Chapter 1: Introduction to the Global Economy

1.1 - The Global Economy

Globalisation: the integration between different economies and the increased impact of
international influences on all aspects of life

Indicators of integration between economies include:

- International trade in g/s

- International financial flows
- International investment flows and transnational corporations
- Technology, transport & communications
- Movement of workers between countries

1.2 - Globalisation
The global economy – consists of all countries in the world that produce g/s and contribute to GWP

Gross World Product (GWP) – the value of all g/s produced by all economies over a given period

Indicators of globalisation include:

Trade in goods and services

- Measure of how g/s produced in one economy are consumed in another economy

Financial Flows

- The movement of debt and equity between nations and economies

Investment and Transnational Corporations

- Longer-term flows of money to buy assets or establish businesses

This global investment is measured by foreign direct investment (FDI)

Foreign Direct Investment: measure of global investment; refers to large flow of funds between
economies to establish a new company or invest an existing one

Transnational Corporations (TNC’s): business that operate on a global scale, having facilities in at
least two countries

TNC’s utilise the cheap labour, materials and tax laws as well as large foreign customer bases, to
create a global web of production and distribution
Technology, Transport & Communications

Technology is a main driver of globalization through innovations such as:

Freight Technology

Containerization, cargo tracking, more efficient logistic systems

Internet Access

Allows businesses to sell products worldwide and customers to import products from around the
world

Transport Technology

Allow greater labour mobility between economies

International division of labour and migration

- Different types of labour are allocated to different countries in the global economy

People move to economies where their jobs with their skills are predominant
e.g., services like IT support and call centre/customer help has moved to developing economies in
Asia such as Malaysia, Indonesia, India and The Philippines.

Highly skilled workers are attracted to higher income economies because of higher pay and better
opportunities

1.3 - The International and Regional Business Cycles

International Business Cycle: this refers to changes in world output, measured by GWM, over a
period of time

Synchronisation of economic activity: this means national economies experience the same levels of
economic growth and are at the same stage of the business cycle as dominant national economies

Factors creating the International Business Cycle:

Trade Flows

Economic activity in one economy will impact its level of trade with other economies, impacting
other economies supply/demand of g/s

e.g., a boom in China will increase coal demand for machinery, increasing coal supply from foreign
countries

Investment Flows

Economic conditions in one country will impact those domestic businesses investing decisions in
foreign countries, affecting that foreign country’s economic growth
TNC’s

The confidence of TNC’s to purchase assets in foreign countries impacts these foreign countries
economic growth

Higher TNC investment generally drives greater economic activity in nations that are connected via
trade, finance, and investment flows

Commodity Prices

The price of commodities (oil, gas, gold etc) have an impact on production costs and inflation around
the world

Benefits of International Business Cycle Negatives of International Business Cycle

New export markets Economies have reduced policy independence

↓
In an expansion phase, economies can produce Gov’ts are forced to align fiscal/monetary
and sell more g/s, increasing employment, policies with other economies to attract foreign
income, and overall quality of life confidence and investment

Greater consumer choice Exposure to external financial shocks e.g.,

↓ Global Financial Crisis
During an upturn, TNC’s are more likely to
expand production and distribution  this will
increase the range of products in an economy,
increasing customer choice

Regional Business Cycle

Regional Business Cycle: this refers to changes in economic activity in a particular geographical
region

- Economies are impacted more heavily by economic conditions in regional economies

compared to global economies
- Although changes in economic conditions in one country will have ripple effects around the
world, they can have more pronounced impacts on regional economies
 Chapter 2: Trade in the Global Economy
2.1 - Advantages and Disadvantages of Free Trade
Free Trade: situation where gov’t impose no artificial barriers to trade that restrict free exchange of
g/s between economies

Comparative Advantage: theory that economies should specialise in producing products that they
have the lowest opportunity cost in and purchase products they lack efficiency in from other
economies

Absolute Advantage: theory that economies should specialise in producing products that they can
produce at a greater quantity than other economies, regardless of their efficiency

Advantages of Free Trade

Specialisation Increased range of g/s

Countries to specialise in production of g/s in Allows country to import goods they can’t
which they are most efficient produce
 encourages efficient allocation of resources increased consumer choice
and increased production satisfied domestic demand
leads to EOS which lower production costs increased quality of life
and increases efficiency further

