American History

Global Economy

The global economy is the economy associated with financial markets and institutions in which traditional geographic and national boundaries do not restrict economic transactions and consumer activities. The development of the global economy, called globalization, has been characterized by an increasing interconnectedness of national economies. Globalization has been supported by number of factors, including international deregulation of financial markets, technological advances facilitating the careful monitoring of world markets, and increased institutionalization of worldwide economic institutions. In 2012 the largest contributors to the global economy were the European Union (with a contribution of over $17 trillion), the United States (over $16 trillion), and China (over $12 trillion). India, Japan, Russia, the Arab world (the 22 countries in the Arab League), and the “Asian Tigers” (Hong Kong, Singapore, South Korea, and Taiwan) each contributed between $3 and $5 trillion, and the remainder of the world contributed approximately $22 trillion.

The increased movement of goods and services throughout the world has improved the quality of products and services available to consumers in the developed and developing countries alike. For example, cell phones have become readily available and affordable to people who live in indigent communities in the United States, Mexico, and India, as well as throughout Africa, Asia, and South America. In general, reduced regulation of imports and exports has increased competition, which in turn has forced manufacturers to make better products at lower costs. Other benefits of a global economy include the development of uniform standards and widespread economic growth. As markets become interconnected, the quality and the cost of goods tend to be similar across markets. For example, footwear available in one major city in one country become available at comparable prices and quality in other major cities worldwide. Increased trade across such markets creates wealth, which to varying degrees in different countries becomes distributed through society.

A detriment of globalization is that the relaxation of trade regulations tends to promote unequal growth and a widening of the income gap between the rich and the poor because the wealthy are typically in the best position to take advantage of new economic opportunities and add to their prosperity. Globalization has given manufacturers in developed countries access to cheap labor in developing countries, which has led to the growth of a business practice known as outsourcing. For example, in the early twenty-first century most of the products of some major U.S.-based corporations, such as Nike Inc. and Apple Inc., were built in overseas factories where workers earned considerably lower wages than workers in the United States would have been paid for the work. Companies in the United States have also outsourced telephone-based customer-service operations to places that have a large English-speaking population, such as India. Critics of globalization have argued that such practices unjustly exploit labor, whereas proponents of outsourcing counter that it creates jobs and provides income to millions of people, thus expanding the consumer base for manufacturers and service providers.

Another consequence of the development of a global economy is that fluctuations in one major national economy tend to affect a greater number of markets. For example, after a real estate crisis in late 2007 helped trigger a major economic downturn in the United States, by 2009 the economic output in 127 of the world's 183 largest markets had also shrunk. In 2010, when the U.S. economy began to recover, the economic output of 147 other markets likewise expanded.

From CREDO Global Economy in Gale Encyclopedia of U.S. Economic History 

Image: Hand drawn flat design international trade on Freepik

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