What is Global Economy?
Essentially, a global economy is a world economy. It includes all economic activities. However, it also includes the concept of “globalization”, which refers to the effects of globalization on digitalization and automation.
Economies of scale
Economies of scale are a business strategy that focuses on increasing a company’s size while decreasing its production costs. The basic concept is that bigger companies can afford to take more risks. This leads to higher sales and larger profits.
Economies of scale are achieved through internal and external factors. External factors include government subsidies, improved transportation, and joint ventures. Internal factors include the use of bulk-purchase discounts, specialization of labor, and efficient machinery.
The most important implication of economies of scale is that they lower the long run average cost of production. These costs are determined by dividing the total cost of producing a unit Q by the total output Q. Economies of scale are typically found in industries with large fixed costs. These costs include employee salaries, machinery, raw material costs, and taxes.
The most common example of an economy of scale is a supermarket. A supermarket can reduce its production costs by purchasing goods in bulk. These items are then sold at a lower price, which can attract more customers and result in more profits.
Another example is the lumber industry. The cost per unit weight of a commodity can be reduced by reducing the distance it needs to travel to get from the mine to the mill. This also increases production volumes.
The monopolistic competition model can explain trade between similar countries. However, it can’t tell you which country will export which goods. It can, however, explain trade in differentiated products, including those that are made with economies of scale.
Economies of scale are often used to explain why countries trade. This is because countries can produce the same goods and reap the benefits of economies of scale. However, this doesn’t always translate into trade gains. It’s important to distinguish economies of scale from other types of economies. For instance, the economies of scale for the production of a single unit of a good are different than the economies of scale for the production of a whole plant.
Economies of scale are a business strategy that can be used to help a business increase sales and reduce production costs. However, they can also lead to diseconomies of scale.
Barriers to international trade
Several factors affect the efficiency of international trade. Some are natural, while others are cultural. Natural barriers include language barriers and physical distance. These factors can make it difficult for people to communicate with one another, resulting in the wrong shipment of goods. They can also lead to dumping, which means that goods are sold at below-market prices.
The main tools used by governments to control international trade are tariffs and import quotas. They help protect domestic industries, but they are also disadvantageous to consumers. Tariffs raise the price of imported goods, which makes it more expensive for consumers to buy products from abroad. Manufacturers pass the higher costs on to consumers, resulting in fewer purchases.
Several countries are attempting to reduce their barriers to trade. For instance, several Asian countries are collaborating through ASEAN. In addition, the World Trade Organization is committed to lowering barriers to trade.
These organizations reduce the likelihood of countries imposing retaliatory taxes on imports. They also try to minimize production distortions caused by tariffs.
In addition to tariffs and import quotas, trade barriers can also take the form of geographic barriers and other types of policy barriers. They can also include export restraints, licenses, and standardization.
According to the theory of comparative advantage, trade barriers can lower the overall efficiency of the economy. Economists agree that trade barriers are harmful.
Trade barriers can be either voluntary or compulsory. The World Trade Organization, for example, has the authority to direct a guilty country to remove its trade barriers.
Some countries have opted for economic integration, while others have used tariffs to protect their industries. The concept of trade protection dates back to the origins of economic science. However, the use of trade barriers has been declining over time.
According to the Theory of Comparative Advantage, trade barriers are harmful to the global economy. They lower the efficiency of the economy, decrease the number of products available, and limit the choice of products that customers can buy.
While there are many different forms of trade barriers, most of them impose a cost on international trade. They also keep firms from selling to one another in foreign markets.
Impact of pandemic on low-skilled, low-wage jobs
During the pandemic recession, low-skilled and low-wage workers were hit hard. In fact, they accounted for up to 55 percent of the workers displaced across the globe.
The pandemic recession has had a permanent impact on the economy, resulting in permanent changes in the way work is done. Low-wage jobs are especially susceptible to automation, as automation accelerates during recessions. This could mean that many jobs never come back, or they’ll be replaced by machines.
The impact of the pandemic on low-skilled, low-wage jobs differs in different regions. For example, the impact of the pandemic on low-wage jobs is less in areas where labor force participation has been declining. But it’s especially notable in metropolitan areas, where low-wage workers disproportionately comprise the displaced population.
These workers have lower education levels, and are more racially diverse. The displaced low-wage workforce is more likely to be young adults, in their prime working years. And they are more likely to be displaced from occupations that involve public interaction. However, these workers face a grim future, without significant changes to the economy.
Some of these workers will need to change industries, which may require additional education or training. Many companies will not have the resources to retrain a large part of their workforce. But it’s possible that those who lost their jobs in the pandemic could find new ones.
Nevertheless, low-wage workers remain far from recovery. A McKinsey & Company forecast estimates that as many as 100 million workers will need new jobs by 2030. This number is higher in the largest economies. It also suggests that the impact of the pandemic on low-skilled, lower-wage jobs is even larger than previously estimated.
In addition to the low-wage workforce, mid- and higher-wage workers were also impacted. These workers worked in a variety of sectors, including manufacturing, health services, and education.
Although mid- and higher-wage workers saw a decrease in their jobs, they were less impacted than the low-wage workers, primarily because they were less hyper-concentrated in a single industrial sector. They also saw job gains in the 2020s.
Low-wage workers, especially displaced workers, may have to look elsewhere for a new job, or may have to change industries. But companies may be reluctant to hire externally. Changing industries can also require connections and additional education.
Impact of globalization on digitalization and automation
Among other factors, globalization plays a significant role in the adoption of digital technology. It is important to understand how it influences the adoption process, which in turn affects productivity and innovation. It also enhances knowledge transfer.
Digital technology enables automation. Automation is a process in which a firm changes the way it performs work. It reduces the cost of labour and changes the location of production. It improves competition. It increases productivity. Digital technology also increases innovation.
Automation was a key driver of modern globalization. In the early 1970s, information and communication technology (ICT) enabled a new type of automation. When ICT was introduced, the focus on value creation shifted from land to capital. Industries grew larger, mechanised and began selling to the world market. The result was an expansion of the market and a rise in demand for innovation.
Automation also fostered industrialization, which led to a complete revolution in world economic geography. The new economy grew from a cottage industry to a factory. Production was dispersed internationally. It also made innovation more profitable. As a result, factories began replacing workers with mechanisation. This meant that people who worked with their hands began to find that their value was devalued.
In the 1970s, income inequality began to rise. The top 5% of the income bracket saw a drop in its share of income from 40 percent to 20 percent. This was accompanied by a social discontent that grew in the Western world.
Globalization has weakened the barriers to the transfer of knowledge and technology. It has also boosted innovation and productivity. However, despite the benefits, the link between globalization and digital technology adoption has yet to be fully understood.
The digitalization of the world economy has been accompanied by an increase in income inequality in the advanced economies. This has led to social discontent, which in turn has caused a political ferment. A new approach is needed to address these risks. It would require new theoretical work and a deeper understanding of the dynamics of the globalization and digital technology adoption processes.
Currently, there is a lack of international empirical evidence on the effects of globalization on digital technology adoption. It is therefore important to conduct future research on this topic.
