Globalisation

and economic
development
3.1 Introduction
The most disturbing thing about the global
economy is that there is a very large difference
in the living standards of people around the
world. Those born in to families with high living
standards in wealthy countries have very
different life experiences in terms of health,
education, income earning opportunities and life
expectancy that those born in families with
lower living standards and in low income
countries.
While there is this large gap, it is also true that
there has been an improvement in the overall
living standards in most countries.

3.2 Differences in Income and

Economic Growth
Comparing income is the most popular way of
comparing living standards between different
economies. This is because, it measures the
ability of a nations citizen to satisfy their
material wants.
We measure income through Gross National
Income (GNI) which is the sum of value added
by all residents producers in an economy plus
receipts of primary income from foreign
sources.
Real GNI figures are obtained by discounting
GNI growth for effects of inflation.
One of the limitations in making such
comparisons between the size of economies is
the exchange rate used to make the
comparisons.
By using the US dollar, we are making
inaccurate comparisons about the living
standards of developing countries

You cant really compare through income

because the level of inflation, cost of living and
various other components differ so it is not
sensible to compare
economic growth through
Purchasing
income alone.
power parity:
the belief that
Instead of using a GNI, a
exchange rates
PPP may be used
should be
(population power parity).
adjusted so that
This is because; the raw
you are able to
currency conversion using
have the same
US dollars may over or
purchasing
underestimate the true
power in every
income of countries. By adjusting
measurements of the size of the economy to
reflect the purchasing power of currencies
within a national economy, it is more of a valid
comparison.
The most obvious limitations of comparing the
size of an economy using GNI is the difference
of size in the population. The size of the
population and the rate of population growth
vary between countries and allowances can be
made for this by dividing the real GNI of each
country by its population.
This generates a GNI per capita.
While the richest countries are far better off
than the countries, the
Economic
gap is slowly narrowing
development: a
very slowly. Almost every
broad measure
nation has experienced
of welfare in a
some degree of growth in
nation.
recent decade this
enables them access to
e.g. health,
higher incomes as a
education,
result of the increase in
environmental
their over all GDP.
quality, living
Another dimension to global inequality is the
distribution of global wealth.

3.3 Differences in economic

development
Economic development is a broader concept
than economic growth. It measures
improvements in
wellbeing, or welfare
HDI: a way of
rather than the
measuring
financial aspects such
economic
as how much extra
development. It
money people have.
takes in to
account factors
such as life
expectancy at
birth, education
attainment

While high income is

an important aspect,

there is a need to look in to the wellbeing of

people (especially in the poorer countries) so
that there is a comparison made between the
quality of life in countries.

4.
5.

Human development index

An alternative measure to GNI is the HDI. This
takes into account

life expectancy and birth

This is indicative of the health and
nutrition standards in a country. High
levels of longevity are critical for a
countrys economic and social well being
Levels of educational attainment
Education is crucial for the development
of the skills of the workforce and the
future development potential of an
economy.
HDI take into account the average
number of years adults aged 25
attended schools and the expected years
of total school attendance for school
aged children.
Gross national income per capita
This measures the sum of gross value
added by all resident procedures in the
economy plus income from foreign
sources, on PPP basis.
this is used as a measure of a decent
standard of living and is an essential
determinant of the access that pe0ple
have to goods and services.

6.

7.

8.

disparity in primary and secondary

education
Reduce child mortality by two thirds for
children under 5
Improve maternal health including
reducing maternal mortality rates by
three quarters
Combat HIV/AIDS, malaria and other
diseases by reversing the spread and
increasing treatment of these diseases
Ensure environmental sustainability by
increasing access to safe drinking water
and sanitation
Develop a global partnership for
development by promoting aid and
trade.

The goals reflect the importance of income,

education, health and the environment to
improving quality of life. Many of the Goals have
measurable targets to be achieved by 2015.
Progresses have been made but there are other
goals that are unlikely to be met such as
achieving primary education, eliminating
gender disparity in education, and reducing te
maternal mortality by tree quarters.
Consultations have canvassed a range of
themes for new goals and targets including
inequalities, health, education, growth and
employment, environmental sustainability,
governance, conflict and fragility, population
dynamics, hunger, food and nutrition security,
energy, water.