Efficient allocation of resources Innovation

Countries will be producing g/s in which they Increased international competition drives
have comparative advantage domestic producers to become more efficient
resources used more efficiently to compete
Increased technology
Cheaper prices

Lower tariff levels  Increased global trade and financial flows  increased GWP

Increased competition  increased innovation and efficiency  cheaper prices  increased

quality of life

Disadvantages of Free Trade

Unethical environmental practices Short term unemployment

Gov’t may use cheaper unsustainable Domestic industries may be run out of
operations to compete with advanced production by larger foreign firms, causing
economies short term unemployment

Dumping Start-up companies less likely to succeed

Foreign firms may sell products at an May be difficult for start-up companies to
unreasonably low price because of such cheap compete with established foreign firms, with
operations, blocking domestic businesses from lower prices and better operations
competing
2.2 – Reasons for Protection
Protection: any gov’t action that gives domestic producers an artificial advantage over foreign
competition

Reasons country implement protection are:

Assist Infant Industries

Arguments for Arguments against

- Newly established firms usually face - Firms that receive protection can
larger costs, internal diseconomies of become dependent in long run
scale, and unestablished customer base
 makes it hard to compete with - Protection provides little incentive for
established firms firms to become efficient
- These infantry firms should be
protected from established foreign
firms
- Temporary assistance should be given
only to these firms of they are a
genuine chance of developing
comparative advantage in the future

Prevention of Dumping

Dumping: exporting goods in foreign markets at cheaper prices than the price charged in country of
origin

- Foreign firms may charge cheaper price due to cheap production costs in their country
-  Local firms could be forced out of business due to inability to compete
- Once domestic competition is eliminated, foreign producers will have market control and
raise prices

Protection of Domestic Employment

Argument For Arguments against

- If domestic producers are protected - Results in labour being attracted to
from foreign competition, demand for inefficient firms
local goods will be greater -  in long run will lead to higher levels
-  creates domestic employment of unemployment and lower growth
rates
Defence and National Security

Defence

- Countries generally produce their own military equipment, regardless of efficiency

-  Ensures they aren’t reliant on other countries for security

Self-Sufficiency

- Countries self-reliant on producing essential g/s e.g., food, medication

- In times of shock, countries have their own supply of necessities
2.3 – Methods of Protection
Tariffs

Tariff: a tax imposed on imported g/s for purpose of protecting Australian industries

Purpose of tariff: to make domestic producers more price competitive than foreign producers

Economic Effects of Tariff:

Positive Negative
Increase domestic production and Reallocation of resources to inefficient
employment – since tariffs make domestic producers – Reduced Economic Growth -
producers’ price competitive, there will be an domestic producers will be attracted to profit
increase in demand for domestic g/s, increasing potential of tariff protected industries, which
supply, increasing employment. will lead to resources being shifted to these less
efficient producers, leading to lower economic
growth
Increase Gov’t Revenue - tariff raises gov’t
revenue which reduces budget deficit Reduced Consumer Choice - Consumers pay
higher price due to tariff and receive less goods,
since less products are imported, and domestic
producers are less efficient

Retaliation Effect – in response to tariffs,

trading partners may impose tariffs on g/s
exported to them, reducing market share for
export-orientated industries, offsetting the
gains from importing business by the loss of
exporting businesses

Inflation – tariffs on imports will increase prices

of materials imported by businesses, who will
resultingly pass on these costs to consumers,
adding to domestic inflation

Tariff Diagram

P (world price): this is the price of g/s without a tariff

P1: this is the price of g/s once the tariff is imposed by gov’t

P and P1 gap  size of tariff

Q2 and Q3 gap  quantity of imports after tariff

Box ABCD  gov’t revenue from tariff

Quotas

Quota: restriction on quantity of goods imported

Purpose of Quota: restrict imports and protect domestic producers from more efficient foreign
producers to guarantee domestic producers market share

Tariff Quota: once the quota limit is reached, a tariff can be imposed on any imports beyond this
limit

Economic Effect of Quota:

Positive Negative
Increase domestic production and Reallocation of resources to inefficient
employment – since quotas restrict imports, producers – domestic producers will be
there will be an increase in demand for attracted to guaranteed market share of quota
domestic g/s, increasing supply, increasing protected industries, which will lead to
employment. resources being shifted to these less efficient
producers, leading to lower economic growth

