Chapter 25

WORLD ECONOMY

and Its Evolution

• Formation & Development Stages

• Globalization Process

• International Economic Relations

• International Regulation

Economics | Global Studies

TABLE OF CONTENTS

01

Formation of World Economy

Definition, subjects, and key characteristics

02

Development Stages

Historical evolution and milestones

03

Internationalization

Process and components

04

Globalization

Nature, directions, and contradictions

05

International Division of Labor

Theories and principles

06

International Economic Relations

Forms and structures

07

International Regulation

Organizations and mechanisms

What is World Economy?

"World Economy is a system of economies of various countries united through international division of labor, trade-production, financial, and scientific-technical relations."

SUBJECTS OF WORLD ECONOMY

🌍 States

Including national economy complexes

🏢 TNCs

Transnational corporations

🏛 Int'l Organizations

International bodies & institutions

🏭 Companies

Firms operating beyond national borders

Key Development Indicators

📊 GDP (Absolute & Relative)

Total value of goods and services produced; compared per capita across nations

💰 National Income per Capita

Average income earned per person — key measure of living standards

🏭 Sectoral Structure

Distribution of economic activity across agriculture, industry, and services

📦 Export & Import Composition

Types of goods traded reveal a country's specialization and competitiveness

👥 Population Living Standards

Quality of life, social welfare, and human development indices

World Bank Country Classification (1995)

LOW INCOME

Up to $765 / capita

49 countries

Examples: Chad, Bangladesh, Ethiopia

MIDDLE INCOME

$766 – $9,385 / capita

58 countries

Examples: Developing economies

HIGH INCOME

$9,386+ / capita

26 countries

Examples: OECD developed nations

Source: World Bank (JTTB) Classification System

Country Groups in World Economy

BY ECONOMIC SYSTEM

1. Developed Market Economies

2. Developing Market Economies

3. Countries Without Market Economy

BY DEVELOPMENT LEVEL

LOW DEVELOPMENT

Chad, Bangladesh, Ethiopia

MIDDLE DEVELOPMENT

Many Asian & African states

HIGH DEVELOPMENT

OECD nations, Gulf states

Notable Groups: New Industrial Countries (S.E. Asia & Latin America) | Oil-Exporting High-Income Nations (Saudi Arabia, Kuwait) | Least Developed Nations

Internationalization of Economic Life

Internationalization of the Economy is the process of strengthening economic ties of countries at the global level, gradually encompassing wider and wider sectors of economic relations.

COMPONENTS OF WORLD ECONOMY (formed through internationalization):

1

World Market

Goods & Services

2

Capital Market

Global investment flows

3

Labor Market

Workforce migration

4

Currency System

International monetary

5

Financial System

Credit & banking

International Division of Labor (IDL)

IDL refers to the specialization of individual countries in producing certain types of goods and services. This specialization creates internationally specialized sectors primarily oriented toward export.

FACTORS DETERMINING A COUNTRY'S POSITION IN IDL:

1

Geographic location and natural-climate conditions

2

Availability and composition of natural resources

3

Scale and level of economic development

4

Structure of national economy

5

Size of domestic market

Key Theories of International Division of Labor

1776

Adam Smith

Absolute Advantage Theory

Countries should specialize in goods they can produce with absolute efficiency due to geographic, climatic, and resource advantages. Nations in the best position earn higher incomes.

1817

David Ricardo

Comparative Advantage Theory

Any country can increase production efficiency by reducing costs through specialization, improving labor productivity, and lowering production expenses.

1919

Heckscher & Ohlin

Factor Proportions Theory

Countries should export goods that use their abundant production factors most intensively. Olin mathematically validated this theory (Nobel Prize recipient).

Global Labor Force & Income Distribution

50%

of World's Workers

are in least developed countries

5%

of Global Income

goes to those 50% of workers

6%

of World's Workers

are located in the USA

25%

of Global Income

earned by that 6% US workforce

These disparities demonstrate the unequal distribution of production factors across nations.

World Market Prices & Competition

Goods are exchanged between countries at world prices based on international value — the socially necessary international labor expenditures recognized by the world market.

FACTORS AFFECTING WORLD PRICES:

🔒 Trade Restrictions

Tariff and non-tariff barriers imposed by countries affect price formation in international markets

💱 Currency Fluctuations

Changes in exchange rates shift the relative prices of goods across borders

🏢 International Monopolies

Large multinational corporations can influence global pricing through market dominance

⚔️ Market Competition

Nations compete intensely for export markets — differences in competitive ability reflect national labor productivity levels

Regional Economic Integration

A global trend of interstate economic integration is forming. The reproduction process deepens in two forms: Integration (convergence of national economies) and Transnational (formation of international production complexes).

European Union (EU)

Free movement of goods, services, and labor. Single market, single currency (Euro). Leading model of integration.

North America (NAFTA)

Integration of USA, Canada, and Mexico economies. Common economic cooperation across continent.

Southeast Asia

Rapid economic cooperation, new industrial countries like Indonesia, Philippines, Malaysia, Thailand.

Central Asia & Arab World

Growing interstate integration across Arab nations, Central Asian and African countries.

SECTION 2

Globalization

Nature, Directions & Contradictions

"Globalization (Latin: globus — earth globe) means the formation and development of a single network of economic relations covering the entire global space of the world economy."

Globalization ≠ Internationalization

Internationalization = early stage between a few actors

Globalization = encompasses the ENTIRE world economy space

Four Directions of Globalization

01

Globalization of Property Relations

Emergence of trans-border ownership forms operating across multiple countries. Transnational corporations (TNCs) and their international alliances. The EU experience shows regional integration can create supranational bodies that regulate member state property relations.

