GLOBAL ECONOMY

Global economy is the exchange of goods and services integrated into a huge single global market. It is virtually a world without borders, inhabited by marketing individuals and/or companies who have joined the geographical world with the intent of conducting research and development and making sales.

International trade permits countries to specialize in the resources they have. Countries benefit by producing goods and services they can provide most cheaply and by buying the goods and services other countries can provide most cheaply. International trade makes it possible for more goods to be produced and for more human wants to be satisfied than if every country tries by itself to produce everything it needs.

U.S. FOREIGN TRADE

The United States is one of the world's leading trading nations. The exports and imports of the United States thrive so mightily that the profits of many large businesses, the jobs and incomes of many workers, and the incomes of many farmers are dependent upon them.

In such a market, companies may source from the United States, conduct research and development in another country, take orders in a third country, and sell wherever there exists demand, regardless of the customer's nationality.

CAUSES OF INCREASING GLOBALIZATION

In the days of Scottish economist Adam Smith (1723–1790), if a merchant wanted to trade a lot of wool for a case of port wine, the communication of that intent would require weeks. Sending a message to someone in India took months. Such circumstances lent themselves to fragmented and individualized markets run by family members or close friends. These industry managers were trusted to make decisions in the best interests of the company because no rapid means of communicating existed. The opportunity to closely coordinate the act of several foreign operations simply did not exist.

In the early twenty-first century, communication between most parts of the world is instantaneous. A manager in Berlin, Germany, can phone or e-mail a manager in Rio de Janeiro, Brazil, to discuss the latest news regarding the orange crop. These new capabilities allow vast amounts of business data to be transferred globally almost instantaneously at a reasonable cost. The world truly has become a smaller place in terms of communication.

Technological advances have increased the potential for the transportation of goods and individuals globally. This reality encourages a global market approach to business as companies attempt to reach the largest number of consumers at the lowest possible prices.

Another factor leading to a more globalized marketplace is the historical decrease in tariff and nontariff barriers. In 1930 the United States raised tariffs under the Hawley-Smoot Tariff Act. Other countries followed suit, and international trade slowed considerably. In 1947 several leading trading nations created the General Agreement on Tariffs and Trade to serve as a forum for bringing down trade barriers. Between 1947 and 1994, trading countries around the world participated in eight rounds of negotiating in an effort to reduce tariffs.

Another agreement, the North American Free Trade Agreement, was implemented by Canada, Mexico, and the United States in 1994. This agreement reduced tariffs over a fifteen-year period, lifted many investment restrictions, allowed for easier movement of white-collar workers, opened up government procurement over a ten-year period, and created a mechanism for dispute resolution. As a result, retailers such as Wal-Mart and 7-Eleven have expanded operations into Mexico and many Mexican and Canadian firms have been enjoying the benefits of participating in the world's largest consumer market, the United States.

Multinational corporations search the globe for the lowest possible labor costs and weakest environmental safeguards. It is not unusual for them to get help from undemocratic governments that compete in the global marketplace by refusing to protect their citizens from environmental degradation and workplace abuse—ranging from below-survival wages to physical attacks.

OTHER FACTORS AFFECTING THE GLOBAL ECONOMY

Closely related to the liberalization of trade, technological advantages, and the convergence of consumer preferences are a set of competitive factors centered around the ideas of economies of scale (larger production volumes generating lower per-unit production costs) and locational advantages.

Another factor affecting the global economy has been the shifting of production among various plants located outside of the United States. This has occurred most significantly with the People's Republic of China. China is able to produce a wide variety of goods and services at much lower costs than is possible in the United States.

Overall, the future for the global economy is positive. Many challenges lie ahead, but the overall opportunity is very exciting and carries with it many unknown adventures in international trade in ways not yet known.

see also International Business; International Marketing; International Trade

bibliography

Adonis, A. (1994, September 17). Lines open for the global village. Financial Times, p. 8.

Braithwaite, John, and Drahos, Peter (2000). Global business regulation. New York: Cambridge University Press.

Czinkota, Michael R., Ronkainen, Ilkka A., and Donath, Bob (2004). Mastering global markets: Strategies for today's trade globalist. Mason, OH: Thomson/Southwestern.

Global economic integration. (n.d.). Retrieved February 22, 2006, from About.com Web site: http://economics.about.com/od/useconomichistory/a/global.htm

Hill, Charles W. L. (2006). Global business today (4th ed.). Boston: McGraw-Hill/Irwin.

What is global economy? Retrieved February 7, 2006, from PR Resource Center Web site: http://www.ailins.com/agency/PR/unions/global_economy.html

G. W. Maxwell

GLOBAL ECONOMY

Global Economy was a concept associated with the twentieth-century evolution of financial markets and institutions, where traditional geographic boundaries did not restrict economic transactions and consumer activities. The global economy applied to the increasingly international transaction characteristics of banks, industries, businesses, and other economic institutions. A global economy of financial markets was attributed to international deregulation of financial markets; technological advances to provide for the careful monitoring of world markets; and increased institutionalization of worldwide economic institutions. In a global economy investors and lenders viewed international loans and securities as comparable to domestic or local transactions. Banks and other financial institutions in a global economy participated in both foreign and domestic markets. A global economy was encouraged by advances in data-processing and telecommunications monitoring, liberalization of worldwide capital funds, deregulation of local capital markets, and increased international competition among markets and economic institutions.