Reduced Consumer Choice - Consumers pay

higher price due to lack of competition, and
receive less goods, since less products are
imported

Retaliation Effect – in response to quotas,

trading partners may impose quotas on g/s
exported to them, reducing market share for
export-orientated industries, offsetting the
gains from importing business by the loss of
exporting businesses

Quota Diagram
Subsidies

Subsidies: gov’t payments to domestic producers to encourage production of g/s and help compete
with foreign producers

Purpose of Subsidy: can cover production costs for domestic producers, allowing them to decrease
selling prices whilst still retaining a decent profit margin, allowing them to compete more easily with
foreign producers

Economic Effect of Subsidy:

Positive Negative
Increase domestic production and Reallocation of resources to inefficient
employment – since subsides reduce producers – domestic producers will be
production costs, businesses are able to attracted to higher profits of subsidy protected
produce more, increasing employment industries, which will lead to resources being
shifted to these less efficient producers, leading
Cheaper Prices and Increased Consumer to lower economic growth
Choice – consumers pay a cheaper price due to
reduced production costs, and will have Reduced Gov’t Resources – will result in
increased choice due to increased supply decreased resources for gov’t, which could be
directed to other priorities such as education
 Increase revenue for industry  and healthcare
increase GDP and growth

Subsidy Diagram

Local Content Rules

Local Content Rules: Policy that a good must be made from a minimum percentage of locally made
components

Purpose of Local Content Rules: compels firms to use a specified percentage of domestically
produced resources, supporting domestic industries, and guaranteeing them sales revenue and
market share
Export Incentives

Export Incentives: Assistance in the form of grants and loans to encourage domestic businesses to
penetrate the global market and export

Purpose of Export Incentives: To encourage domestic businesses to export their g/s and capture
global market share, in order to achieve higher rates of production, economic growth and
employment opportunities in Australia.

2.4 – Trade Agreements

Free trade agreements/Preferential trade agreements: agreement between countries to reduce
barriers to trade e.g., tariffs, subsidies, quotas

Types of Free Trade Agreements include:

Bilateral – two countries
Multilateral/Regional – beyond one region and involve more than two countries

Trade Bloc: group of economies forming a preferential trade agreement to the exclusion of other
countries

Trade Diversion: where countries import g/s from economies that they have free trade deal with,
due to the lower tariff levels, instead of importing from the most efficient nation

Multilateral Trade Agreements

Advantages Disadvantages
Increased global trade and financial flows Difficult to come to an agreement between
advanced and developing countries
Increased customer choice
increased quality of life Time consuming to come to an agreement

Increased competition  increased innovation Centralised around promoting demands of

and efficiency  cheaper prices  increased TNC’s from advanced economies
quality of life

Multilateral trade agreements include:

Asia-Pacific Economic Cooperation Forum (APEC)

- Not a trade agreement, but a forum

- Includes, Australia, Canada, China, Indonesia, Japan …
- Provides a platform for member nations to:
 Form their own trade agreements
 Discuss geopolitical issues
 Positives Negatives
Platform for unlikely relationships between No binding commitment to free trade –
economies to form member nations aren’t forced to free trade

Trade liberalization – tariff levels have fallen Not effective in advancing free trade – non-
from 10.2% in 1999 to 5.2% in 2020 tariff protections between member nations are
still high ($800 billion)
Non-discriminatory trade agreement – member
nations can trade with non-member nations
however they please  they aren’t forced to
increase trade barriers for non-member
countries

Association of South-East Asian Nations (ASEAN)

- Forum for developing & emerging countries

Positives Negatives

Platform for developing economies to trade, in

counter to forums dominated by large
economies

Eliminates tariffs on 96% of Australian exports

The European Union (EU)

- Closed trading bloc with nations across Europe

Positives Negatives
Free movement of capital and labour Common external tariff  Generates trade
 Drives strong trade growth within EU diversion, not trade creation

Contagious economic conditions  budget

deficit in Greece & Portugal caused fall in
growth in Euro zone

(NAFTA)

- America, Canada, Mexico Trade Agreement

Positives Negatives
Cheap labour for USA & Canada  lowers Outsourcing labour to Mexico  large decline
product prices  higher quality of life in opportunities in US