HDI is a score between 0 for nations with no

human development and 1 for maximum
human development. Comparing countries by
HDI and GDP reveals the differences between
growth and development across the globe.
HDI is not the only measure of economic
development. There is also UNDP, IHDI, GII and
HPI.
Millennium Development Goals
In the UN summit in 2000, 189 countries agreed
to 8 Millennium Development Goals to guide
efforts by international organisations to improve
economic development in poorer countries.
1. Eradicate extreme poverty and hunger
including by halving the number of
people living on less than $1.25 US a day
by 2015
2. Achieve universal primary education
3. Promote gender equality and empower
women, including by eliminating gender

3.4 Categories of Development in

the Global Economy
Before we mentions that countries can be split
into groups being high income, middle income
or lower income economies. In this section we
go in more depth can examine these
distinctions in greater detail.
We also consider other categories such as
advanced, developing and emerging economies.
Countries are catagorised because they always
tend to confront similar issues according to their
stage of development even though they may
face unique circumstances at any point.

The main categories that economists use are

economy

Advanced economies
Advanced
These are countries that have high levels
of economic development. They also
tend to have a close economic tie with
each other and have liberal-democratic
political/economic institutions.
Developing economies
These countries generally suffer from
low income levels, weak human
resources and have only experienced
Developin
industrialization to a limited extent. The g
major consequence is that they have
large number of people living in absolute
poverty.
Developing countries are often divided
into the 2 groups of low income and
middle income countries
Whiles there are significant differences
between developing economies some
common characteristics are
- High levels of income inequality
within their economies
- Dependence on agricultural
production for income, employment
and trade opportunities
- Reliance on foreign aid and
development assistance as a major
source of income
- Low levels of labour productivity,
industrialization, technological
innovation and infrastructural
development
- Weak political and economic
institutions and a high prevalence of
corruption

Emerging

The lowest developing countries suffer from the

lowest GNI per capita levels and high economic
vulnerability

Emerging economies

These economies are in the process of

industrialization or moderation and
experiencing sustained high levels of
economic growth. This classification includes
a range of economies that are neither high
income , nor share the traditional
characteristics of developing countries. They
include countries that used to be known
Type of

Newly industrialised economies

Transition economies
Socialist economies
Developing economies

Income

Econo

Structure of

example

levels
High
income
levels
with GNI
per
capita
above
$12,746
US
Low
income
levels
with
around
half of
the
populati
on in
absolute
poverty
Income
levels
vary, but
what
these
economi
es have
in
common
is fast
growth
in
income
levels

mic
growth
Slower
growth
in
recent
decade
s

economy

Large
service
industries
and
advanced
manufactur
ing

US
German
y
Korea

Modera
te
growth
rates
but
populat
ion
growth
also
high

Heavily
reliant on
agriculture
and foreign
aid

Banglad
esh
Ethiopia
Zimbab
we

Strong
est
growth
rates in
the
world
And
favorab
le
prospe
cts

Industrializi
ng usually
with
substantial
manufactur
ing sectors

China
Brazil
Indonesi
a

It is important to acknowledge the limitations of

classifications. They are very broad and can
group dissimilar economies together. E.g.
Poland and China are both emerging economies
but have very different living standards.
Despite these limitations, classifying
economies is still important to understand the
reasons for economic inequalities between
nations.

3.5 Causes of Inequality in the

Global Economy
Understanding the reasons for differences in the
levels of development between nations has
been a central economic debate. There has
been a sharper focus during the globalisation
era to understand these differences because
there has been an increased interaction

between the more prosperous and less

prosperous regions of the world.

it is not competitive with agricultural

producers of developing nations.
Developing countries that export
commodities are severely affected by
high levels of global protectionism in
the agricultural sector.

The severe and widening extent of global

inequalities between economies raises 2
questions

Expanding regional trading blocs like

the EU and North American Free
Trade Agreement exclude the poorer
counties from gaining access to
lucrative global consumer markets.
The exclusion from trade
opportunities has a great impact on
poor countries since it puts them in
that cycle which sustains with poor
status.

The WTOs Doha Round of trade

negotiations had been promoted as
the development round because of
its focused of trade reforms to
benefit the poorer nations. But
obviously the higher income nations
resisted making concessions on the
issues that would provide the
greatest benefit to the developing
countries.
Recently the WTO negotiations
have focused on smaller projects to
try and expand tariff-free access for
exports from the least developed
countries and post pones more
complicated negotiations into the
future

The benefits of free trade

agreements are often not accessible
to developing countries because of
the substantial cost in implementing
international agreements and lodging
appeals against other countries
protectionist measures.
The complexity of the WTOs
measures further favours the
benefits of free trade to the richer
countries and can entrench global
inequalities.

