TOPIC 1 - THE GLOBAL ECONOMY Global economy: the sum of the interactions between economies of individual countries that are now becoming increasingly linked into one economic unit Gross World Product (GWP): the sum of total output of goods and services by all economies in the world over a period of time Globalisation: the integration of difference countries and economies and the increased impact of international influences on all aspects of life and economic activity Trade in goods and services: Measure of how goods and services produced in an economy are consumed in other economies around the world Size of GWP is now 10 times its level in 1950; but the volume of world trade has grown to over 40 times its 1950 level During economic downturns, the growth of global trade has contracted faster than world economic output highlighting of the greater volatility of trade compared to GWP Technological developments in transport and communications, reduces the cost of moving goods between economies and provides services to customers in distant markets strong growth in global trade Governments encourage trade by removing barriers and joining international and regional trade groups (e.g. WTO, EU, ASEAN) Composition of trade: the mix of what goods and services are traded Dominated by manufactures, such as vehicles, clothing and electronic goods, and recently fuels and minerals such as oil, gas and coal Direction of trade flows has changed in recent decades from advanced economies to advancing economies Between 1995 and 2009, the share of global trade of advanced economies (in North America and Western Europe) fell from 82% to 70%; over the same period, advancing economies of East Asia and the Pacific region (China, Indonesia, Vietnam) increased their share of global trade from 7% to 14% Leads to countries forming closer trade ties to countries that're rapidly developing (e.g. China) Financial flows: Globalisation of finance has had a major impact in terms of linking economies around the world Finance is the most globalised features of the world economy, as money moves between economies faster than goods, services or people Financial deregulation of the 1970s and 1980s substantial expansion of international financial flows Technological developments linking of major financial markets allowing for immediate results FOREX (foreign exchange) markets: networks of buyers or sellers, who exchange one currency for another, in order to facilitate flows of finance between countries effects the determining of one's currency Experienced extraordinary growth turning over $4 trillion daily in 2010 Main drivers of global financial flows are speculators (investors who buy or sell financial assets with the aim of making short term profits) Creates greater volatility in foreign exchange markets and domestic financial markets Benefit of global financial flows: enables countries to obtain funds that are used to fund domestic investment higher levels of investment, which leads to greater economic growth Investment and transnational corporations (TNCs): Global finance: short term; speculative shifts of money Global investment: long term; flows of money to buy or establish businesses Foreign direction investment (FDI): the movement of funds between economies for the purpose of establishing a new company or buying a substantial portion of shares in an existing company FDI flows are strongly influenced by the level of economic activity TNCs bring foreign investment, new technologies, skills and knowledge to a country Technology, transport and communication Technology facilitates the integration of economies Development of freight technologies more efficient logistics system more trade Cheaper and more reliable communication provision of services to international customers Technology allows money to around the world in a fraction of a second Allows TNCs to function (i.e. because of the Internet, mobile and international communications) Advancements in transportation greater labour mobility increased accessibility to tourism and travel Technology represents a major trade opportunity Trade operates as a means of spreading new technologies Leading developers of technologies often move directly into overseas markets to sell their products and services direct to local buyers often invest substantially in education and training increased FDI The Internet reduces business costs that have been a barrier to integration in the past International division of labour and migration: Labour markets are far less internationalised people cannot/dont move jobs as freely as goods or money International division of labour: how the tasks in the production process are allocated to different people in different countries people move where their skills are needed Corporations shift production between economies in search of the most efficient and cost efficient labour Global supply chain: production facilities in several countries shifts production between countries, reducing costs International business cycle: fluctuations in the level of economic activity in the global economy over time In Australia, domestic factors have less influence than international factors on economic growth Trade flows: if there is a boom/recession in one country, this will affect its demand for goods and services from other nations Investment flows: stronger economic conditions in one country will make it more likely that businesses in that country will invest in new operations in other nations TNCs: spread global upturns and downturns throughout the global economy Financial flows: short term financial flows have a substantial