SHARON HS ECO NOTES CH 1:

International Economic
Integration:

THE GLOBAL ECONOMY:

The global economy consists of all the

countries in the world that produce goods and
services that contribute to Gross World
(GWP) or also
global
output.
Product
These countries
engage
in the world

In 2011, there were 34 advanced economies

which accounted for 15% of the world
population, 51% of world GDP and 62% of world
exports.
trade of goods and services, as well as
Three sub groupings of advanced
foreign direct and portfolio investment.
economies:
Economies become integrated through a
- Major advanced economies (G7): US, Japan,
reduction in trade barriers (tariffs &
Germany, UK, France, Italy and Canada. It
subsidies)
accounts for 38.5% of world GDP and 34.2% of
ECONOMIC INTEGRATION: the
world exports in 2011.
liberalisation of trade between two or more
- Euro Area of 17 countries: Economic and
countries formation of:
Monetary Union, which accounted for 14.3% of
- Free Trade Area: where a group of member
world GDP and 25.6% of world exports.
countries abolish trade restrictions between
- 4 newly industrialised Asian economies of
themselves but retain restrictions against nonSK, Taiwan, HK & Singapore accounted for
member countries. E.g. NAFTA where tariffs
3.9% of world GDP and 9.5% of world exports.
Major emerging economies BRIC nations
between the member countries of Canada, the
of Brazil, Russia, India and China (+ oil
USA and Mexico have been removed but each
exporting countries such as Saudi Arabia &
country maintains its own tariffs towards nonKuwait), which have sustained high rates of
members of NAFTA.
- Customs Union: where members not only
economic growth and development in the
abolish trade restrictions between themselves
2000s and now accounts for ~25.9% of world
World
but adopt a common set of trade restriction
GDP.GDP:
Total
market
value
of all goods and services

Gross
World
Product:
against non-member countries. E.g. The
produced
countries
over is
a measured
given timeby
period

Size of by
theall
global
economy
the
European Economic Community (EEC) prior to
(usually
one
year),
adjusted
for
national
variations
IMF which values countries GDP at PPP
1993.
- Common Market: involves the features of a
(purchasing power parities) in US dollars (the
customs union but allows for the free mobility
worlds reserve currency).
of labour and capital within the common market
countries, as well as the free flow of goods and
services.
E.g. European Community (EC) between 1993
- Adv economies 51% of world trade output
and 1998
- Developing countries 49% of world GDP
- Monetary Union: characterised by the
(2011)
features of a common market plus the adoption

HOWEVER, emerging & developing economies

of a common currency and the co-ordination of
have higher rates of growth & a rising share of
monetary policy through a single central bank.
world GDP. E.g. China and India produce 20% of
Fiscal, welfare and competition policies may
world GDP, the Euro Area 14.3% and the USA,
also be co-ordinated between member
19.1%.
countries. E.g. Economic and Monetary Union

During the GFC in 2009, advanced economies

Greater international economic integration
contracted whilst China and India and other
has been accompanied by an increasing
emerging economies showed slow but positive
proportion of world trade carried out by
growth.
multinational corporations (MNCs)
Emerging economies
and developing
economies inin
Advanced
face challenges
IMF classifies countries into:
the
process
of
raising
their
rates
economic
Advanced economies
characterised
by
sustaining
future rates
of GDPofgrowth.
growth
and
development,
but
have
lower
per
high
levels
of
economic
development,
with
They are:
capita incomesand
living standards
than the
average
per capita incomes
of >US$30,000