1. Why is the inequality so great that the

wealthier countries can enjoy higher standards
of living of up to 100 times the standards of
living in a power country?
2. Why have some countries succeeded in
achieving rapid industrialization and economic
development while others have failed to
decrease their poverty let alone progress to
become more industrialised?
Such issues are the domain of development
economics which attempts to identify the
conditions in economies that are required to
achieve economic developments.
The comparison of the characteristics of high
income and developing economies, it is
highlights the specific problems faced by poor
countries such as wide spread political
corruption, weak institutions, a low level of skills
development or high rates of population growth.
I can be assumes that developing economies
often lack the requirements of growth, or have
implicitly been seen as the cause of their own
problems.
But, the focus of development economic od
factor that inhibit development can easily
become a stale analysis since countries can be
caught in a cycle of underdevelopment and
institutional problems.
Because we live in a world with increased
integration between economies, it is important
to understand how relationships between
nation, the overall structure of the global
economy and the role of international
organisations influence global inequalities.
These global factors and domestic factors
contribute to low levels of development.
Global factors
The Global Trade System
There are several features of the global trade
system which reinforces global inequalities.

Wealthy countries protect their

domestic agricultural sector because

Global financial Architecture

Although deregulated global financial markets
and the global financial system are made to
create development opportunities by enabling
the free flow of funds around the world, the
global financial system can also entrench global
inequalities.

Historically, long term international

flows of investment heavily favoured
developed countries. This exclusion is
expected to continue as the world
investment report observes an
increasing trend towards regional
agreements in the area of investment
policy making.
Short term financial flows heavily
favour the wealthier and emerging
economies which offer better
financial returns for currency and
stock market speculators. But these
regions consequently are exposed to
economic volatility. When this
happens, it can set back economic
development for years while
speculators will move on to invest in
another country.
International and financial rules have
not kept pace with the globalisation
of the economy and in some areas
have tolerates loop holes that
contribute to the large flows of
income or wealth to those who
already hold substantial wealth.
This puts developing countries at a
disadvantage because of their limited
ability to prevent complex tax
avoidance schemes. Because they
dont have basic rules such as
requiring TNCs to report their
earnings or profits in individual
countries, they have made the right
condition of fostering the rapid
growth of the use of tax haven in the
recent years.
The role of the IMF (the international
Organisation that oversees the global
financial system) has been under
great scrutiny. This is particularly
because their structural adjustment
policies it advocates serve the
interest of wealthier countries and
may not be appropriate to the
conditions of many developing
countries.
But in the IMFs assistance package
in response to the global economic
recession of the late 2000s included
0 interest loans with limited
conditions to low income countries
and a range of credit facilities (or
reserves) that could be tailored
individually to the need of developing
countries .

I dont think this matters since

some argue that they favour the
richer countries than the long term
economic interests of developing
countries.

Many developing countries have

huge foreign debt burdens. Interest
repayments on these past loans
reduce the revenue available to take
care of the countrys living standards
or promote economic growth and
development.
But there are major efforts by the
World Bank and the IMF to relieve the
debt to Heavily Indebted Poor
Counties because they are aware
that the debt was a result of
irresponsible lending practices by the
financial institutions of rich countries
to authoritarian leaders in developing
countries.

Global aid and assistance

The small scaled efforts made by developed
countries to address the problem of global
inequalities also contribute to the entrenched
problem of differences in living standards.

The total level of development aid

provided by high income economies
was $135 billion US dollars. This is
less than half of the level promised
by high income economies since the
70s. It is also estimated that the
money going towards sub-Saharan
African countries will continue to fall
in the future.
Critics of the aid policies of
developed countries argue that a
significant proportion of official
development assistance is phantom
aid. This means that the aid funds
given is not enough or doesnt help
the lives of the poor.
The aid supports technical
operation; debt related matters,

administration and tied aid (which is

aid that must be spent on overpriced
or unnecessary goods and services
that are produced by the donor
countries. These disbursements
reduce the amount available for
development projects and
humanitarian relief.

The distribution of aid by high

income earning countries often
reflects strategic and military
considerations rather than the needs
of the poorest countries.
While the multilateral development
aid distributed by the World Bank,
IMF and UN is better targeted at the
worlds poorest countries, it is less
than a third of the value of total
development assistance from
development assistance committee
members.

