
- Characteristics:
 High GDP per Capita and HDI: Advanced economies enjoy high
income levels and social standards, with citizens typically
experiencing greater economic security and quality of life.
 Highly Industrialized: Advanced economies have strong
industrial sectors, especially in high-tech manufacturing. They
are also increasingly focused on the service industry, including
sectors like finance, healthcare, and information technology.
 Democratic Governance: These countries generally operate
under stable democratic governments, ensuring political
stability and consistent economic policy.
 Comprehensive Health and Welfare Systems: Most advanced
economies have robust health, education, and welfare
systems that support citizens, although exceptions like the
U.S. exist where certain social supports may be limited.
 Influence in Global Organisations: Advanced economies
dominate key international institutions such as the World Bank
and the IMF. This influence enables them to shape global
economic policies, often making globalisation work in their
favour.
- Examples:
 Regions: North America, Western Europe, Japan, Australia, and
New Zealand are among the leading advanced economies.
 Asian Tigers: Singapore, Hong Kong, South Korea, and Taiwan,
known as the "Asian Tigers," transitioned from newly
industrialised countries to advanced economies between the
1960s and 1980s due to strategic investment in technology,
education, and global trade.
  OECD Nations: Many advanced economies are members of the
Organisation for Economic Co-operation and Development
(OECD), which promotes policies to improve economic and
social well-being worldwide.

 reasons for differences between nations

Reasons for differences between economies:

- Differences between nations are driven by various economic, social,
and political factors that contribute to disparities in income, wealth,
and development levels.
- These differences are often reflected in indicators like GNI per capita
(Gross National Income) and HDI (Human Development Index)
scores, which highlight inequalities in wealth and quality of life
across countries.
Resource Variation:
- Land:
 Countries rich in natural resources, such as coal and oil, tend
to have a strong mining or oil sector. For example, Australia
has benefited economically from high demand for its
abundant iron ore and coal since 2002, which has driven up
prices (high commodity prices).
 However, simply having resources does not guarantee wealth.
For example, a country might be rich in resources but remain
poor if it lacks capital resources to access them, or if poor
government policies allow foreign companies to exploit these
resources without benefiting the local economy.
- Labour:
 Countries with substantial capital resources are generally
richer and more productive. This is because capital allows for
the adoption of advanced technology, which increases
efficiency and productivity.
 For example, in high-tech industries like medical instrument
production, the skills and technology involved mean the final
product has much higher value than the raw materials,
contributing significantly to national wealth.
- Capital:
 The quantity and quality of labour are crucial to a country’s
economic performance. While some aspects of labour are
naturally determined, government policies can enhance
labour capacity.
i) Quality: Quality of labour can be improved through
education and training, such as the establishment of
Trade Training Centres, which enhance skills and
qualifications across various industries.
ii) Quantity: Governments may use policies to increase
workforce participation, such as reducing childcare costs
with subsidies, or by encouraging population growth
through programs like the "baby bonus."
 - Entrepreneurial Skills:
 Countries with a strong entrepreneurial workforce often see
better economic outcomes. This includes having workers with
management skills, a willingness to take risks, and the ability
to innovate and adopt new technologies.
 Singapore is a key example, as it transformed into an
advanced economy in the 1970s and 1980s despite a small
workforce and limited natural resources, largely due to
entrepreneurial enterprise and economic reforms.
Government Policies:
- Macroeconomic Policies:
 Governments make decisions that directly impact economic
growth, such as controlling government spending, taxation,
and interest rates.
- Microeconomic Polices:
 Regulations affecting productivity and efficiency, such as
competition policy and labour market regulations, fall under
microeconomic policies and influence national economic
performance.
- Regulations and Protectionist Policies:
 Governments also regulate which products are produced
domestically, affecting the need for imports and supporting
local industries.
 Protectionist policies can impact economic growth by shaping
the country’s trade structure.
Structural and Developmental differences:
- There are clear disparities in income and wealth across countries,
often measured by GNI per capita and HDI.
- Advanced economies, for example, generally have high GNI per
capita and high HDI scores, while developing countries tend to have
lower GNI per capita and HDI scores, reflecting poorer living
standards and limited economic opportunities.

 effects of globalisation

Globalisation impacts the following areas of an economy:

- international convergence:
 The tendency of major economies to adopt similar economic
policies and structures so that different economies are now
starting to resemble each other.
 Similar economic policies and structures: financial
deregulation, trade liberalisation, inflation targeting and
floating exchange rates.
 Similar economic policies and structure in general, reducing
government involved in the free market (these policies were
known as the ‘Washington consensus’)
 Washington consensus:
 ii) These are a fixed set of policies recommended by the US
(And often forced onto developing countries) as a way of
‘fixing’ their economy.
iii) This died in 2008 when the GFC hit and the G20 nations
realised that these policies might not be best for ALL
countries (they have now come up with the ‘Seoul
Consensus (2010)’ which allows developing nations to do
the things to grow their economies).
iv) International convergence is good when it increases the
benefits of globalisation (e.g. efficiency). Firms are able to
trade and expand to their countries more easily and
economies are generally growing strongly.
v) But bad when a financial crisis hots one country, then
quickly spreads globally.
- Financial deregulation is a precondition: (negative)
 So many of these countries that have performed well through
the process of globalisation have deregulated their financial
markets (e.g. limits on foreign ownership, floated exchange
rates etc.)
 So, it was thought, that globalisation can only really happen IF
financial deregulation happens (financial deregulation is a
precondition of globalisation – it HAS to happen for it to work).
 PROBLEM AGAIN = the GFC.
 Some countries (especially in the US) went too far with the
financial deregulation, which allowed for the 2007 sub=prime
mortgage crisis (leading to the 2008 GFC).
- Quality of life:
 Globalisation should improve living standards in two ways
a. There should be a ‘trickle-down effect’:
1. Economies grow
2. The extra income/wealth benefits filter throughout
society.
3. More money can then be invested in areas like health +
the increase in production = more jobs = high GDP per
capita
b. Governments should help this by planning for their own
country’s future QOL: governments should then substantially
invest in improving various quality of life outcomes as part of
a strategy to boost growth and take advantage of
globalisation. E.g. the Asian Tiger economies, like South
Korea, realised that a highly skilled workforce would help
them capture the benefits of globalisation, so they invested
heavily in education.
- Unemployment:
 Increase trade:
i) Increased domestic growth rates
ii) Increased global protection
iii) New jobs are created.
  In some individual countries, this positive effect is particularly
noticeable
 As competitive domestic industries develop, they have access to
markets around the world and attract investment, allowing them
to expand, creating new employment opportunities.
 Some countries, however, experience rising unemployment,
particularly in the short term. Global competition often causes
the rapid decline and even eradication of certain industries;
increasing unemployment in the domestic market (this is known
as structural employment)
 In the long term, these jobs are hopefully replaced as other more
competitive industries develop.
- Environmental Consequences:
 This is almost entirely negative. More production, especially
competitive production, means short term decisions get made
that are bad for the environment. This causes problems like
global warming, deforestation and pollution.
 In theory, global cooperation can also be the solutions to a
problem created… by globalisation
 E.g. the COP26 Summit in Glasgow (2021) has world leaders
making pledges like:
i) Ending deforestation by 2030 (100 countries agreed)
ii) India pledging to have ‘Net Zero’ emissions by 2070.
iii) Scott Morrison saying Australia has a plan…
- Inflation:
 Globalisation, on the whole has a positive impact on inflation
because:
1. More trade  more competition  lower prices +
2. Most countries now see inflation as: the worst things you
can have”, so their government brutally target inflation
rates to keep them low (usually 1-3% per year).
- External stability/trade:
 With globalisation, you have increase trade however if u impot
more than export, then your external stability is weaker.
 Strong external stability:
i) Stable exchange rate
ii) You export more than you import
iii) Strong independent competitiveness
iv) TOT: terms of trade

 trade, investment and transnational corporations

investment and transnational corporation:

- globalisation have reduced in:
1. financial deregulation (less rules about which country’s money
can invest in what in other countries).
2. floating exchange rates in many parts of the world
  + information and communication technologies like
computers and the internet have made it easier than ever
before to move money around the world
 = drastic increase in FDI flows.
 Emerging trading forces such as China have become very
important venues for investment. In fact, China now the
largest receipt of FDI in the world
 The 100,000 TNCs are responsible for 80% of world trade and
contribute to10% of GWP.
- Trade:
 Due to globalisation new have something called vertical
specialisation which refers to multiple countries specialise in
making different parts of singular product.
- Investment:
 The growth of short-term financial flows has had a
destabilising impact.
- TNCs:
 removing the restriction of foreign ownership and developing
strong capital markets has led to substantial growth in the
number of TNCs.
 over a third of world trade occurs between TNCs who employ
more than 80 million people
 TNCs perform better than domestic firms and contribute to the
local community when using domestic capital labour.
 However, TNCs have been criticised for exploiting workers in
regions with low labour standards and contributing to
environmental degradation.

 environmental sustainability

Advantages Disadvantages
Globalisation offers opportunities Low-income countries may engage
to protect environment by forcing in economic behaviour that harms
nations to take global the environment to attract foreign
responsibility for environmental direct investment and high export
protection. revenue.
For example, deforestation.
Increased scrutiny of High levels of agricultural subsidies
environmental practises of TNC’s in advanced economies promotes
exports which contribute to the
overuse of agricultural inputs,
causing environmental damage
It has facilitated the transfer of Increased trade using non-
new technology to improve energy renewable transport fuels.
efficiency and reduce pollution
Globalisation creates international Depletion of resources with very
institutions with powers to enforce limited quantities when businesses
orders to stop damage to the are striving for high profits.
environment.
  the international business cycle.

