The term Global Economy refers to an integrated world economy with unrestricted and free movement of goods, services and labour transnationally. It projects the picture of an increasingly inter-connected world with free movement of capital across countries, also. The concept of a global economy cannot be understood in isolation. For this, globalization nees to be defined first. Globalisation may be defined as the integration of production and consumption in all markets across the world.
It is a widely accepted view that globalization would not only benefit all countries across the world but would also work towards the betterment of the economy as a whole. Country specific economic and political decisions are being taken on a global scale in today’s world with global considerations becoming more important than narrow provincial ideals.
A global economy is characterized as a world economy with an unified market for all goods produced across the world. It thus gives domestic producers an opportunity to expand and raise capacity according to global demands Likewise, it also provides an opportunity to domestic consumers to choose from a vast array of imported goods. A global economy aims to rationalise prices of all products globally. A computer or a cup of coffee would cost the same amount of money in both the USA and India in real terms if identical units of both the goods are purchased. With the reduction in the level of tariffs and quotas under new WTO (World Trade Organization) restrictions, free flow of goods between the developed and the developing countries has become a distinct possibility.
The emergence of Trans National Companies or Multi National Companies has been due to the direct impact of globalization. Globalisation has boosted productivity and capacity of these companies to astronomical highs because of the stiff competition at the international level. Improvement in technology in the developed countries such as USA and Japan has permeated to those of the less developed economies of Asia, Africa and Latin America. This has enabled the people of the developing countries acquire requisite technical skills and knowledge for operating sophisticated equipments. These skills percolate throughout the economy and improves the general productivity of the labor in these countries thereby raising the income levels
While a global economy or globalization has the distinct advantage of raising world productivity and incomes and bringing about an improvement in the standards of living for all people at a global level, it has the dangerous side effect of growth with inequality. This has been evidenced in the less developed economies of India, China and Brazil where the benefits of globalization have not percolated to the lowest levels. This has brought about a wide divide between the have-nots and the have-lots.
A Global Economy also leads to a shifting of jobs from the developed countries to the Third World Countries as wage rates are much lower here. This allows companies of the advanced nation to grow exponentially. For example, we might find computer chips produced in China be exported to USA for designing which may be subsequently used in Japanese computers supplied across the world. This process is called “outsourcing” and leads to exploitation of workers in Third World economies where income inequalities already exist.
Nonetheless, a global economy may be beneficial for the world at large. This may result in the economies of the world fighting issues such as global warming, climate change and environmental degradation collectively and effectively.
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