The Global Economy Report

Introduction

The Global economy is referred to as the world economy. It involves the entirety of the economic activity
that occurs between nations. The Global economy comprises of all trade, financial flows, investment,
technology, labour, and economic behaviours & interactions between nations. Changes within a single
economy, may have impact on other economic nations, thus creating a ‘Global Economy’. Furthermore, the
increasing interaction/integration of economies through the growth of these indicators can be referred to as
Globalisation. Along with this, it also entails a surge in cross-border social, cultural, and technological
exchange. In saying this, this report will examine changes in the global economy and globalisation in recent
years. Particularly focusing on recent trends within Global trade, investment, and financial flows, whilst
discussing the factors that have impacted on these changes. Furthermore, the report will discuss the impacts
of the changes on growth and development in countries such as China, India, and the United States.

Global Trade
Global Trade can be defined as the exporting and importing of goods/services across national borders.
Imports are those, in which one country buys from another, whereas exports are Goods & Services sold from
one country to another. Trade is an important indicator of globalisation as it is a measure of the quantity of
Goods & Services produced in an economy, that is consumed in another. Trading between nations is crucial
as one country cannot produce all required materials.
Global Trade over the past decade has faced various changes due to many factors. There has been rapid
growth in the levels of trade over the years, which is mainly because of technological developments in
transport and communications and increased efforts to reduce trade barriers between nations. Although
Global Trade has also seen decreases because of the COVID Pandemic.
Figure 1 examines the level of Trade growth between the years of 2016 to 2021, which is presented in the
form of USD. Throughout the years, Trade continued to grow and reached just under $5 Trillion USD by the
end of 2019. Although, began to decrease throughout the year of 2020, where it reached under $4 Trillion
USD, which is the lowest it has been before the year of 2016. Following this, Trade then began to grow
again.

The composition of trade is known as what goods and services are being traded. In past decade, global trade
has been greatly dominated by Fuels/minerals, commercial services and manufactures. Compared to this the
composition of trade has changed over the decade and in 2018, was heavily dominated by manufactures and
commercial services. Fuels/minerals, food/agriculture and other goods also make up a small portion of trade
composition. Figure 2 demonstrates this.

The direction of trade flows is what nations are contributing to the exporting and importing of
goods/services. Over the decades the high-income economies have seen levels of decrease in contribution of
trade, in saying this, these nations have contributed to 69% of trade in 2019. Although developing
economies such as china and India, have been seeing rapid growth in the recent decade and share 16% of
global trade as of 2019. With these trends in direction of trade and the rapid increase in Chinese growth,
other nations have responded by improving trade relations with the Chinese economy, such as Australia.
Figure 3 demonstrates the regions/nations which contribute to world trade. Seen in the graph is the Asian
countries increasing the level of trade, generally because the growing knowledge of global contributing to
the reduction in poverty. Along with this, the united states has seen varying contribution since 2013 and as
of 2019 has been continuing to increase. In 2013, Due to global uncertainty in Europe and the USA, China
became the highest contributor to both importing and exporting of Global Trade. Generally, European
nations and the USA are the highest importers, whereas the more developing countries are the highest
exporters. China normally has a trade surplus, where regions such as USA usually have trade deficits.

Although the biggest factor which has impacted on Global trade, since the Global Financial Crisis in 2008,
was the COVID pandemic, which has affected almost every nation worldwide. This influencer has heavily
impacted on the levels of trade between nations as border closure became crucial for nations to minimise the
spread of the virus. Although smaller factors have influenced levels of growth in Global Trade over the
recent decade, such as technological advancements and improvements in relations between nations.
Trade has been a considerably important element to economic growth and development, particularly in
developing countries, such as East Asian economies. It is evident, that no country in recent years has
experienced high levels of growth, without the open concept of international trade. By opening economies to
Global trade, the East Asian regions have been able to develop competitive advantages in manufacturing.
For example, China experienced a decrease in economic growth in 2020 down to 2.34%, where in 2019 it
was 5.95%. The decrease in this rate was due to closures of international borders because of the Pandemic,
which restricted the amounts of Trade activity. As a result of opening borders in early 2021, China then
experienced further growth rates to 8.02%, where trading between nations became predominant once again.
Along with this, Freeing trade greatly benefits the poorer regions as they gain access to implicit subsidies.
By generating stronger trade relationships with nations, new jobs open in the poorer countries, resulting in
the decrease of income inequality, which ultimately reflects rapid economic growth.
Investment and transnational corporations

Another evident indication of globalisation is the rapid growth of investments between countries. This
relates to investments made by transnational corporations, having branches in multiple nations (i.e
McDonalds, Nike).