influence upon the international business cycle 70% of financial market volatility in advance countries is passed onto emerging economies in a few days Financial market and confidence: consumer confidence is influenced by conditions in other countries strong correlation in the movements of share prices in different stock exchanges Global interest rates: monetary policy conditions in individual economies are influence by interest rate changes in other countries International organisations: international forums influence global economic activity Regional business cycle: the fluctuations in the level of economic activity in a geographical region of the global economy over time Free trade: a situation where governments impose no artificial barriers to trade that restrict the free exchange of goods and services between countries with the aim of shielding domestic producers from foreign competition Advantages of Free Trade: Allows countries to obtain goods and services they cannot produce themselves, or cannot produce in sufficient quantities to satisfy domestic demand (due to lack of adequate resources) Increased production within individual economies, due to economies specialising in production More efficient allocation of resources (comparative advantage: the economic principle that nations should specialise in the areas of production in which they have the lowest opportunity cost and trade with other nations to maximise both nations' standards of living) Specialisation leads to economies of scale (savings in cost resulting from a firm expanding its scale of operations) lower average costs of production, increased efficiency and productivity Increased international competitiveness Encourages innovation and the spread of new technologies Leads to higher living standards due to lower prices, increased production of goods and services, increased consumer choice Disadvantages of Free Trade = Reasons for Protection: Protection: government policies which give domestic producers an artificial advantage over foreign competitors Protection of infant industries: New industries usually have costs that're relatively high than those of the more established firms in the competing Argued that infant industries need protection in the short term to assist them in expanding their scale and reduce their costs of production, so that they can compete with foreign competitors Historically, industries that have received assistance continue to rely upon this assistance economists generally do not accept this argument in favour of protection Prevention of dumping: Dumping: when foreign firms attempt to sell their goods in another country's market at prices lower than that of those charged in the home country (lower prices usually last for only a short period of time), to establish a market position or to dispose of production surpluses The temporary low prices of the foreign firm may force local firms out of business, causing a loss in a country's productive capacity higher unemployment Is the only widely accepted reason for protection by economists Protection of domestic employment: If local producers are protected from cheaper foreign imports, the demand for local goods will increase, and consequently the demand for labour will increase Little support amongst economists for this argument protection will redirect resources away from areas of more efficient production, which in the long run will lead to higher unemployment and lower growth rates Defence and self-sufficiency: Major powers generally retain their own defence industries so that in times of war, they will still be able to produce defence equipment as opposed to relying on other countries to supply it to them Methods of Protection: Tariff: a government-imposed tax on imported goods, which raises the price of the imported good, making domestic producers more competitive Stimulates domestic production and employment domestic producers supply more of the good Leads to reallocation of resources towards less efficient producers production and employment fall Consumers pay a higher price and receive fewer goods Tariff raises revenue for the government (however, the more successful the tariff as a protectionist device, the more imports it restricts, the less revenue it will raise Retaliation effect in response to tariffs on imports, countries may impose tariffs on goods exported to them any increased production and employment gains would be offset by the losses in the nation's export industries) Quota: a limit placed on the amount of a foreign good that is allowed to be imported over a period of time, which guarantees domestic producers a share of the market Stimulates domestic production and employment Reallocates resources to less efficient producers Consumers pay a higher price for fewer goods Do not directly generate revenue for the government Possibility of the retaliation effect Tariff quotas: goods imported up to the quota play the standard tariff rate, whilst goods that are imported above the quota pay a higher rate (e.g. in Australia, textiles, clothing, footwear, motor vehicle industries) Subsidies: financial assistance to domestic producers, enabling them to reduce their selling price and compete easier with imported goods Stimulates domestic production and employment Reallocation resources to less efficient producers CONSUMERS PAY A LOWER PRICE FOR MORE GOODS Impose direct costs on the government's budget Local content rules: goods must contain a minimum percentage of locally made parts, which guarantees a certain percentage of a good will be locally made (e.g. motor vehicle industry and televising broadcasting) Export