Undergoing financial restructuring with

major financial institutions repairing their
balance sheets and authorities strengthening
prudential supervision after the GFC.
- Demographic ageing, which limits
productivity growth + financial burden on
government finances.
- Large budget deficits and levels of public
debt which must be reduced through lower gov
spending & taxes, which will limit their
capacity for future growth.
GLOBALISATION:
ECONOMIC INTEGRATION: When trade
barriers (tariffs, subsidies & quotas) are
reduced or removed between countries to
GLOBALISATION:
levelof
of
facilitate the growthIncreasing
in FIT & flows
economic integration between countries,
leading to the emergence of a global market
place
Characteristics
of GLOBALISATION:
or a single world
market.
- The integration of national financial systems
has created a world system global
integration integration of K markets
+ mobility of K
(I.e. Flows of foreign direct and portfolio
investment & foreign exchange between
countries & regions)
- Trade & investment across national
boundaries is conducted across national
boundaries (& are increasingly footloose in
seeking out the most competitive locations
for business & maximise profits)
- ICT revolution new types of products,
services & employment in business servicing
the global market through the internet +
electronic commerce.
- Global market place includes the Asia
Pacific region (E.g. Japan, China, India & the
NIEs) + NAmerica & Europe as major regions
of economic activity.
- Growth products such as: ETMs,
technology goods & specialised services
such as finance, business, accounting,
insurance, transport, telecommunications,
entertainment, music, media & IT.
- International trade is linked with I as
companies use foreign direct investment to
gain access to foreign markets & to generate
exports of inputs & expertise from the home
country. (1992 1999: world trade volumes
grew at an average of 6.6& per annum, while
Globalisation has been adopted by adv
FDI grew by 23% per annum).
economies as a policy strategy through
TRADE LIBERALISATION and
MICROECONOMIC REFORMS in

Evidence of FINANCIAL CONTAGION

speed & impact of:
- GFC (2008-09) which caused a global
recession in output, trade & employment.
- European Sovereign Debt Crisis (201112), which was also transmitted to other
regions lower growth in O, X, foreign
Foreign Direct Investment (FDI): where
investment.
ordistribution
buy a controlling
- companies
Wideningestablish
gap in the
of Y & interest
in wealth
a foreign
subsidiary.
(Total
FDI valued
at
between
adv &
emerging
countries.
Four
Foreign
major
Portfolio
forces that
Investment:
underpinwhere equity
globalisation:
and debt securities are acquired (has grown
1)4)

levels
of technology,
communication,
substantially,

customisation
and totalled
of products
more than
& services
transport
&
information
technology
has
US$715,869m
led to the development
in gross terms
of a
innetwork
2007)have
or
reduced
transport,
communications
&
transaction
global web of production & distribution
costs in conducting global business.
2) The liberalisation of the global trading
environment has occurred through the signing
of bilateral, regional and multilateral trade
agreements.
3) Strengthening of financial and trade
linkages between countries faster
transmission of financial & economic shocks
TRADE, FINANCIAL FLOWS & FOREIGN
INVESTMENT:
Main
Globalisation
has
categories
ofled to growth in world
output & trade.
merchandise
Main categories of
exports are:
services exports
- Food
are:
- Agricultural raw
- Commercial
materials
- Transport
- Fuels
- Travel
- Ores
- Insurance
- Metals
- Financial
- Manufactured
- Computer
- ICT
goods
FINANCIAL FLOWS:
The GFC has led to significant falls in financial
activity (Debt securities as companies have
reduced their debt to ratios)
Main participants in the global forex
Also an in bond issues by governments to
markets are:
fund higher budget deficits due to the use of
(i) Reporting dealers commercial &
fiscal stimulus packages.
banks acting
on behalf of clients
investment
WORLD FOREX
MARKET:
total turnover
in forex
2010)markets = US$4
(38.9%
Daily of
turnover
in global
(ii) Financial institutions Hedge funds &
000 billion in 2010.
pension funds that buy & sell currencies on the
behalf of clients to make profits (47.7% of total
turnover in 2010)
(iii) Non-financial institutions govs, MNCs,

 Many host govs offer incentives to

MNCs such as:
Tax allowances, government assistance, access
to infrastructure, less stringent labour &
environmental regulations.