US access to Canada dairy markets Suppressed wages for manufacturing workers

 threatened to move operations to Mexico if
 High tourism in Mexico from USA and US workers pushed for wage increase
Canadians increase Mexican business activity
and economic activity Mexico farming lob loss  USA subsidies to
farmers allows USA farmers to dump produce
in Mexico at cheap prices, ruling out Mexican
competition

Bilateral Trade Agreements

Advantages Disadvantages
Increased competition drives producers to Difference in factor endowments means some
become more efficient cheaper prices countries don’t experience similar gains from
the agreements
Quicker and easier to conclude than
multilateral agreements Developing nations can have less negotiation
power compared to multilateral agreements
Can ensure labour/environment standards are
created, which WTO does not cover

Bilateral trade agreements include:

NZ – Australia

China – Australia

Chile – Australia
2.5 – International Organisations

World Trade Organisation (WTO)

Implement global trade agreements to resolve trade disputes

Purpose/Function Positives Implications

Provides an international Advanced economies provide Ineffective in resolving trade
forum for members to discuss increased market access to disputed between larger
developing economies economies e.g., USA and EU
Resolve trade disputes
Agreement to impose
Implement/support global environmental standards on
trade agreements to eliminate trade
artificial barriers to trade
Seen a halving of tariff levels
Enforce trade agreements  increase trade levels
across the world

International Monetary Fund (IMF)

Its role is to maintain international financial stability

Provides loans (rescue packages) to help stabilise countries in an economic crisis

Purpose/Function Positives Implications

Maintain international Provided developing countries Use of highly conditional loans
financial stability with financial aid during GFC  hard for developing
countries to meet standards
Monitors member countries Assist nations with debt issues and be given a loan
policies and financial
developments Help nations overcome
temporary BOP issues
Provides financial assistance to
countries experiencing BOP
issues
World Bank

Helps fund investment in infrastructure, reduce poverty, and help countries adjust their economies
to the demand of globalisation

Purpose/Function Positives Implications

Helping poorer countries with Reconstruction assistance Offer conditional loans
their economic development following natural disasters
Use of foreign contractors
Influence financial policies in Offers humanitarian aid leads to domestic
developing nations  helps unemployment
attract foreign investment Offers debt relief to struggling
nations
Reduce inequality in nations

United Nations

Purpose/Function Positives Implications

Covers broader issues, Developed food safety Struggling to help developing
particularly in: standards countries achieve:
- Global economy - Food security
- International security Established rules around - Better employment
- Environment copyright and intellectual opportunities
- Poverty property

Provides forums for discussion Initiated working condition

between economies  standards  prevents child
provides further connection labour
between economies

OECD

Purpose/Function Positives Implications

Promotes policies to achieve Developed international
higher sustainable economic response to GFC
growth and employment for
member nations

Undertakes economic research

Gathers economic data on

advanced economies
2.6 – Government Economic Forums
Play important role in coordinating policies between major economies

Aim of forums is to allow economies to discuss global economic issues, mainly around economic
stability and growth

Group of Seven Nations (G7)

Made up of US, UK, France, Germany, Canada, Japan, Italy

 World’s most powerful economies

Make up 60% of world GDP – therefore manipulation to their own fiscal/monetary policies allows
them to coordinate and control global macroeconomic policy
 Unofficial forum coordinating global macroeconomic policy

Agenda includes general political issues – climate change, global poverty, security.

Group of Twenty Nations (G20)

Following GFC, G20 emerged as leading forum for coordinating global responses to financial shocks

 Include 19 of the world’s largest economies

Coordinate fiscal stimulus around the world, as well as supervising global financial systems and
international financial institutions

Aim to reduce fiscal deficits while supporting global economic recovery

 Chapter 3: Globalisation and Economic Development
3.1 – Introduction
Within the global economy, there is a large difference in the living standards of people around the
world, in relation to health, education, income and life expectancy

3.2 – 3.3 – Differences in income and economic growth and economic growth
To compare living standards between economies, economists look to economic growth and
economic development of countries.