incentives: giving domestic producers assistance (e.g. grants, loans, technical advice) to encourage them to break into the global market or to expand their market share Do not technically protect businesses from foreign competition but are an artificial barrier to free trade Effects of Protectionism on the Global Economy: Overall, protectionism policies reduce trade between nations for individual economies, protectionism means that exports and imports will be a smaller share o the national economy Overall, protectionism policies reduce living standards and reduce global economic growth, by shielding inefficient producers absence of competition, prices will be higher for goods Make it more difficult for individual economies to specialise in production in which they are most efficient less able to achieve economies of scale, resulting in lower profits and lower dividends Developing countries are excluded from access to the markets of advanced economies continued poverty Trading bloc: when a number of countries join together in a formal preferential trading agreement to the exclusion of other countries (e.g. EU, NAFTA, ASEAN) Trading blocs could result in global trade fragmenting into self-contained regions, hindering the spread of global free trade European Union (EU): Helped to dismantle trade barriers within Europe a single market for European goods and services, resulting in strong growth of trade within the EU Introduction of the Euro as a common currency monetary union North American Free Trade Agreement (NAFTA): Complete elimination of agricultural protection Access to the US market has resulted in substantial exports for Mexico and Canada, whilst the US has benefited by shifting production facilities to Mexico, were labour is cheaper The Free Trade Area of the Americas (FTAA) is intended to counterbalance the EU, however its future prospects seem weak Closer Economic Relations Trade Agreement (CERTA): Led to the elimination of trade restrictions between Australia and New Zealand Association of South East Asian Nations (ASEAN): Acted as a counterweight to the APEC forum, which tends to be dominated by large advanced economies (e.g. US, Japan, China) Committed to lowering and eliminating tariffs on 96% of Australian exports to this region Free trade agreements (preferential trade agreements): formal agreements between countries designed to break down barriers to trade between those nations (they can make it harder for nations outside of the agreement to trade may not create better conditions for free trade) Asia-Pacific Economic Cooperation (APEC) forum: Formed in response to the formation of trading blocs in other areas of the world Intended to be a free trade group that supports the WTO and address all obstacles of free trade and investment in the region Has not succeeded in creating a regional area of free trade, instead it has contributed to the liberalisation of trade Regionalisation: the rapid proliferation of regional trade agreements (3 or more countries; multilateral) in recent years International Organisations: World Trade Organisation (WTO): Role is to implement and advance global free trade agreements and to resolve trade disputes between countries Proven effective in resolving disputes between smaller countries, although not effective with the 2 largest forces in the global economy - the US and the EU In the Doha Round of trade liberalisation issues to be addressed were reducing agricultural protection, lowering tariffs on manufactured goods and reducing restrictions on trade in services International Monetary Fund (IMF): Role is to maintain international financial stability, particularly in relation to foreign exchange market IMF's policies are to support the free trade of goods and services, and the free movement of finance and capital throughout world markets IMF supports the reduction in the size of governments, privatising government businesses, deregulating markets and balancing government budgets World Bank: Role is helping poorer countries with their economic development, aiming to fund investment in infrastructure, reduce poverty, and to help economies adjust to the demands of globalisation World Bank makes loans to developing nations, at rates that are below standard commercial rates, to fund infrastructure projects (e.g. power plants, roads, dams) 'Heavily Indebted Poor Countries Initiative' aims to reduce debt by two-thirds in 46 of the world's poorest countries United Nations (UN): Agenda covers the global economy, international security, the environment, poverty and development, international law and global health issues Different UN agencies have developed international standards making it easier to trade and invest In recent years, the UN has sought to halve global poverty and achieve significant improvements in other aspects of development for people in the world's lowest income nations Organisation for Economic Cooperation and Development (OECD): Organisation of 34 countries committed to democracy and to the market economy Primary goal is to conduct and publish research on a wide range of economic policy issues, and to coordinate economic cooperation among member nations Supports globalisation, free markets, privatisation and deregulation Government economic forums: Group of Eight Nations (G8): + Russia World's wealthiest nations meeting annually to discuss conditions in the global economy Group of Twenty Nations (G20): Leading council of nations responsible for the management of the global economy Gross National Income (GNI): the total income earned by domestically owned factors of production over a period