GLOBALISATION AND FOREIGN

INVESTMENT:

General growth in FDI & FPI has been due to

the easing of capital controls between
countries as the process of financial
deregulation has spread globally.
Central banks have also removed direct
lending controls allowing a greater role for
market forces to allocate saving &
investment resources.
MNCs & FOREIGN INVESTMENT:
MNCs: Enterprises that manage production or
deliver services in more than one country and
are responsible for much of the worlds FDI
since they set up subsidiaries in other
countries to gain access to global markets.
They are large in terms of sales revenue,
output and employment & can have a
powerful influence on host economies
through their control of resources,
production, employment & sales
activities.
Top ten MNCs in 2010-11 include:
- Retailing (Walmart stores)
- Petroleum (E.g. Royal Dutch Shell, Exxon,
BP, Sinopec, China National Petroleum and
Chevron)
- Energy (State Grid) & automobiles (E.g.
Toyota
Motor) acquisition of >10% of the
FDI
by MNCs
voting power or shareholdings of an
enterprise in another economy by:
- Incorporating a wholly owned subsidiary or
company
- Acquiring shares in an associated enterprise
- Through a merger or acquisition of an
unrelated enterprise
- Participating in an equity joint venture with

DISADVANTAGES OF MNCs:
- Some MNCs exert undue market power over
host govs & can exploit local tax, labour &
environmental legislation for the benefit of
foreign investors.
- Remit profits & dividends to their parent
companies overflow of funds in host countrys
ADVANTAGES:
- Transfer of technological know-how
- Creation of export & employment
opportunities
Generation
of additional
tax revenue to host
GLOBAL
PRODUCTION
WEBS:

Global Production Networks: Webs that exist

where raw materials, processing, manufacturing
& the assembly of products take place in
different countries under the centralised control
of the
corporation.
The
major
factor driving the development of
global webs is the minimisation of costs in
achieving economies of scale.
Manufacturing plants tend to be located in
countries with low labour costs & favourable
government policies such as tax concessions &
export incentives (I.e. China, India, SK, Taiwan,
HK, Singapore, Malaysia, Indonesia & Mexico)
Once manufactured & assembled, the products
are distributed by MNCs to major high income
ECONOMIC
BENEFITS
OF North
TECHNOLOGY:
markets such
as East Asia,
America &
-Europe.
The ordering of stock & inputs can be done
instantaneously,
allowing firms
to respond
Developments
in technology,
transport
&
to changes in demand
communications
MNCs quickly.
to utilise global supply
-chains
Firmswhere
can use
information
they can sourcetechnology
the cheapest
systems
to
their inventories more
inputs of LLKEmaintain
for their operations.
efficiently, thereby
reducing inventory &
TECHNOLOGY,
TRANSPORT,
warehousing costs.& LABOUR:
COMMUNICATIONS
-Technological
New productsrevolution
& services
greater
based
onchoice
the use
for consumers
& international
competition
of personal
computers
and the take-up
of

lower
prices
of
goods
and
services
in
digital technologies.
global markets.
- Time savings through the use of the
Internet & electronic commerce firms to
labour costs in marketing & distributing
final G&S to consumers.
- Role of wholesalers & middlemen in the
distribution chain has with the use of ecommerce cuts in costs higher profits.
- Rapid changes in technology allow for a
faster rate of innovation in product
development, production methods,
marketing & distribution.

their home countries by remitting savings

from their wages & salaries in the form of
current transfers.