Economic Growth
Economic growth involves looking at the income within an economy to judge living standards

Typical economic growth indicators:

Gross National Income (GNI): the value of all g/s made by domestic companies as well as income
received by foreign investment

GNI per capita: GNI of each country divided by its population

GNI measured at PPP: allows for standard comparison of GNI to be made between economies since
it removes exchange rate value differences

Economic Development

A more effective way of comparing living standards between countries is by looking at the economic
development of these countries

Economic development also looks at income, but also takes into account other quality-of-life
indicators such as health standards, educational levels, level of damage to environment etc. to judge
living standards

Typical economic development indicators:

Human Development Index (HDI): takes into account life expectancy, levels of educational
attainment and GNI per capita, presented as a score between 0 and 1 - the closer to 1 the more
developed a country is
 3.4 – Categories of development in the global economy

The global economy is made up of three categories:

Type of Economy Income levels Economic Growth Structure of Economy

Advanced High income levels Slower growth in Large service industries and
recent decades advanced manufacturing
GNI per capita above US$12,696

Developing Low-income levels with half Moderate growth but Heavily reliant on
population in absolute poverty population growth is agriculture
also high
GNI per capita ranging between
US$3,956 - US$12,235

Emerging Income levels vary but economies Strongest growth rates Industrializing with
have fast growth in income levels in the world substantial manufacturing
sectors
GNI per capita ranging between
US$1,005 – US$3,955

3.5 – Causes of inequality in the global economy

Global Factors
Global Trade System

Global protection in agricultural markets:

- Advanced economies place tariffs on farming goods from developing economies
 Agricultural businesses from developing nations can’t compete with subsidized
agricultural businesses from advanced economies

Expanding regional trade blocs and agreements:

- EU members adopt common tariffs on non-member nations, making these non-member
nations uncompetitive
- Trade blocs involving advanced economies deliberately exclude developing economies

Global Financial Architecture

FDI flows historically favours developed and emerging economies instead of developing economies
- Developed/emerging economies attract investment form TNC’s because of the growing
middle class of these nations and expanding consumerism culture in these nations
- Developing nations fail to attract TNC investment because of lack of skilled labour, political
instability, and low output growth
Developing economies have large foreign debt burdens
- Large debt burdens, intensified by interest, make it difficult for gov’t in developing
economies to fund improvements in the economy

Structural adjustment policies by IMF

- The IMF favour advanced countries, imposing no harsh interest rates on them, compared to
the harsh restrictions they place on developing economies

Global Aid and Assistance

Developed countries small-scale efforts to address global inequalities are insignificant and ineffective
- Advanced economies assistance to developing economies is insignificant and ineffective e.g.,
total aid provided by advanced economies in 2021 was only 0.3% of GNI

Foreign aid directed to strategic and military objectives

- Advanced economies don’t necessarily provide aid to those economies most in need, but
provide aid to those that have significant strategic importance e.g., $178 billion global aid
towards Afghanistan from the USA, due to Afghanistan strategic importance to USA

Global Financial Flows

- Developing economies have trouble accessing technology like the internet and online
opportunities to buy/sell g/s
- Machines replacing labour, making people in developing countries redundant

Domestic Factors
Economic Resources

Natural Resources

Nations that have an abundant supply of natural resources (gold, oil, coal) can achieve high levels of
economic growth

Labour Supply and Quality

Labour is an input into the production process, having a strong bearing on development levels

- High-income countries have highly educated and skilled labour resources, resulting in higher
productivity
- Developing nations workforce is characterised by low levels of education and low health
standards, resulting in lower productivity
Access to Capital

Countries that experience difficulty in accessing capital for investment often experience lower rates
of growth

Low-income economies have little opportunity to save surplus funds, contributing to low domestic
savings levels

 This decreases the capacity of developing economies to fund expenditure in the form of
improving roads, railways and hospitals

Institutional Factors

Political and Economic Institutions

- Institutional factors in countries can have a significant influence on the economic

environment, thus influencing levels of economic development
- Political instability, corruption and lack of law enforcement can undermine the confidence of
investors, making them reluctant to operate businesses in those nations because of
potential financial loses, often contributing to lower levels of economic development

Economic Policies

- Economies where all decisions are left to the market forces (no gov’t intervention), will
experience a high level of economic growth, but won’t improve education, health care or
quality of life
- Economies with excessive gov’t control over economic decision making can constrain
entrepreneurship and innovation, reducing economic growth

3.6 - The Impact of Globalisation

Economic Growth

Globalisation has produced an acceleration of economic growth, however the effect is distributed
unevenly across geographic regions