of time Real GNI: discounting GNI growth for the effects of inflation Limitations: The exchange rate used to make comparisons; by using the US Dollar, an inaccurate comparison of the living standards of developing countries is made (e.g. if the cost of products in a country is lower than that in the US, there will be an underestimation of the true income of the developing nation) The difference in the size of populations in different countries size of population and population growth rates differ Economists make adjustments using purchasing power parity (PPP) before comparing GNI levels Purchasing power parity: exchange rates adjust to equalise the price of identical goods and services in different economies throughout the world To counter the different size in populations between countries, the real GNI of each country is divided by its population GNI per capita Economic development: attempts to measure improvements in welfare, rather than simply how much extra money people in a certain country have Takes on other quality-of-life indicators (e.g. health standards, education levels, domestic work, damage to the environment, inequalities in income distribution) that is not given a financial value Human Development Index (HDI): measurement of economic development, taking into account: Life expectancy at birth Levels of educational attainment Gross National Income per capita Advanced Economies: High levels of economic development Close economic ties with other advanced economies Liberal-democratic economic and liberal institutions 34 advanced economies identified by the IMF make up half of the high income economies in the world High income economies are mostly found in North America and Western Europe, with a small number in the Asia-Pacific region Developing Economies: Low income levels Weak human resources Only experienced globalisation to a limited extent Large numbers of people living in absolute poverty (less than US$1.25 per day) High levels of income inequality Dependence on agriculture for income, employment and trade opportunities Reliance on foreign aid as a major source of income Low levels of labour productivity, industrialisation, technological innovation and infrastructural development Weak political and economic institutions High prevalence of corruption 'Africanisation' of poverty: 33 of the 48 least developed countries (LDCs) are located in sub-Saharan Africa Emerging economies: In the process of industrialisation Experiencing sustained high levels of economic growth Includes 'newly industrialised economies' (NIEs) such as Malaysia and the Philippines, 'transition economies' (economies making the transition from socialist economies) such as China and Hungary, and developing economies with improved prospects such as India and IndonesiaType of economyIncome levelsEconomic growthStructure of economyExamples

Advanced High income levels GNI per capita above $US 12,276Slower growth rates in recent decades Large service industries Advanced manufacturing US Germany Korea

Developing Low income levels Around half of population in absolute poverty Moderate growth rates High population growth Heavily reliant on agriculture and foreign aid Bangladesh Ethiopia Zimbabwe

Emerging Varying income levels All have fast growth in income levels Strongest growth rates in the world Favourable prospects Industrialising Substantial manufacturing sectors China Brazil Indonesia

Development economics: attempts to identify the conditions in economies that are required to achieve economic growth and development Global factors causes global inequalities (low levels of development): Global trade system: Protectionism in the agricultural sector (developing economies are heavily reliant on agriculture) in advanced economies as it cannot compete with agricultural producers in developing economies Expanding regional trading blocs (e.g. EU, NAFTA) excludes poorer nations from gaining access to profitable markets In the WTO's Doha Round for example, advanced economies have rejected the need to make concessions on issues that would provide the greatest benefits to developing economies recent WTO negotiations are primarily focused on developing small packages which tries to expand tariff-free access for exports form the least developed countries Benefits of free trade agreements is often inaccessible for developing countries due to the substantial costs in implementing international trade agreements and lodging appeals against other countries' protectionist policies Complexity of the WTO's procedures favour high-income countries, entrenching global inequalities Global financial architecture: Developed economies account for half of global FDI flows most FDI flows go to a handful of emerging economies including China, Brazil, India and Russia In 2010, the world's 48 least-developed countries received just 2% of global FDI inflows Short term financial inflows heavily favour prosperous emerging economies, which offer better financial returns for currency and stock market speculators however, these emerging economies have experienced the greatest volatility in recent decades (e.g. East Asian crisis in 1990 and Latin America crises in early 2000s), which set economic development back for year, whilst global financial market speculators simply invest in other countries The IMF has been criticised for its 'structural adjustment' policies which have been said to only benefit the interests of rich countries and may not be appropriate to the conditions of many developing countries. Additionally, some have argued that the IMF's motivation for intervention is to bail out richer