Global technology flows

Technologies are able to close the gaps in living
standards but are also able to entrench
inequalities.
The richer economies are able to increase
their existing living standards by making use of
and adopting these new technologies because
they have the intellectual capacity of their
citizens. But, the developing countries heavily
struggle to adopt these new technologies. This
is called the digital divide.

Economic resources
The explanations for contrasts in the level of
development focus on the difficulties most
economies face in acquiring and maintaining
sufficient resources for the production processnamely, natural resources, labour, capital and
entrepreneurial ship.

Natural resources

Natural resources themselves are low value

added good. However, they are an important
input for the production of higher value added
manufactured goods and services,
Economies that have an abundant and cheap
supply of natural resources have a better
opportunity for economic development than
those who dont.
but an abundance of natural resources can
also hamper a countrys economic development
if it leads to an overvalued exchange rate, a
narrow export base and becoming more reliant
on a small number of industries to drive
economic growth.

Labour supply and quality

Labour is an input for many of the production

processes in sectors of the economy and it so
an important factor that influences
development levels.
The low education standards in developing
countries reduce the quality of work supply.

New technologies are also highly geared to the

needs of wealthier countries because they
choose the priority areas of scientific research.
Labour saving devices and pharmaceuticals that
deal with health problems of aging people in
rich countries have little benefits to poorer
countries with a younger and larger supply of
labour, little capital and young people whose
main health risks are common infectious
diseases.
Developing countries also have a difficulty in
gaining access to new technologies
Intellectual property rights restrict the
benefits of technological transfer to poorer
countries because they cant afford to pay
developed country prices for this technology.
Domestic factors

Access to capital and technology

Difficulty in gaining capital for investment and

development is another major structural
weakness of developing countries that
contributes to their lower living standards.
Low income means little savings to be used in
investments
Poorly developed financial systems make it
difficult for businesses to gain easy access to
loans for investment purposes

Microfinance organisations have been

established in many developing economies to
provide small loans to help the poorest people
in the world to manage their farms of start a
business.
With small research organisations and limited
funds for business innovation, developing
countries have limited opportunities to develop
new technologies or to pay for the patents to
use technologies developed in other countries.

Entrepreneurial culture

While it is difficult to quantify differences in

culture between economies and how this can
impact upon economic performance, evidence
suggests that a countrys history and social
institutions can impact on its economic success.
in particular, values of individual
responsibility, enterprise, wealth creation and a
strong work ethic can assist the industrialization
process and the transitions towards sustainable
economic development

High levels of inequalities

Large gaps in the distribution of wealth and

income are a common characteristic of
developing countries and especially countries
with high concentrations of poverty.
Institutional factors
Institutional factors such as political stability,
legal structures, central bank independence,
extent of corruption, strength of social
institutions and governments domestic and
external economic policies can affect the ability
of a nation to achieve economic development

Political and economic institutions

Institutional factors in individual countries can

have a dramatic influence on the economic
environment for businesses, investors and
consumers and thus ha implications for a
nations level of economic development.
Political instability, corruption and a lack of law
enforcement by the government agencies tend
to undermine the confidence of investors who
will be reluctant to take risks if their business
interests are threatened by inadequate
structure for resolving legal disputes, corruption
or other institutional problems.

But the impacts of corruption are very hard to

quantify.

Economic policies

Government economic policies,( in particular,

how the governments balance the roles of
market forces and government intervention in a
company) can have a substantial impact on
development.
Little government intervention =high level
economic growth but low quality of life.
Excessive government intervention can
constrain entrepreneurship and innovation,
reducing economic growth.
research found that developing economies
experience a higher level of inequality because
of the governments are less able to implement
policies which can ease inequality such as
collecting tax revenue and redistributing the
wealth.
Therefore, the quality of life and social welfare
is damaged.

Government responses to
globalisation

Government responses to globalisation can

have a substantial influence on a nations ability
to achieve economic development. Policies
relating to trade, financial flows, investment
flows, traditional corporations and the countrys
participation in regional and global economic
organisations will influence an economys ability
to take advantage of the benefits of integration
such as
-

Economic restructuring
Efficiency
Access to foreign capital and
technology
And access to overseas goods
markets.

Active labour market policies that support

unemployed workers were found to be
beneficial with the majority producing long term
benefits.

3.6 The Impact of Globalisation

experienced a comparatively weak growth over

the past two decades and were most impacted
by the global recession in the late 2000s.

In this section, we answer the most important

question of economics; what is the impact of
globalisation on individual economies and the
world as a whole?