 Economic growth has been fastest in emerging economies and slowest in advanced
economies

Developing economies that have embraced international trade, foreign investment and participation
of TNC’s have experienced high rates of economic growth

 Globalisation has offered developing economies greater opportunities to grow by allowing

them to produce goods for global markets, access to new technologies and access to foreign
investment

However, the most globally integrated economies are advanced economies, and they have
experienced weak economic growth
Economic Development

Globalization’s impact on economic development is influenced by globalisations impact on economic

growth
 As globalisation causes economic growth to rise, economic development enhances

If globalisation lifts economic growth in individual economies, it also rises income levels, which
provides more resources for education, healthcare, and programs to clean up the environment
 In turn, enhancing economic development

Income Inequality

- Characteristics of globalisation (increased trade and reduced tariffs) can result in import
competing industries to reduce wages in order to stay competitive, seeing income inequality
worsen
- To prevent highly skilled workers from emerging economies emigrating to advanced
economies for higher-paying jobs, high skilled workers are given relatively higher wages than
low skilled workers, increasing inequality

TNCS and Investment

TNC Growth - Globalisation allows TNC’s to move operations to economies with weakest laws,
allowing them to improve profits, seeing a significant growth in TNC’s

Globalisation has led goods being produced through a supply chain, where nations become
specialists in certain parts of the production process

Globalisation has seen economies become too reliant on foreign economies for certain g/s, making
economies vulnerable to global shocks

Environment Sustainability

Low-income countries sacrifice environmental standards to attract TNC investment – allows for
deforestation, water pollution to attract TNC operations to benefit employment, income, and export
revenue

Growth in global trade has resulted in a surge in transport, machinery, infrastructure equipment 
all contributing air/water pollution
 Case Study: Chinese Economy
Impact of Globalization on China
Aspects of globalisation that can impact China’s economy include:

- Trade Flows
- Financial Flows
- TNC’s and investment
- Transport, technology, and communication

To measure the impact of globalisation on China, we can look at economic performance indicators &
economic development indicators within the Chinese economy

Economic Performance Indicators (XGUIDE GSLIC)

- External stability
- Growth
- Unemployment
- Inflation
- Distribution of income and wealth
- Environmental sustainability issues
- Gov’t policies in response to globalisation
- Gov’t budget
- Sectors of industry
- Labour market indicators
- Investment data
- Consumption

Economic Development Indicators

- Life Expectancy – grown from 66 years in 1980 to 77 years in 2022

- H

How features of Globalisation have Impacted China’s Economy

Global Trade impact on Exports and Imports

Positives Negatives
Fuelled economic growth as they have become Increase in growth and trade has led to
a major trading nation (2nd largest goods trading environment degradation
nation)
Chinas economic growth has bcome dependant
Between 2010-2019, China generally exported on export markets  therefore at high risk
more than they imported, resulting in a trade
surplus between $183-$509 billion.

Allows access to factors of production that are

scarce in China
 Trade allows for China to import raw materials,
energy, and capital goods, which it needs to
facilitate its infrastructure and urbanisation,
which contributes to its economic growth and
development

-
-
-
- Allowed China to become second largest goods trading nation
- Between 2010-2019, China generally exported more than they imported, resulting in a trade
surplus between $183-$509 billion.
- In 2019, 93% of Chinas exports were manufactured goods, reflecting China’s role in the
economy (division of labour) in producing machinery, equipment, etc.
- Trade allows for China to import raw materials, energy, and capital goods, which it needs to
facilitate its infrastructure and urbanisation, which contributes to its economic growth and
development

Foreign Direct Investment on China’s Economy

Positives Negatives
Chinese firms found new sources of finance
(overseas) which helped fund expansion
domestically  FDI accounted for 44% of
China’s GDP in 2019
 Access to these cheap foreign funds
aided Chinas infrastructure
development  which sped up
development in China

Removal of restrictions on financial flows 

easier foreign exchange transactions  easier
export/import process  The value of China’s
exports grew by 8% annually from 2005-2019

Higher FDI allowed, from 1975-2018:

- GNI per capita to rise an average of 8%
annually
- Life expectancy to rise from 63 to 76
 -
-
-
- Total FDI in China was valued at $168 billion in 2019
- FDI accounted for 44% of China’s GDP in 2019
- Higher FDI flowing into China allowed:
 The value of China’s export to grow by 8% annually from 2005-2019
 From 1975-2018:
 GNI per capita to rise an average of 8% annually
 Life expectancy to rise from 63 to 76

