Lecture 3 – World Economy

1. What is it?  Is the economy of the world, international exchange of goods and
services that is expressed in monetary units (money).

2. Indicators: GDP (Gross Domestic Product), GNP/GNI (Gross national product/income),

HDI Human development index.

3. Economic Inequality:

a. OECD: richest countries of the planet – only 19% of its population, 71% of world
foreign trade, 58% of in-coming FDI, 91% of internet users.
b. 80% of all patents registered in developing countries belong to the people from
developed parts of the world.
c. Colonialism, one of the reasons of world inequality. (15 – 18. Centuries).
Established system of superiority and inferiority among countries and nations.

4. Economic power factors:

a. Population (most important factor)

b. Historical and cultural factors
c. Mineral/natural and raw material resources
d. Energy resources
e. Transportation infrastructure
f. Technological development (innovation potential)
g. Environment

5. Population – key factor:

a. Factor of production (labor), different levels of education, skills, working habits…

b. Demand in the market
c. Natural movement of population. Natality usually decreases with the growing level
of economic development
d. High natality rate – LAC and Asia
e. Low natality rate – North America, Europe, Australia

6. Migration:

a. Permanent one-way migration, particularly brain drain, negatively affects

emigration country.
b. Mass immigration may seriously affect host countries in terms of their social
stability, even very powerful country.
 c. Recent mass migration between Africa, Asia and Europe; as well as Mexico and
USA.

7. Economic Structure in Europe:

a. Core areas: very density of the population, largest metropolitan areas, high quality
and density of transportation network, great economic performance, high degree
of competitiveness, high level of innovations.
b. “Blue Banana”: southeast England, Benelux, Northern France, mid-west and south
—west of Germany, Switzerland and northern Italy.
c. “Western-European Pentagon: territory surrounded by London, Paris, Milan,
Munich and Hamburg. (18% of land, 41% of the population, 49% of GDP).

8. Gross Domestic Product:

a. GDP is total market value of all officially sold final goods and services produced
within a country over a period.
b. GDP per capita: qualitative indicator (living standard)
c. GDP in total: quantitative indicator (economic performance, power)
d. GDP as % to the world / continental average
e. GNP/GNI is a total market value of all officially sold final goods and services
produced by residents/economic bodies of a country over period.
f. HDI: Human Development Index
g. Income method: GDP = R + I + P + SA + W
(R – rents, I – interests, P – profit, W – wages, SA – statistical adjustments)
h. Product method: Total gross output of firms.
i. Expenditure method: Y = C + I + G + (X – M)
(C – consumption of households, I – investment, G – government spending, (X-M)
– Net Exports)
j. Consumption is normally the largest GDP component in the market economy.

9. Disadvantages of using GDP:

a. Non-market transactions are not included, mostly: Production of households, black

economy (illegal software, sell narcotics, prostitution, etc.), barter exchange,
unregistered sell of goods and services.
b. Economic indicator without social dimension (healthcare, state social security,
etc.)
c. GDP is not indicator of “quality of live”

10. Richest countries in the world in 2022: Monaco, Liechtenstein, Luxemburg,

Switzerland, Macao, etc.

11. Developing countries:

 a. Often have deficient infrastructure and immature economics, which can put their
citizens and corporations at a substantial disadvantage when competing in a global
market.
b. Larger disruptions such as war, hunger, disease and political unrest can also have a
tremendous negative impact on a country’s GDP.

12. Poorest countries in the world 2020: Burundi, Somalia, Mozambique, Madagascar,
etc.

13. Qatar:

a. It has the highest GDP per capita in the world.

b. Its growth has been almost exclusively based on its oil and natural gas industries.
c. 14% of households are dollar millionaires.
d. Migrant workers represent 94% of the workforce.
e. Almost no taxes.

14. Liechtenstein:

a. It is a constitutional monarchy with an elected parliament.

b. It is the fourth smallest country in Europe, after Vatican City, Monaco and San
Marino.
c. One of the lowest tax level (1.2%)

15. Norway:

a. It is a Scandinavian unitary constitutional monarchy.

b. High level of knowledge-based economy.
c. Developed social system.

16. Human Development Index (HDI)

a. Aggregates indicators on life expectancy, education, and income.

b. HDI is used to rank countries into four levels of human development.
1. Very high human development: Norway, Australia, USA, Canada, etc.
2. High human development: Oman, Romania, Panama, Bahamas, etc.
3. Medium human development: Egypt, Indonesia, Paraguay, etc.
4. Low human development: Kenya, Nepal, Pakistan, Malawi, etc.

17. What to expect?

a. The world economy is paying a high price for Russia’s unprovoked, unjustifiable
and illegal war of aggression against Ukraine.
b. COVID-19 and the war is dragging down growth and putting additional upward
pressure on prices, above all for food and energy.
 c. Inflation has become more widespread and will persist for longer than expected.
d. Inflation will ease but remain at high levels.
e. Demand reduction and supply diversification are needed to avoid energy
shortages.

18. Policy Requirements

a. Fiscal policy:
1. Pressure on social support to cover higher cost of living.
2. Tax system revisions.

b. Monetary policy:
1. Increase of interest rates to slow down inflation.

c. International co-operation:
1. Threat to global food security. International cooperation is needed to keep
agricultural markets open, address emergency needs and strengthen supply.