Changes in technology are created by countries

which are technology leaders & innovators. I.e.
USA & Japan
Transport infrastructure roads, railways,
ports, waterways, airports vital for the
operation of domestic economies & the global
economy.
Communications new technology &
methods of financing along with privatisation &
market liberalisation have led to the growth of
telecommunications spread of mobile phone
technology, internet access & ICT.
INTERNAL DIVISION OF LABOUR &
MIGRATION:
The division of labour: The specialisation of
people according to labour tasks in production.
On a global basis, the international division
of labour is linked to the operations of
MNCs in establishing subsidiaries (i.e.
offshoring) in foreign countries to utilise
labour skills at a lower cost &
increasing profits by selling G&S to the
global market. This has:
- Led to the relocation of manufacturing
& services to emerging countries where
labour is cheaper.
- Caused de-industrialisation & job
displacement in advanced economies as
more industries locate offshore or outsource
some of their services overseas.
Examples of the international division of
labour:
- The establishment of manufacturing plants
(either as subsidiaries or joint ventures) by MNCs
in China and Asian NIEs to utilise an abundant
supply of cheap labour.
- The outsourcing of telecommunications,
computing, IT, accounting, insurance, finance &
banking services to offshore locations, where
there is an abundance of labour.
Workers remittances:
Payments sent by foreign workers to their
home. make a substantial
families
Foreignatworkers
contribution to the balance of payments of

Problems associated with the global

movement of people:
- Workers from developing countries were often
exploited by their employers, because they were
not protected by ILO minimum standards for
wages & working conditions.
- Emerging black market in migrant workers
being smuggled into advanced counties to work
in illegal industries such as prostitution, drug
trafficking & other criminal activities
- Growing need for adv countries to labour
supply because of population ageing use of
illegal migrant labour & the associated cost of
authorities expending resources in enforcing visa
& other regulations on illegal workers.
- There has been a flow of illegal refugees from
many emerging & developing economies into
developed countries in the EU & North America
seeking refugee status, employment
opportunities & higher living standards u/e &
cost of apprehending, detaining & repatriating
illegal immigrants to their home countries.
- Brain drain of highly skilled workers
(E.g. in medicine, pharmaceuticals,
science & IT),
INTERNATIONAL
& REGIONAL BUSINESS
leaving
adv & dvp countries to seek employment
CYCLES:
INTERNATIONAL BUSINESS CYCLE:
changes in world output or GDP over time.
GLOBAL RESOURCES BOOM (2004-08):
World growth ~5% per annum, with adv
countries (esp G3 USA, Euro Area & Jap)
growing by 3-4% annually, and emerging
economies (BRICs) growing at ~7.5% p.a.
GLOBAL FINANCIAL CRISIS (2009):
Synchronised fall in global output & trade,
with
an annual contraction in world GDP of -0.5%.
Global Economic Recovery (2010):
World GDP by 5%, though this to
3.9% b/c of the European Sovereign Debt
Crisis with the IMF forecasting growth of 3.54% (2012/13)
FOUR MAJOR PHASES OF THE
INTERNATIONAL BUSINESS CYCLE:
i) Expansion characterised by a in
demand, a fall in inventories, increased
demand for resources (including labour) & new
investment in plant & equipment. E.g. Between

2003 05, the global resources boom led to a

world growth of4.5% p.a. (above trend)
ii) Peak characterised by supply or capacity
constraints, where inflation starts to & growth
in global outpit is no longer sustainable. E.g.
Between 2006-07, global growth peaked at
5.2% & global inflationary pressures emerged
due to higher oil & commodity prices.
iii) Downswing characterised by demand &
output & a rise in the rates of u/e as global
economic activity slows.
E.g. The onset of the GFC in 2007-08 & the
impact of the European Sovereign Debt Crisis in
2011-12.
iv) Trough or recession fall in global output
& demand reach their minimum point. E.g. The
GFC & world recession in 09 when global
growth in GDP by -0.5% before a recovery
began in 2010-11.
IMPACT OF CHANGES IN THE INTL
BUSINESS CYCLE:
Changes in the intl business cycle can affect
domestic business cycles depending on:
- A countrys level of internationalisation (I.e.
Exports & imports as a % of GDP)
- Integration of a national economy with the
world economy through trade, finance, FDI &
foreign exchange flows.