One measure of Investments is the Foreign Direct Investment, which involves the movement of funds
between economies for the purpose of establishing a new company or buying shares in an existing company.
The level of FDI is heavily influenced by the level of economic activity, hence why these flows are
constantly increasing and decreasing. FDI flows saw a dramatic decrease in the late 2000s, due to the Global
Financial Crisis. Although, the following years have altered these levels and now have demonstrated a
gradual recovery from the financial crisis.
Though another factor has greatly impacted the FDI flows in year 2020, where the COVID pandemic struck
and caused huge economic disruptions. In saying this, FDI flows were majorly affected by the pandemic,
seeing a sharp decrease.

Generally, Investments have favoured developed nations in the past because of larger consumer markets and
greater industrial capacity. These nations involve Japan, Europe, and North America.
Although, in the recent years, areas of greatest new investment has been in the emerging nations, such as
Asia and Southern America. This was because of the relatively low wage rates and growth of economies. In
saying this $685 billion USD inflows were if those developing nations.

Transnational Corporations play a major role in Global investment flows. The number of TNC’s have grown
greatly in the recent years, reaching to approximately 100,000 TNCs worldwide. These growth have
occurred over t
The increased numbhey intorers of international investments is also due to greater levels of international
mergers and takeovers.

Figure.. demonstrates the main investors in the world. According to the statistics, Japan, China and Germany
share the greatest amount of investments.
Various changes in the levels of FDI have occurred in the past decade. One recent change was in 2012,
where there was an 18% decrease in FDI which was due to macroeconomic fragility and policy uncertainty
for investors. These levels have been fluctuating over the decade and has seen a variety of increases and
decreases. In 2016, the FDI recovered to a $1.75 USD, but then saw another decrease again because of
economic uncertainty and trade tensions, which decreased by 13% in 2017 down to $1.5 USD.
Furthermore, these flows worsened by US companies tax cuts and job acts.

Throughout the years, the growth of TNC’s has allowed for economic growth in developing nations, such as
China and Japan. The increased levels of TNC’s has strengthen the dependence of developing countries on
those of developed nations. By moving TNC’s into developing nations, it has opened more job opportunity
and assisted in generating greater capital for the nation.
TNC’s have shown great contribution to national economic growth and development through innovation,
technology transfer and productivity gains.
Financial Flows

International financial flows is the movement of money for the purposes of speculation, investment, or trade.
As electronical money transactions occur almost instantly, financial flows are the most globalised feature.
They can take various forms, which the fastest growing areas have involved interest rates, currency, equity
and derivatives.
Since the increase in globalisation across nations, there has been sufficient increases in the levels of
financial flows over the decade. The great levels of technological change has majorly affected the financial
flows. Due to new technologies and communications, it assisted the link between New York, Japan, London,
and Hong Kong.

Foreign exchange markets is an important feature of international finance, which has experienced rapid
growth in recent years. The foreign exchange market is a network of buyers and sellers exchanging from
currency to another. From the year of 2010, the forex market has increased from $4 Trillion USD to now
$5.8 Trillion USD as of 2019.

The globalisation of finance has majorly influenced the link between economies around the globe.

Figure.. shows the dramatic changes over the years. It is evident that during the Global financial crisis,
financial flows, particularly exchange-traded derivatives, were impacted by this, which resulted in huge
decreases. Along with this, smaller decreases occurred in the year of 2013 because of the Eurozone.
Although developed a recovery after this slight impact. From the year 2010, exchange-traded derivatives
increased from $70 Trillion USD up to just under $100 trillion USD by 2019.

Throughout the COVID-19 outbreak financial flows were greatly impacted. The scale and speed of outflows
have been 4 times greater than they were throughout the 2008 Global Financial Crisis. Although stabilisation
of the flows began in Quarter 2 of 2020.
Figures.. demonstrated how both emerging and emerged nations currency were impacted by the COVID
pandemic. Seen in the graphs, currency rates decreased greatly in almost all of those emerging nations
because… Whereas, some developed nations showed signs of growth in currency rates throughout the
pandemic, such as the USA and Europe. Although some developed nations have shown signs of decrease in
the currency, in nations such as Canada.

Financial flows have shown substantial promotion of economic growth in both developing and developed
nations. Economic growth has occurred in the East Asian economies and Europe through increased capital
accumulation and increased rates of savings.

Conclusion
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