Global Economy: Meaning, Characteristics, Challenges

The global economy has more than doubled in the last two decades to USD85.91 trillion in 2018, according to the World Bank.

What is the global economy

The global economy is an economy in which wealth and resources move across national borders. The movement also includes goods, services, people, skills, and ideas.

A country deals with the global economy through international trade and capital flows. The development of technology also allows the flow of information from one country to another.

Globalization has increased with:

  • Reduction of regulatory obstacles
  • More sophisticated technology
  • Low transportation costs
  • Increased interdependence between countries

Globalization leads to greater efficiency of economic resources. Companies can take advantage of cheaper labor in developing countries. These developing countries can adopt a developed country’s technology to build their economies.

Information technology is taking a prominent role

The internet and information technology enable more intense trade and production. We can sell products, locally and abroad. Companies big and small can utilize the internet. With globalization, the market is wider, but competition is also greater.

Technological progress also disrupts conventional business models. Some industries, such as newspapers and retail, have been hurt by the presence of new digital business models.

The emergence of new economies

China, Indonesia, India, and several other developing countries have emerged as a new power in the global economy.

The government plays a role in international business

Some governments support domestic companies, both directly and indirectly. Many state-owned companies have expanded overseas. That is one form of government participation in the international business.

A growing global value chain

Transnational companies try to take specific advantages from each country. For example, some countries have abundant raw materials supply and cheaper labor costs. The companies break down the production process in various countries to exploit those benefits.

Homogenization of culture

Globalization also transmits ideas, meanings, and values from one country to another. People are starting to adopt trends from other countries.

Global economy challenges

A connected global economy can also have negative consequences. Among the issues of adverse effects are:

  • Global economic inequality and uneven economic development
  • Global poverty
  • Endless non-renewable resources
  • Environmental depletion and global warming
  • More vulnerable to contagion effects of the economic and financial crisis
  • The increasing geopolitical tension

Source: Global Economy: Meaning, Characteristics, Challenges
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