In particular, economies with highly globalised

financial markets such as the US and Europe
suffered the worst and were again the centre of
economic instability.

We look at how globalisation has affected

economic growth and development, changed
production processes, influenced the gap
between the rich and the poor, and impacted on
the natural environment.

Global forces have also negatively contributed

to other growth outcomes in recent years such
as the foreign indebtedness in Africa and
exchange rate volatility in Latin America.

Although overall, globalisation has fostered

the improved economic outcomes, there are
down sides to greater economic integration.
Economic Growth and Development
Globalisation has affected countries in different
ways. Developing economies are able to benefit
from greater opportunities to grow as they can
produce gods for the global consumer markets
and can also benefit from greater access to new
technologies and foreign investment.
High income economies, especially through TNC
find growth opportunities in global supply
chains and new global service markets.
However, many economies have not gained
as much as might be expected from
globalisation and greater economic integration
as caused disruptive structural changes in some
regions.
*there is no clear evidence that globalisation
has produced an acceleration of economic
growth.
But globalisation seems to contribute to a
convergence in living standards in the global
economy.
Since 1990, the emerging and developing
economies seem to be catching up to advanced
economies.
From trends, it seems to be that there has been
a remarkable growth in emerging and
developing economies that have embraced
international trade, foreign investment and the
participations of TNCs that indicates that
globalisation facilitates high rates of economic
growth.
However, the most globally integrated
economies, the advanced economies, have

So, certain features of globalisation clearly

facilitate economic growth, other features may
destabilize/constrain economic growth.
In the recent decades, the impact of
globalisation is dominated by the rising
economic power of China. (Since it has the
largest population) The rise of China is a major
structural change in the global economy that is
occurring in parallel to the process of
globalisation.
From Chinas rapid growth, the effect of
globalisation is palpable as it is clear that
globalisation has contributed to Chinas success
and growth.
Trends in the HDI show that over longer periods
of time, almost all countries have seen
improvements in economic development.
There is little evidence that globalisation on
balance, contributed negatively to economic
development,
Declines in economic development are
restricted to a handful of economies that have
experienced upheaval in transition to market
economies or serious political turmoil.
Trade, Investment and Transnational
Corporations.
Globalisation has resulted in the substantial
incases in the size of trade flows and foreign
investment. Because of the key role played by
TNCs in both trade and investment flows, TNCs
are increasingly dominated by business activity
around the world
Trade in goods and services make up 2/3 of the
global output. All regions in the world have
experienced this trend as changes in technology
an government policy have fostered trade
growth.

An important feature of trade growth during

the globalisation era is how goods and services
are produced in different stages in different
economies. ( a concept known as vertical
specialization)
You can see for example an iPhone. Its
production process has been split to various
countries where the most cheap and cost
efficient labour is supplied.
The globalisation of financial markets has seen
and increased reliance on foreign sources of
finance for investment. Now, countries have
greater access to overseas funds for investment
than ever before,

and cause environmental degradation during

their production process.
Income inequality
Previously, we looked at the effects of
globalisation on economic growth and
development. This showed that many
developing countries experienced faster
economic growth rates than higher income
countries and over time this can converge
inequalities with in countries because as trade
and financial flows grow, it changes the
structure of economies.

Foreign direct investment is now playing a

greater role in creating more economic activity
for every region around the world.

IT is to be noted that it is mostly the

economies that already have favorable
economic prospects which benefit from FDIs
The removal of foreign restrictions of foreign
ownership and the development of global
capital markets have spurred the growth of
transnational corporations of which there are
now 104,000. TNCs dominate the worlds major
industries such as motor vehicles,
telecommunications and pharmaceuticals, and
merger activity continues to concentrate the
number of these companies, as TNCs prepare
for a world where global industries will feature
just a handful of global companies.
TNCs generally perform better than domestic
firms on a range of indicators including
productivity, quantity sold, production size and
export market share. However, they dont bring
many benefits to the local community because
foreign firms use less domestic capital and
labour.
The full advantage of FDI flows can only be
released if TNCs are encouraged to increase
links with the local community and assist local
suppliers.
Another criticism of TNCs is that they dont
operate under the laws of any one country and
so can move their facilities to countries with the
weakest laws and artificially structure their
financial flows to avoid paying taxes.
Weak environmental protection laws and low
labour standards, TNCs can easily exploit labour