Main transmission mechanism for these

changes are through changes in world
demand, output, trade & finance:
(i) in world spending, output & growth in
demand for a countrys exports rate of GDP
growth (opp if )
(ii) If WG > countrys domestic rate of growth,
exports faster than imports, balance of
payments on current account should improve &
move into surplus. (opp if DG>WG)
(iii) Higher WG (E.g. resources boom) in
commodity prices & an appreciating exchange
rate for countries experiencing a in export
income, such as resource exporters. (opp will
occur with lower/negative WG)
STRUCTURAL SHOCKS:
(iv) Changes in financial flows A in foreign
- Negative real shocks the two world oil
confidence
increasing
capital inflows
investor
EXTERNAL
SHOCKS
TRANSMITTED
TO
crises
in
(i.e.
foreign
direct
&
portfolio
investment)
to a
DOMESTIC
ECONOMIES:
1973 & 1979, which raised the cost of energy,
country or region, helping to raise DG by
inflation
1) REAL SHOCKS: changes in real variables
&
slowed
WG, output,
particularly
in oil importing
such
as world
commodity
prices ornations
(USA
or Jpn) change.
technological
- Positive real shocks the global resources
boom, which lifted WG to >5% p.a. demand

2) FINANCIAL/MONETARY SHOCKS: changes

in financial variables such as intl share prices, a
rise in intl interest rates or inflation rates.
Financial shocks are transmitted more quickly
than real shocks, through changes in asset
prices (i.e. interest rates, exchange rates &
share prices) & capital flows in financial
markets.
E.g. The rapid withdrawal of capital from some
Asian economies in 1977 which caused the
Asian Currency Crisis (SK, Thailand, Indonesia
& Phillipines)
FINANCIAL SHOCKS:
Lead to a collapse in asset prices & c + biz
confidence & is transmitted from financial
markets to the real economy
Lower output growth & u/e rates.
E.g. collapse of the sub-prime mortgage
market in 2007-08 in the US housing industry
transmitted to global credit & share markets
in the form of i rates on credit & share
REGIONAL
BUSINESS
CYCLES:
prices for financial
stocks.
REGIONAL BUSINESS CYCLE: changes in
output, trade & financial flows in particular
geographic regions where economies are very
integrated, usually through a free trade
agreement,
customs cycles
union orcontribute
monetary union.
Regional business
to
the intl business cycle, with most of
world growth or GDP sourced from the
following regions:
- North America (USA, Canada & Mexico)
which are linked by the North American Free
Trade Agreement (NAFTA)
- EU (27 member countries with Germany, the
UK, France & Italy in the G7)
- East Asia: Japan, China, the Asian NIEs
(Korea, Taiwan, Singapore & HK) + other East
Asian
The growth
of theinUS
economy
as the Indo
worlds
economies
ASEAN
(Thailand,
+
largest
economy
has
been
the
main
driver
of
Philippines)
WG post-1945. The emergence of China &
India as major economic power since the
1990s has helped sustain high rates of EG due
to their demand for resources & capital.
GLOBAL FINANCIAL CRISIS:

July & Aug 2007 intl financial markets

experienced extreme volatility b/c of the
collapse of the sub-prime mortgage market in
the USA.
Bankruptcies rose in the major sub-prime
mortgage market & the collapse in the market
was made worse by a lack of liquidity.
The effects of this collapse were transmitted to
intl markets where asset prices for shares,
bonds
other securities
andcentral
there was
an
The
US&Federal
Reserve &fell
other
banks
upward movement
in cash
interest
rates to
to restore
reflect
injected
liquidity into
markets
the
higher
risk
of
borrowing.
confidence.
HOWEVER, the financial crisis in the US
housing market deepened in 2008 when it
spread to the real economy, causing sentiment
in global financial markets to deteriorate
throughout 2008 as banks tightened or
withdrew funding to highly leveraged investor,
triggering the forced sale of assets.
In response:
- The US gov introduced a fiscal stimulus
package worth US$14b to support
household spending & biz investment.
- The Federal Reserve cut the federal funds
Despite this, the crisis worsened in
rate to 2% to underpin confidence & liquidity.
September 2008, with the collapse of
Lehman Brothers merchant bank & the US
government providing financial support for
two mortgage guarantors Freddie Mac &
Fannie Mae, & the American Insurance Group
(AIG)
Transmission
The credit crisis
then transmitted
other
process
of the GFCtowas