countries' financial institutions from suffering losses on their loans to developing countries Many developing countries have accumulated massive foreign debt, and when interest is included, significantly reduces the governments' ability to promote growth and development through expenditure on education, healthcare and infrastructure. Moreover, debt has bee the result of irresponsible lending practices by financial institutions in advanced countries to authoritarian leaders in developing countries (e.g. Uganda, Democratic Republic of the Congo) Global aid and assistance: 58% shortfall in development aid provided by developed countries since 1970; development aid was 0.3 per cent of GDP which was less than half the level to which high-income economies have been committed to for the past four decades (0.7 per cent of GDP) Development aid expenditure may decrease in the coming years as high-income economies need to cut spending to reduce their large budget deficits Many argue that a significant proportion of the monetary assistance given to developing countries is 'phantom aid' - aid funds that do not improve the lives of the poor, as the aid does not contribute to development 'phantom aid' includes 'technical cooperation', paid to consultants in the donor country; 'debt-related aid' which relieves or refinances past loans; aid spent on administration; 'tied aid' which is aid that is spent on overpriced or unnecessary goods and services provided by the donor country (e.g. when the US provides food supplies to very poor countries, it generally buys American crops and ships them all they way to countries in Africa, at a far greater expense than buy local crops thus, the aid is used in the transportation costs and the costs of American labour) Distribution of aid usually reflects the donor country's strategic and military considerations rather than the needs of the world's poorest countries Global technology flows: The World Bank found that around half of the difference in living standards between the US and developing economies can be linked to the slow adoption of new technologies in poorer countries 'Digital divide': differences in access to new communications technologies Most new technologies is designed to address the needs of developed countries. For example technology such as labour-saving machinery and pharmaceutical which deal with the health problems of ageing people in developed countries, are of little benefit to poorer nations that have abundant labour supplies, limited capital resources and a young population whose main health risks are common infectious diseases Intellectual property rights makes it difficult for poorer countries to gain access to new technologies as they cannot pay the price for those technologies, thus restricting the benefits of technological transfer to poorer countries Domestic factors which causes global inequalities: Economic resources: Natural resources: Economies that have an abundant and reliable supply of natural resources have better opportunities for economic development as they are important inputs for the production of high value goods e.g. the Middle East and Latin America have achieved higher growth rates largely as a result of their exploitation of natural resources. However, an abundance of natural resources can also hamper a country's economic development as it could lead to an overvalued exchange rate, a narrow export base and the becoming of being over-reliant on a small number of industries for economic growth Labour supply and quality: Developing countries tend to have high population growth, poor education levels, and low health standards reduction in the quality of labour Access to capital and technology: Difficulty in gaining access to capital for investment and development is another major structural weakness of developing nations which leads to their lower living standards Poorly developed financial systems makes it difficult for business to gain access to loans for investment development of microfinance organisations which provide small loans to help the poorest people in the world manage a farm, start a business etc. With small research organisations and limited funding of business innovation, developing countries have limited opportunities to develop new technologies or to pay for patents to use technologies developed in and by other countries Entrepreneurial culture: Evidence suggests that a country's history and social institutions can impact on its economic successes, particularly the values of individual responsibility, enterprise, wealth creation and a strong work ethic can assist the industrialisation process transitioning towards a more sustainable economic development Institutional factors: ranging from political stability, legal structures, central bank independence, extent of corruption, strength of social institutions and the government's domestic and external economic policies affect a nation's attainment of economic development Political and economic institutions: Political instability, corruption and a lack of law enforcement by government agencies tends to undermine the confidence of investors, who will be reluctant to take risks if their business interests are threatened by an inadequate structure to resolve legal disputes, corruptions or other institutional problems The impact of weak political institutions are hard to quantify one attempt to do so is the Corruption Perception Index by Transparency International each year Economic policies: If all major economic decisions are left to market forces, a country may achieve a high level of economic growth but it may not improve