Global Economic Growth

The Global Competitiveness Report 2006-07 prepared by the World Economic Forum (WEF) in collaboration with its top research institutes and business organizations has shown the Scandinavian countries like Finland and Sweden to be doing exceedingly well along with Switzerland in terms of improving its global competitiveness. It has once again emphasized the long accepted fact that sound macroeconomic policies along with high standards of education and emphasis on technology and innovation can work wonders for a country in achieving high levels of growth.

The Global Competitiveness Report 2006-07 prepared by the World Economic Forum (WEF) in collaboration with its top research institutes and business organizations has shown the Scandinavian countries like Finland and Sweden to be doing exceedingly well along with Switzerland in terms of improving its global competitiveness. It has once again emphasized the long accepted fact that sound macroeconomic policies along with high standards of education and emphasis on technology and innovation can work wonders for a country in achieving high levels of growth.

The general level of growth in the European Union has also experienced an upward swing for the year 2006-07 with many of the newly admitted countries doing well along with traditional powerhouses like the UK and France. With the less developed economies like India, China, Taiwan and Korea doing well too on the economic front the global economy has grown rapidly over the years.

Economic growth is defined as an increase in the value of goods and services in an economy which is conventionally measured by the percent rate of increase in the real or price-adjusted Gross Domestic Product (GDP). We can say that the global economy has grown as the value of goods and services produced by it as a whole has gone up with many newly emerging nations overtaking economies of the USA and Japan in terms of annual GDP growth rates.

Global Economic growth has mainly taken place as a result of increased labour productivity throughout the world which has brought about increase in world incomes. This has been facilitated by the Trans National or Multi National Companies which have aided in technology transfer to the less developed countries by opening new branches in these economies. Globalization has one of its largest side effects in diffusing sophisticated technical skills to the developing economies which raises the productivity of labour in these countries. Gradually more and more people become aware of the technical skills and various turnkey projects which were previously under the aegis of the foreign companies can now be handled independently by the domestic economies.

Global economic growth has also taken place with the standard of living improving in previously underdeveloped economies of India, China and countries in the erstwhile Soviet Union.

The components of global economic growth with globalization which have led to its success are:

• Free trade of goods and services across the world
• Expansion of industries outside the boundaries of its own country
• Creation of Export Processing and Special Economic Zones
• Jointly fighting towards the threat of environmental degradation

With the free movement of goods and services across the world as fallout of globalization, there has been a unification of product prices and wage rates across the world. With companies able to operate on an international scale, their respective demands have grown which have enabled them to grow even further and take advantage of the economies of scale. The growth of international corporations has allowed them to avail of cheap labour from the developing nations which can in turn, bring down their product prices even further. Global economic growth has resulted in countries becoming rich and prosperous and many of them have already taken off from the low level equilibrium trap. It has brought the world closer and integrated it. We can see increasing cooperation between the countries of the world to fight global environmental issues such as air and water pollution, emission of greenhouse gases and over fishing activities in the oceans.

One of the key elements which have helped the world economy grow has been the rise of the US economy after the recession of 2001 and Japan also taking off in the year 2004. Japan’s improvement has mainly been ascribed to the rise of its two key trading partners- China and the USA both of which have witnessed growth in the recent years. While China has been growing steadily at about 8% over the past few years, the USA grew at a rate of 3.5% in 2005. India has also grown at a rate of about 8% for 2005. South America grew at an overall rate of around 6% in 2004 driven by rapid growth rates in Brazil, Chile, Argentina and Venezuela. The old world of Europe is gradually opening up with more and more economies moving towards free trade and rationalization of its tax policies.

Following lie some of the figures about the growth of the world economy as a whole for 2005:

 

GDP(current $

US billions)

GNI per capita (Atlas Method current $ US)

Life expectancy at birth (years)

Population growth( %)

World

44384.9

6987

67

1.2

East Asia and Pacific

3032.6

1627

70

0.8

Sub-Saharan Africa

615.2

745

46

2.1

USA

12455.1

43740

77

1.0

Latin America and Caribbean

2455.6

4008

72

1.3

Europe and Central Asia

2190.9

4113

69

0.1

Australia

700.7

32220

80

1.0

Where GNI= Gross National Income

It is evident from the above chart that the world as whole as well as specific regions of the world is in a healthy state in 2005. Sub-Saharan Africa continues to be the poorest region of the world and with population growth rates of around 2%, it may well be so for the next decade.

The picture of global economic growth, which is quite healthy in the recent years, survived a jolt when global oil prices touched $70 a barrel in 2006. The Venezuelan economy got a major boost because of this and recorded healthy growth rates thereafter. In addition to the oil price shocks which have the potential to slowdown the global economy, this rosy picture also changes when we look at the rising income inequalities around the world, more pronounced in the less developed nations of Asia and Latin America.