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Global Economics

Global Economics

For one to understand what global economics means, it is vital to realize what the term economy means first. Economy is used to refer to all activities that are related to the process of production and consumption of goods and services in a given area. From this definition, it is true to say that each country has its own economy. On the other hand, global economy refers to all the economic activities that take place within each of the countries and between different countries around the world. Due to the advancement in technologies and air travel, the global economy significantly grew. The concept of global economy continues to become complex and more important According to this, when a certain country improves its economy, other countries feel an improvement in their economies as well. Moreover, when a country’s economy performs poorly, other countries feel the same.

Globalization ties states together as this enables them to have a cheaper foreign marketplace and free trade. Which means countries can trade with each other without restrictions. According to research global economy steadily increases despite several problems. The prospects of international growth in developed countries are higher than they were before. For example in Europe, several countries managed to record stronger trends of growth rates. Nevertheless, other smaller countries’ economies continued to suffer and deal with a high rate of unemployment, cases of internal demand, and financial fragmentation. To understand the concept of global economy in details, this paper will examine different concepts in economics such as the various schools of political economic thought, the history of governing international financial institutions, the purpose they existed in the past and still do in the present and the various controversies that they create.

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Comparison of the Various Schools of Political Economic Thought

There are four major schools of economic thought, which include the classical economics, Marxism, Keynesian, and the Chicago school of economics.

The classical economics were stated between the 18th and the 19th centuries. This school of thought mainly focuses on the ability of markets to shift towards the equilibrium. The Neo-classical economics get their concept from this school, but the principal difference is that it is utilitarian in the value theory since it applies the marginal theory as its primary model. Anders Chydenius, who suggested several changes that aimed to ensure that there was freedom in both the trade and the industry, was the leading liberal in the classical school. Anders studied the connection that existed between  economy and society and formulated the principles of liberalism.

Karl Marx and his college Friedrich Engels came up with the famous Marxian school of economics. The Marxian school mainly focuses on labour theory of value which Marx deliberated to be a manipulation of work. This theory involves measuring the extent to which labour is exploited in the capitalist society instead of calculating the price.

Maynard Keynes came up with the Keynesian school of economics thought. Keynes’ book “The General Theory of Employment” identified macroeconomics as a discrete field. This book analyses the factors that affect national income in the short run.

The Chicago School that is a final school of thought,  was founded by Milton Friedman. This school stipulated that the market economies are stable provided that the supply of money does not change greatly.

History of Governing International Financial Institutions

After the Second World War, many international and national institutions were formed with the aim of managing the world economy and preventing the occurrence of another great depression. Financial institutions that were formed during that time included: the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade that later was turned into the World Trade Organization in the year 1995 and the World Bank. After formation, these financial institutions broadened their area of operations and increased the number of members.

Despite the fact that these institutions greatly expanded their operations, critics of these institutions have come from both the left and the light wings of the political spectrum. Those who are against the concept of globalization consider these institutions to be instruments that are used by rich countries to dominate developing ones. On the other hand, those who support these institutions have continued to argue that the institutions are beneficial since they constrain the actions of powerful countries while providing monitoring capacities and information that make countries cooperate.

According to Gelos et al., evidence proved that these institutions does not benefit developing countries (6). For example, the IMF has failed to reduce inflation due to the undermining policies passed by powerful countries.  Although its policies are sound and effective, outside politics and interferences weakened its operations. After the Second World War, the World Bank concentrated on reconstruction. After the International Development Association was formed, the World Bank focused more on economic development. Both the International monetary fund and the World Bank increased loans to several states. World Trade Organization has been collaborating with states in order to abolish trade barriers between countries. Since these bodies changed their roles in the year 1970s, their impact on poor countries was questioned. However, scholars have argued that all countries should benefit from these institutions, because since membership is voluntary, countries join them only if they can benefit from them.

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Importance of Trade and Proper Trade Policy

Trade and proper trade policy are imperative specifically since it helps in the reduction of poverty and boosts development in countries. In addition it generates development by increasing commercial investments and opportunities for people. The trade also broadens the productive base by developing the private sector. Trade assists the developing countries to enhance their competitiveness and enables them to acquire financial resources by increasing the value added to the products produced in these countries.