International Business Cycle on China’s Economy

- China has high dependence on exports and foreign investment for economic activity.
 The GFC caused China’s growth rate to drop 5% (from 14.7% to 9.5%)

Globalisation on Chinas Environment

- China’s carbon dioxide emissions increased 2.2 metric tonnes per person from 1990 to 2014
- 30 million people in China are drinking contaminated water daily.
- China’s population suffers from the world’s highest respiratory illnesses associated with poor
air quality.

China joining WTO

Positives:

- China’s economy grew significantly – from 5% contribution to GWP in 1980 to 20%

contribution to GWP in 2022
- Allowed China to achieve a trade surplus between $183 billion and $500 billion from 2010-
2019
- Chinas economic growth rate averaged 10% a year from 2000-2010

Negatives:

- Chinas economic growth fell by 9% in 2011 due to slower global economic growth in the
period
- Chinas economy has doubled in size every 7 years for the past 40 years
- China’s annual GDP growth rate has average 10% for the past 40 years
- HDI has increased from 0.588 in 2000 to 0.758 in 2018

Summary of Positive Impact

- People living in absolute poverty in China has fallen by 800 million over the past 40 years

Summary of negative
Strategies Used by China’s Govt to Promote Economic Growth and
Development
Strategy 1 - Urbanisation of China
Involves the gov’t creating special economic trading zones called the National Central Cities

- The National Central Cities are described as a group of cities in charge of leading, developing,
and performing tasks in political, economic, and cultural aspects
- Involves a rural land reform where land is taken for urban and infrastructure projects

Positives

Leads to an investment boom in China, with a surge of infrastructure projects, such as airports,
highways, and commercial/residential construction.

 Investment booms have been a driver of economic growth and aggregate demand in China,
contributing to 48% of aggregate demand in 2014
 Investment boom leads to an:
o increase in employment
o increased income
Contributes to an increase in both
o increase in skills
economic growth and development.
o increase consumer spending
o increase demand for infrastructure

Negatives

- Has contributed to environmental degradation, increased pollution levels and carbon

emissions.
 Can negate increase in economic development

Strategy 2 – Manipulation of Macroeconomic Policies

Expansionary Fiscal Policy

Expansionary fiscal policy worth $560 billion was implemented in 2008 and 2009 to curb the effect
of the GFC.

Involved a massive increase in gov’t expenditure on railways, roads, airport construction and low-
cost housing construction.

 generated millions of jobs, leading to a fall in unemployment and rise in aggregate demand
 saw a large increase in consumer spending on household products, motor vehicles, tourism
and electronics e.g., Chinese travelling abroad rose from $33 billion in 2007 to $138 billion
by 2013

This policy contributed to Chinas growth rising from 6% in 2008 to 10% in 2010

 Overall, proving beneficial for both economic growth and development

Understanding Australia’s place in the Global Economy

4.2 – Trends in Australia’s Trade Patterns

The Changing Value of Australia’s Trade

Total value of exports of goods was $395 billion in 2020-21

 3.4% increase than previous year
 Increase is due to growth in value of mining exports  due to strong demand of iron from
China

Total value of imports of goods was $319 billion in 2020-21

 Consists of consumption goods, capital goods, intermediate goods

BOGS (Trade Balance)

- In 2019, the current account went into surplus for the first time since 1975
 due to large trade surplus (exports > imports)
 this outcome was driven by high prices for resource commodities

The Changing Composition of Australia’s Trade

Australia’s main exports are in the primary industries

 More than 2/3 of export earnings comes from agriculture and minerals
 Due to Australia’s comparative advantage in commodities due to large amounts of natural
resources

Australia has a relatively small manufacturing sector as they have continued to rely on primary
industries.

Australia has grown substantial service industries, but due to COVID, has experienced a large drop in
service exports

(says rural exports grew by 25% but then says several factors have led to decline of agriculutural
exports)

The Changing Direction of Australia’s Trade

China, South Korea and the ASEAN (southeast Asia) have recently become more dominant trading
partners, moving away from UK and Europe markets

China is Australia’s most dominant trading partner (both highest source of exports and imports)