education, healthcare and quality of life Excessive government control in economic decisions can constrain entrepreneurship and innovation, reducing economic growth Countries with the highest economic growth (e.g. Norway, Australia) strong market forces and government investment in human development Government responses to globalisation: Policies relating to trade, financial flows, investment flows, TNCs, and the country's participation in regional and global economic organisations will influence an economy's ability to take advantage of the benefits of integration, such as restructuring, efficiency, access to foreign capital and technology, and access to overseas goods markets e.g. East Asian economies, which have been the most open to trade and foreign investment, have experienced the strongest rates of economic growth in recent decadesIMPACT OF GLOBALISATION: Economic growth and development: Developing economies have greater opportunities to grow through the production of goods for global consumer markets, and also benefit from access to new technologies and foreign investment Developed economies, through TNCS, find growth opportunities shifting to global production processes. However, in some regions, globalisation has caused disruptive structural changes Overall, there is no clear evidence that globalisation has caused an increased acceleration of economic growth; in actual fact, economic growth seems to be slowing with it falling to 2.8 per cent in the 1990s from 3.3 per cent in the 1980s and then to 2.6 per cent in the 2000s However, globalisation seems to be contributing to a convergence in living standards in the global economy since 1990, emerging and developing economies have been catching up to advanced economies East-Asia and the Pacific have been the fastest growing regions in the world, with growth rates of 8.7% annually between 1991 and 2010. Particularly China, with 10.4% per year between 1991 and 2010, showing the role of industrialisation and globalisation in economic growth South-Asian economies have also experienced successful growth, at 6.4% between 1991 to 2010. Notably, India (6.6%) and Bangladesh (5.3%), after its steps towards great integration with the global economy The former socialist economies of eastern Europe and Central Asia grew by 4.9% in the 2000s, after facing an initial contraction in their economies in the 1990s (-1.5%), due to the difficult process of transitioning to a market-based economy The Middle East has experienced solid economic growth, at 4.2% during the period from 1991 to 2010 This has largely been due to strong performances from Egypt (4.6%) and Syria (5.0%) The economic growth in the region has been brought about by the increased competition for energy resources during the globalisation era (e.g. for petrol, natural gas etc.) However, many economies in the Middle East are characterised by very high levels of inequality Sub-Saharan Africa recorded an average growth rate of (3.6%) during the period of 1991 to 2010 Strong growth from Sudan (6.1%) and Nigeria (4.6%) However, some African countries have been less successful, including Kenya (3.0%) and Swaziland (3.1%), which are insufficient in the catching up of the advanced economies, even if they are faster than the growth during the 1980s (1.7%) Latin American experienced stronger growth rates, with 3.3% during the period of 1991 to 2010, compared to those in the 1980s (1.4%) Noticeably, due to Brazil and Argentina Partly because of greater economic integration, but also due to rising commodity prices Advanced economies grew by just 2.1% on average during the 1991 to 2010 period, which was slower than the 3.3% recorded during the 1980s Average growth rate in the UK was 2.7% per year Average growth rate in the EU was 1.8% per year Average growth rate in Japan was 1.1% per year There are mixed implications to these trends: On one hand, the remarkable growth experienced by emerging and developing economies may indicate that globalisation facilitates higher rates of economic growth (e.g. sustained economic growth in China and India due to both countries initiating policies which encourage increased trade and foreign investment) On the other hand, the most globally integrated economies (advanced economies), experienced comparatively lower growth rates over the past two decades and were more strongly impacted by the global recession of the late 2000s e.g. the US and Europe suffered the worst effects of global recession and were again at the centre of economic instability in 2011 Additionally, global forces have contributed negatively to other growth outcomes in recent years, such as foreign indebtedness (in Africa) and exchange rate volatility (in Latin America) Globalisation and economic development: If globalisation increases economic growth rates in an economy, it also raises income levels, and provides more resources for education and healthcare, and for the initiation of programs for environmental sustainability However, globalisation can cause income inequality to increase and cause damage to the environment Trends in the HDI.. Trade, investment and transnational corporations: Globalisation has resulted in substantial increases in the size of trade flows and foreign investment TNCs are increasingly dominating business activity around the world, due to their key role in both trade and investment flows Changes in technology and government policy have fostered trade growth international trade in goods and services continues to grow and is now two-thirds of global output Vertical specialisation: when goods are produced in different stages in different