Besides, trade promotes export diversification, which is achieved by enabling the developing countries to access new materials and markets which reveals new production possibilities. In addition, trade boost innovation is gained through the exchange of knowledge in technology and investment. The trade also expands business opportunities among the member states by opening new markets and removing barriers, and this enables them to export their products freely. To the consumer trade is profound since it ensures that consumers have a wide variety of goods to choose from at lower prices. Trade is important to the trading countries since it helps in strengthening ties.

Trade policies are important as they guaranty that all countries are committed to the trade agreements. They also establish transparency and effective monitoring among the member countries. It leads to global trade formation which controls that the needs of the developing countries are catered for. According to Lenzen, Manfred, et al., trading policies open new markets and this helps in increasing in the creation of jobs through the new trade opportunities (111). Another function of trade policies is to control that other participant adhere to the required rules and regulations. This is almost achieved through the reduction of counterfeit goods, opening new opportunities of investment and solving the problems faced by the exporters. 

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Important Connection between Trade and Economic Development

Trade integration is considered to be the determinant of economic growth of a given region. According to Busse, Matthias, and Jens, the empirical evidence that exists for the causal link between trade and economic growth is ambiguous. According to the economic theory, trade enables a country to realize its economies of scope and scale, fosters technological progress, facilitates diffusion of knowledge, and encourage competition in both international and domestic markets. Countries that are open to trade increase their opportunities of producing goods that were previously produced by advanced economies only. This kind of “product migration” increases trade volumes in the less developed countries and more advanced production technologies. Less developed countries, thus, improve their economies .

The Role of Multinational Corporations in the Global Finance their Positive and Negative Effects

Multinational corporations are corporate enterprises that manage distribution of goods to more than one country. Both the local and the national governments at times compete with the aim of attracting multinational corporations, because they lead to an increase in the rate of employment, tax revenue, and economic activity. Multinational corporations are vital since they take on enormous importance in the process of economic globalization. To attract them political parties offer them incentives as tax breaks and subsidized government assistance.

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Though multinational corporations bring about economic development to a country, the disadvantage is that they exert power over political parties by controlling both technical and intellectual property in the state where they operate. Another disadvantage is that due to their size, multinational corporations can impact on the government policies by using the threat of withdrawing from the market.

The Need for World and Regional Economic Reform

Despite the fact that globalization brought about economic growth in several countries, other countries, especially in Africa,  were left behind. Therefore, there is a need for these countries to come up with economic reforms to enable them to compete with other countries. Required reforms include redefining the main role of the state, ensuring good government and stabilization of the macroeconomic situation

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Pros and Cons of Past and Present Monetary Exchange Rates

In fixed exchange rate a country struggles to maintain its currency at a given level against a given currency. One of the advantages of this exchange rate system are that it prevents currency fluctuations. Stability, thus, encourages investments and reduced inflationary expectations. On the other hand, fixed exchange rate has some disadvantages which include the risk of causing a conflict with the other macroeconomic objectives, lack of flexibility, and jeopardy of causing a current account deficit.

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Arguments for Globalization and Ways to Foster Fair Trade to Avoid Future Depression

Globalization is an imperative concept since it helped in encouraging economic development in several countries. It thus reduced marketing costs as companies can now get materials easily. In addition, globalization created new market opportunities, because companies are now free to sell their products to the global market. Furthermore, globalization assisted to evenkeel uneven income. There are several ways to foster fair trade to avoid future depression and they include freeing financial markets, implementation of a winning trade policy and putting in place simple and fair taxes.

World Financial Centers, their Roles, and the Worst Income Gap Regions

Some of the leading financial centres in the world, including London, New York City, Singapore, Hong Kong, and San Francisco, contribute to the economic growth mainly through improving the profitability of various business operations. They also promote the competitiveness of the financial markets especially in the areas where they operate. Global economy varies from 0.55 to 0.70, depending on the type of measure. Income gaps are bigger in urban and rural areas of China and India.

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Global economy includes all the economic activities that take place within countries and between them around the world. It significantly expanded due to the advancement in both air travel and technology. There are four major schools of political-economic growth, and they include the classical economics thought, the Keynesian school of thought, the Marxism thought and the Chicago school of thought. Despite the fact that globalization has improved economies in different countries some of them were left behind. This  led to reforms aimed at ensuring that all countries benefit from the concept of globalization.