Understanding the Global Economy

What is a Global Economy?

• The global economy is a complex system of interconnected economic activities spanning across many nations.
• This interconnectedness results in the exchange of goods, services, capital, and labor.
• A change in one country's economy can have ripple effects on other nations.

Components of the Global Economy

International Trade

• Involves the buying and selling of goods and services across international borders.
• Allows nations to access products they cannot produce themselves and sell their own products.
• Countries can specialize in specific industries due to comparative advantages.

Investment Flows

• The movement of capital across boundaries to fund businesses, infrastructure, or real estate.
• Foreign Direct Investment (FDI) involves a company directly investing or owning assets in another country.
• Portfolio investments involve purchasing financial assets such as stocks and bonds in foreign markets.

Financial Markets

• Networks of stock exchanges, banks, and financial institutions operating globally.
• Facilitate trading of financial assets such as stocks, bonds, currencies, and commodities.
• Distribute resources, manage risks, and provide financial flexibility across the global economy.

Importance of the Global Economy

• Economic Growth: Access to larger markets beyond national borders, leading to increased market reach and economic output.
• Resource Access: Global trade allows countries to obtain resources and raw materials they do not produce domestically.
• Job Creation: International trade and investment create employment opportunities across various sectors.