Globalisation has contributed to a greater synchronisation of global

economic growth rates. This is through the international business cycle
reflecting increased economic integration, seen in trade and financial
flows. As a result, upswings and downturns are intensified across the
globe.
A greater synchronisation of economic growth rates has increased the
need for coordinated macroeconomic policies. This is because
international factors now have a greater influence on domestic
economies. The IMF recommended countries use combined budgets to
stimulate world economy by 2% of world GDP in response to Global
Financial Crisis (GFC).

Case Study: Trump trade war could force the RBA to jack up rates (could
include in HSC)
 tariffs 9syl

- Although this is an American policy that is going to occur with

tariffs, it will impact Australia domestically as father interest rates
rise and potentially wipe 12$ billion off mining exports.
- Inflation, RBA does not only account for domestic factors, but also
needs to look at major trading partners.
- NABs national chief, Andrew Irvine said “as the RBA warned there
could be an “adverse effect” on the local economy from his
proposed tariffs!”
- What Trump is going to do, put a 60 per cent tariff on China and
duties of 10 to 20 per cent on other countries, including Australia.
- There is going to be retaliation from China, and other countries
retaliated against the US by also levying tariffs.
- Effect on Australia: Australia’s economic output could fall by
between 0.8 per cent and 1.5 per cent, or $20 billion to $37 billion,
if Trump imposes a suite of his economic policies, including slashing
Australia’s 21 per cent corporate tax rate to 15 per cet.
- Australian inflation would rise by 1 percentage point due to higher
import prices. This is why the RBA needs to look at external things.
- The RBA could have to push the cash rate to the 5 per cent range
(from the current 4.35 per cent.
- The tit-for-tat trade are between US and China could cut Australia’s
mining exports by almost 6 per cent a year by 2030.
- US tariffs of 60 per cent on Chinese goods would slow the Chinese
economy and reduce demand for Australian iron ore that is used to
make steel to construct bridges and other infrastructure.
- Prediction: Treasury analysis slows that a $USD10 a tonne drop in
iron ore prices below its forecast inflicts a $2.4 billion annual hit to
government revenue.
 - However, potentially the RBA said it was possible China could
unleash a spending stimulus to offset any hit to growth, so the
overall impact on Australia’s exports from as trade war would be
uncertain.
- With $22 billion worth of sales in 2023-24, the US is Australia’s fifth-
largest destination for goods exports. But at just 4 per cent of total
exports. Australia’s trade with the US is eclipsed by sales to China
(37 per cent of total). Japan (15 per cent), and South Korea (7 per
cent).
- “By itself, though, those tariffs should push up the US dollar because
US customers will be buying less goods from the rest of the world,
and they’ll need less foreign exchange. But it means less demand
by the US for global goods, so that’s a... negative for growth
elsewhere”
- We accept the RBA to deliver its first cash rate cut until July next
year, after the next federal election, which is due by mid-May.

China and Australia war:

- December 2015: Australia and China enter a free trade agreement

(ChAFTA) comes into effect, removing trade barrier s for goods and
services and liberalizing bilateral foreign investment.
- April 2020: Prime Minister Scott Morrison endorses an independent
investigation into the origins of the COVID-19 pandemic, enraging
the Chinese authorities. A series of new bilateral lows follows.
- May 2020: China imposes an 80.5% tariff on Australian barley
exports.
- June 9. 2020: China's ministry of education warns that Chinese
students might face racist incidents' due to COVID-19 should they
choose to study in Australia. The warning comes days after a similar
alert was issued by the Chinese ministry of culture and tourism
advising against travel to Australia.
- October 15, 2620: Reports emerge that mills in China have been
told to stop buying Australian cotton. China normally buy around
65% of Australian cotton, an export trade worth $800 million a year.
- November 28, 2020: China announces temporary tariffs on Australia
wine exported, citing violations of anti-dumping rules. The tariffs
range from 107-212%, and they follow an anti-dumping probe that
was initiated earlier in the year. In response, the Morrison
government indicates a willingness to take the case to the WTO.
- December 21, 2020: WTO announces the Australia snitched on
China.
- September 30, 2021: Australia and India announce that the two
sides will seek to implement a free trade deal by the end of 2022.
- (However) December 29, 2021: Beijing raises import quota of
Australian wool by 5% is a rare positive signal on bilateral trade
agreements.
- January 2023: China partially eases its unofficial ban on Australian
coal, leading to a resumption of imports form what was once China’s
second biggest supplier.