major
due
to: economies (Euro Area, Jpn, NIEs) b/c of
linkages
to US financial
markets & the
(i)their
The GFC
represented
an external
US export
market.
financial
shock
to domestic economies

caused
By Dec
2008,
there wastoanthe
unprecedented
by a disruption
functioning&
global
contraction
output,
ofsynchronised
global credit
markets.
These in
markets
trade
& capital
(~-6.25%
contraction
are
necessary
forflows.
the smooth
functioning
of

in
global
GDP)
economic activity including international
trade & investment.
(ii) The financial shock was transmitted
quickly from the USA to other adv &
emerging economies global credit crisis &
ultimately a GFC (synchronised shock)
(iii) The GFC developed into a global
recession b/c it was transmitted from the
financial sector to the real economy,
affecting confidence, E, O & u/e.
(iv) The GFC required co-ordinated policy
responses by G20 govs in the form of cuts
to official interest rates, the use of fiscal

Since then, government policy

responses have focused on breaking
the cycle between financial market
stress & real economic activity by using
policies such as:
Governments worldwide extended
guarantees for bank deposits & announced
guarantees of banks wholesale funding, and
in some countries such as the USA & Britain,
insolvent financial institutions were recapitalised with public funds.
- Central banks cut official interest rates to
record lows & used a range of liquidity tools
to support demand & ease credit market
conditions.
- Governments
the
Major
trends to around
emerge
inworld
world trade &
implemented
substantial
fiscal
finance in the 1990s & 2000s:stimulus
& eastern
European
countries
has
the demand
to boost
growth
& support
(i)packages
The globalisation
of world
trade
for capital,
as
of
financial
system
stability,
including
employment.
In March
G20
emergence
of a E.g.
global
market2009.
place,The
with
the
US$1.1trillion
in
funding
for
intl
financial
institutions
economies announced fiscal stimulus
(IMF & World Bank) & trade finance.

European Sovereign Debt Crisis:

During the GFC, most governments (esp adv
economies) increased G to support confidence &
employment.
This in G occurred at a time where there was a
in T due to u/e & biz profits & consumer
expenditure.
This fiscal
led to a
cyclicalof
deterioration
in T & a
The
position
most adv economies
deteriorated
structural induring
G, resulting
the GFC
in larger
because
budget
of:deficits
(i)
&
A decline
levels ofinpublic
the level
borrowing.
of real GDP
(ii) The budgeting impact of automatic stabilisers
(iii) Fiscal stimulus measures
The IMF expects fiscal consolidation to occur
(iv) Government support for banking systems
using policies such as:
(i) Discretionary financial actions such as
reductions
Although budget
have
narrowedtaxes.
since
in gov deficits
spending
+ increased
2009,
they remain large
in many
economies &
(ii)
An improvement
in the
automatic
public debt of
to using
GDP ratios
have continued
togov
stabilisers
tax revenue
& reduced
increase.
spending associated with higher growth and lower
u/e.
(iii) Changes in interest payments as the lvl of
net public debt is reduced over time.