Increased openness provides more

export opportunities which can raise
the incomes of agricultural workers in
developing countries. Lower tariffs
on imports improve the standard of
living for the poor by reducing the
prices of goods.
In advanced economies, higher levels
of trade may shift employment
towards higher paid service
industries, but it may also depress
the incomes of workers in import
competing sectors (e.g. employees in
the American motor vehicle
industries have seen a downwards
fall in come as the US car producers
compete with cheaper imports from
Asia.
Increased financial flows provide
greater employment opportunities
and fuel economic growth, but FDI
flows also tend to be concentrated in
higher skill and higher technology
sectors, favouring those who are
already better off. According to the
IMF, financial globalisation increases
income inequality between countries.
Income inequality has increase in
many emerging economies because
the financial mobility of skilled labour
means that highly skilled workers
may emigrate to more advanced
economies with higher paying jobs
unless they receive higher pay. This
contributes to large increase in pay
for high skilled workers while
incomes for other workers grow at a
much slower rate.

A major part of this increasing inequality is the

impact of technological change, which shifts
production processes away from low skilled
labour towards higher skilled jobs. This benefits

people with higher levels of education but

increases employment for less skilled workers
Environmental Sustainability
Globalisation can have negative environmental
consequences for several reasons.

Low income countries that are

desperate to attract foreign
investments and earn higher export
revenue may engage in economic
behavior that harms the
environment.
This may occur through
- deforestation for paper or
wood chip industries
- depletion of marine life
through unsustainable fishing
practices
- poisoning of water supplies by
mining operations
pollution can be caused by
manufacturing industries
- increased carbon dioxide
emissions from power plants,
contributing to the
greenhouse effect
- the growth in global trade its
self is increasing the
consumption of nonrenewable
fuels for transport by air, road,
rail and sea.

The most significant environmental problem in

the early 21st century is climate change,
because the warming of the atmosphere has
potentially catastrophic impacts on all aspects
of the natural environment including oceans,
marine life, the weather, wild life, air quality
and water supplies.
While carbon emissions that contribute to
climate change come from individual countries,
the impacts of climate change affect the whole
world. This means that nations need to work
together to address climate change.
But, globalisation also offers the opportunity to
protect the worlds environment from harm by
forcing individual nations to face global
responsibility for environmental preservation.
It makes it possible for the costs of
preservation to be shares and to increase
scrutiny of the environmental practices of TNCs.

Globalisation has also facilitated the transfer of

new technologies to improve energy efficiency
and reduce environmental pollution.
Over time, globalisation may create
international institutions with the power to
enforce orders on individual countries to stop
environmental damage.
On recent years however, problems that have
involved global environment resources such as
fish stocks or the climate have proved difficulty
to tackle and progress in making agreements to
combat global environmental problems have
been slow.
The role of financial markets
The influence of global financial markets on
economies has increased substantially during
the globalisation era. Driven by global
information and communications networks,
global financial markets dominate financial
flows around the world.
Governments have encourages the
development of global financial markets by
removing capital controls on the flow of finance,
floating their exchange rates and deregulating
their domestic bank sectors.
Global financial markets can have positive
effects on the economy. It allows countries to
conduct financial transactions through the
exchange of currency in FOREX markets.
Without the concept of foreign exchange, it
would be difficult to conduct national
transaction. Businesses would also find it more
difficult to access loans or attract investors if
they were confined to domestic market.
Efficient international financial markets should
encourage greater transparency of the actions
of businesses and governments should foster
economic development.
Global financial markets have also created
negative results during the globalisation era.
Financial markets shift large sums of money
around the world every day. If investor
sentiment turns against an economy, it can
consequently collapse exchange rates and
cause a shock to the economy which would be
accompanied by a recession and rising
unemployment.
The international business cycle
The closer links between the economies have its
pros and cons.

The benefit of integration is that allows

countries to achieve faster rates of economic
growth by specializing certain types of
production and by engaging in trade.
Countries that have a higher level of trade also
experience faster rates of economic growth by
specializing in certain types of production and
by engaging in trade.
Countries that have a higher level of trade also
experience faster economic growth. Especially
in time when the worlds economic growth is
higher, individual economies are likely to
benefit from the upturn in growth.
But closer integration also means that the
economies are more exposed to down turns in
the international business cycles and to
developments in their regions.
Greater synchronization of business cycles
between different countries has also increased
the need for macroeconomic policies to be
coordinated,

Many economists argue that recent events

have highlighted the need for greater
coordination of economic management and
financial regulation in the economy, to better
manage the international business cycle and
avoid a repeat of the events following the global
financial crisis.