The Global Economy

The Global Economy Essay

The Global Economy refers to all countries in the world that produce goods and services and contribute to Gross World Product (GWP). Goods are defined as anything that someone wants or needs and services as the performance of any duty or work done by another person. Goods can be consumer goods that satisfy wants or needs, such as food and clothing, producer goods that are used to make consumer goods, such as raw materials or capital goods that are used to make producer goods, such as machinery. Services include construction, education, entertainment, finance and transport although the term refers to any work done by another person. As well as contributing to Gross World Product, these countries engage in world trade, foreign direct investment and portfolio investment as well as the transfer of finance, technology and labour.
Globalisation is the process of increasing levels of economic growth between countries, which is achieved through economic integration. This occurs when trade barriers are reduced or removed between countries to facilitate growth in free international trade and investment flows. These trade barriers include tariffs which are a tax enforced on imports, subsidies which provide protection to goods and services within a country making them more competitive against imports and quotas which restrict the quantity of goods that can be imported within a set time period. The main forms of economic integration include a free trade area, custom union, common market or monetary union.
A free trade area is characterised by a group of member countries that abolish trade restrictions between themselves but retain their own restrictions against other countries. An example of a free trade agreement is the North American Free Trade Agreement (NAFTA) which has removed tariffs between member countries although each country continues to set their own tariffs against non-member countries. A custom union removes tariffs between member...