Fiscal consolidation is synchronised across 8 of the

largest adv economies (G7 + Spain). However,
some of the worst affected countries were small
economies such as Greece, Ireland & Portugal,
which precipitated the European Sovereign Debt
Crisis in 2011-12, requiring large bailout packages
from the IMF & ECB in return for fiscal austerity
measures.
Overall, the policies used for fiscal consolidation
will have an effect on the economies concerned &
these policies need to be carefully managed to
avoid excessive contraction & further
increases in u/e, especially in the Euro Area
market place, with the integration of financial
countries.
systems & the dominance of MNCs in world
CHANGES IN WORLD TRADE, FINANCIAL
trade.
FLOWS & FOREIGN INVESTMENT:
(ii)global
The growth
of intra-regional
trade
As
integration
proceeds, developing
(based
on
trade
liberalisation
under
EU, of
countries are more likely to expand theirthe
share
APEC & AFTA
multi-lateral
trade
the NAFTA,
global economy,
especially
regional
centres
agreements)
saw
trade
increasingly
linked
to
with large populations and a significant economic
direct
foreign
investment.
base. (Esp emerging economies)
(iii) The growth of the Asia-Pacific region &
China as the dynamos of the world economy.
The in power of NIEs, China & India, fuelled by
sustained rates of EG, investment & trade, pose
a threat to the USA & EU.
(iv) Trade was linked with investment as
companies used FDI to access foreign markets.
They have developed intra-firm and intraindustry trade networks through global
production webs & the expansion of exports to
global markets.
(v) Trade in elaborately transformed
manufactures (ETMs) & services have growth
more rapidly than trade in primary products.
These exports were less subject to protection,
and involved a high degree of value adding
activity. MNCs have exploited the cheapest
resource inputs in emerging & developing
countries & moved capital globally to create
global production networks.
(vi) Capital flows were very mobile, with the
trade surplus of Jpn, Germany, China, Taiwan,
HK & Singapore exporting capital to trade deficit

The emergence of a global market place is

linked to the integration of the worlds major
economies, including the OECD countries, the
NIEs of Asia, China & India.
The volume of trade has also growth with
increasing global economic integration. As
more countries engage in free trade, they
increase their trade with each other & within
their
region
(intra-regional
trade) economic
Reasons
for
increasing world
integration & trade integration include:
(i) Financial deregulation & floating exchange
rates have increased the mobility of capital.
(ii) The reduction in trade barriers through
bilateral, regional & multi-lateral trade
agreements (such as trade negotiations in the
WTO) has increased trade flows.
(iii) There is intl specialisation & exchange in
ETMs & services (E.g. Finance, business,
insurance, health, education, entertainment,
media, tourism & telecommunications)
(iv) The collapse of communism in the former
transition countries have sought more
integration with the EU & the global economy
through intl trade & investment.
(v) The rise of regional economic integration
through the formation of regional trade
agreements such as the EU, NAFTA, APEC &
AFTA, SADC (SAfrica) & Mercosaur (SAmerica)
Changes in the size, pattern and direction
of world trade & investment:
The increasing importance of China & India has
been an important part of the process continuing
globalisation.
Increased trade & financial flows have
resulted from:
(i) Reductions in policy barriers to cross border
trade & capital flows
(ii)
The
increase in global
economic
integration has
Improvements
in ICT
& transport
raised living standards by allowing countries to
focus on the production & export of G&S in which
they have a comparative advantage, in exchange
for those G&S in which other countries have a
comparative advantage.
INCREASING REGIONALISM:

 Trade for the 3 major economic groupings

(Europe, North America, East Asia) has become
increasingly intra-regional & has been
accelerated by preferential liberalisation
favouring intra-regional trade, both within the
EU & with the formation of the NAFTA.
East Asias intra-regional integration has
complemented its broader integration with the
rest of the world since much of the process has
been driven by the development of intraregional supply chains for the manufacture of
goods for final sale in markets outside the
region (E.g. Europe & North America)
East Asias intra-regional integration has
complemented its broader integration with the
rest of the world since much of the process has

been driven by the development of intraregional supply chains for the manufacture of
goods for final sale in markets outside the
region (E.g. Europe & North America)
Changes in the size, pattern & direction of FDI
flows have occurred because of integration.
More FDI flows to developing economies
between 2000-08 reflected the increasing
importance of countries such as Brazil, China,
India, SAfrica & Russia as destinations for
foreign capital.
In China, most foreign investment is directed to
manufacturing & urban infrastructure
development.
In India, foreign investment is directed to
developing the services & IT sectors.