economies many international trade transactions Globalisation of financial markets increased reliance on foreign sources of finance for investment (more countries now have greater access to overseas funds for investment) Between 1990 and 2010, FDI increased fivefold, particularly for high growth emerging economies which have reduced barriers to FDI Removal of restrictions on foreign ownership and the development of global capital markets increase in the growth of TNCs TNCs accounted for over 25% of GWP in 2010 Some argue that as TNCs do not operate under the laws of one government, they can move their production facilities to countries with the weakest government regulations and artificially structure their financial flows to avoid paying taxes Environmental sustainability: Globalisation can have negative environmental consequences for several reasons: Low-income countries, which are desperate for foreign investment and to earn high export revenue, may engage in economic activity which is harmful to the environment (e.g. deforestation for paper/woodchip industries; depletion of marine life through unsustainable fishing or poisoning of water supplies due to mining operations; pollution caused by manufacturing industries; increased carbon dioxide due to the operation of power plants) Growth in global trade is increasing consumption of non-renewable fuels In recent years, problems that involve global environmental resources have proved difficult to overcome (e.g. fish stocks, climate), with progress in making agreements slow Globalisation offers opportunities to protect the world's environment: Can force individual nations to face up to their global responsibility for environmental preservation Makes it possible for the costs of preservation of the environment to be shared Increased scrutiny of the environmental practices of TNCs Facilitated the transfer of environmentally friendly technology Over time, globalisation could lead to the formation of an international body which has the power to enforce the promotion of environmentally sustainable practices Most significant issue of the 21st century is climate change, as it has potentially catastrophic impacts on all aspects of the natural environment As the impacts of climate change are global, countries have to work together to address climate change Efforts to reach agreements between economies on reducing carbon emissions are coordinated by the United Nations Framework Convention on Climate Change (UNFCCC) 1997: UNFCCC summit of world leaders produced the Kyoto Protocol on Climate Change, which set carbon emission reduction targets for industrialised countries Does not include developing countries, which are a large source of emissions US refused to ratify the agreement (US is a large contributor of carbon emissions) Japan, Russia and Canada have refused to extend the Protocol when it expires in 2012 Recent UNFCCC meetings have failed to produce a new global climate change agreement, however less significant agreements have been made 2009: countries agreed on the need to work collectively to confine global temperature increase to below 2 degrees Celsius, which is the benchmark scientists believe is necessary to prevent the dangerous impacts of climate change 2010: countries agree to establish a Green Climate Fund to help developing countries respond to climate change and a Technology Mechanism to assist with the transfer for clean technologies between countries 2011: little progress towards a new climate change agreement due to the overshadowing of deteriorating global economic conditions The contribution of developing countries to carbon emissions has been substantial in recent years China is now the largest carbon dioxide emitter India is the third largest carbon dioxide emitter Together they account for nearly 30% of the world's carbon emissions The international business cycle: Benefit of integration: Allows countries to achieve fast rates of economic growth by specialising in certain types of production and by engaging in trade Particularly during times when global economic growth is higher, individual economies are likely to benefit from an upturn in growth One of the reasons for the strong global economic growth in the mid-2000s was the simultaneous upswings in the US and China, propelling the global economy to its fastest growth rate in 30 years Risks of integration: Economies are more exposed to downturns in the international business cycle and to developments in their regions Downturn in the US economy in the late 2000s spread quickly to other developed and developing economies As trade and financial integration continues to increase, there is likely to be greater synchronisation of the international business cycle, intensifying upswings and downturns in the global economy With the increase of the synchronisation of business cycles between different countries, this has led to the increased need for macroeconomic policies to be coordinated Following the recession of the late-2000s, the IMF recommended that countries use their combined budgets to stimulate the world economy by 2%, in response to the recession major countries coordinated budget policies like never before In 2011, the finance ministers of the G20 committed to coordinate action to promote financial stability and economic growth to address the consequences of government debt problems in the US and the EU Many economists argue for the need for greater coordination of economic management and financial regulation in the global economy, to better manage the international business cycle and avoid a repeat of events following the GFC