02

Higher Levels of Cooperation & Division of Labor

Highly developed countries are embedded in vast networks of complex labor cooperation. Most advanced technical equipment now uses components from many different countries, reflecting global supply chains.

03

New Forms of Economic Organization

Global internet systems, satellite communications, mobile-to-satellite transition, e-commerce expansion, and distance education. The information revolution is fundamentally restructuring how the economy is organized.

04

Growing Role of International Economic Organizations

Expanding interdependence requires more countries to participate in solving global problems. The complexity of global issues makes international organizations essential for companies, governments, and institutions.

Contradictions of Globalization

1. Uneven Economic Development

Science & technology drives rapid growth in some regions while others lag. By the late 20th century, serious disparities emerged. New industrial countries (South Korea, Taiwan, Singapore, Hong Kong) grew rapidly in the 1970s–80s; second-generation NICs (Indonesia, Philippines, Malaysia, Thailand) surged in the 1990s.

2. Widening Gap: Rich vs. Poor Nations

Global production and income are distributed very unevenly. In the 20th century, the wealthiest quarter of world population achieved 6× per capita GDP growth, while the poorest quarter managed only 3× growth.

3. Growing Ecological Threats

Throughout history, nature could recover from human activity. Today, environmental pressure is so intense that nature is losing its self-regenerating capacity. In 200 years, ~900,000 plant and animal species have gone extinct. Non-renewable resources are depleting; forest resources cannot regenerate fast enough.

4. Demographic Divergence

Rapid population growth — especially in developing countries — creates serious socioeconomic tensions. Despite growing production volumes, per capita consumption remains far below what people actually need in many nations.

Global Financial Crisis Impact

Financial imbalances in national economies amid the 2008–2010 global crisis

2010 GDP Growth Rates (CIS Countries):

Russia

-1%

Ukraine

-2%

Kazakhstan

0.2%

Uzbekistan

2.4%

🏆 UZBEKISTAN'S PERFORMANCE

GDP growth: 9.0% (2008) | 8.1% (2009) | 8.5% (2010)

Ranked among the highest in the world according to global financial institutions (President Islam Karimov, 2010)

International Economic Relations

SECTION 3

International Economic Relations (IER) are the totality of economic relations between various countries of the world.

MAIN FORMS OF IER:

🛒 International Trade

Trade in goods and services between countries; forms the world market through IDL

💼 Capital Movement

Foreign investment: private/state capital, short/long-term credits, loan and entrepreneurial capital

👷 Labor Migration

Movement of labor resources between countries seeking better employment conditions

🤝 Production Cooperation

Interstate cooperation in manufacturing processes across borders

🔬 S&T Exchange

Exchange of scientific-technical information, experts, research, and licensing

💳 Currency-Credit Relations

International monetary and financial transactions between nations

International Capital Movement

Capital movement abroad takes multiple forms:

By Ownership

• Private capital

• State capital

• Capital through international organizations

By Form

• Monetary form

• Commodity form

• Technology & patents

• Innovation ideas

• Trade credits

By Duration

• Short-term credits

• Long-term credits

By Function

• Loan capital (ssuda)

• Entrepreneurial capital

International Labor Migration

International labor migration is the movement of labor resources from one country to another with the purpose of finding better employment conditions.

THREE CORE COMPONENTS:

1

Emigration

Departure of workers from a country to reside permanently elsewhere

2

Immigration

Entry of workers into a country for permanent residence

3

Repatriation

Return of citizens to the country they previously left

FIVE CATEGORIES OF INTERNATIONAL MIGRANTS:

1. Immigrants & Non-immigrants

2. Contract workers

3. Undocumented / Illegal immigrants

4. Asylum seekers

5. Refugees

International S&T Exchange & Engineering

📡

Scientific-Technical Information

Exchange of research data and technological knowledge between nations and institutions

👨‍🔬

Expert Exchange

Scientists and technical specialists working across borders and collaborating internationally

📄

Licensing Agreements

Granting rights to use research results, patents, and innovations through licensing

🧪

Joint R&D

Collaborative scientific research and development projects between countries and institutions

🏭

Joint Ventures

Co-production of technology and industrial products through multinational entrepreneurship

⚙️

International Engineering

One country providing design calculations and construction-engineering services for industrial facilities in another country

World Economic Infrastructure

Without a proper global infrastructure, the internationalization of modern productive forces cannot develop. Current world infrastructure spans all transportation and communication modes.

🚢 Transport Systems

• Sea & river shipping routes

• Air transport networks

• Railway systems

• Road & automobile routes

🔌 Energy Networks

• International gas pipelines

• Oil product pipelines

• Electrical power grids

• Energy delivery systems

📡 Communications

• Telephone & radio networks

• Television systems

• Internet infrastructure

• Information networks

🏦 Financial Centers

• International stock exchanges

• Global financial markets

• International banking systems

• Financial hubs

SECTION 4

International Regulation

of World Economic Relations

The internationalization of the entire world economic life created the need to establish a mechanism for regulating interstate economic ties. Regulation of IER begins at the national-organizational level, then progresses to interstate and international organizations.

KEY MILESTONES:

1919

League of Nations founded

1929

Bank for International Settlements

1945

IMF & World Bank established

1948

GATT comes into force

1991

EBRD established

1995

WTO replaces GATT

IMF & World Bank Group

IMF

Est. 1945

International Monetary Fund

Regulates exchange rates and member countries' payment balances. Controls multilateral payment systems and external debts of developing countries. Provides credit to member states to resolve currency-financial problems.

IBRD

Est. 1945

International Bank for Reconstruction & Development

Part of World Bank group. Actively finances structural restructuring in developing countries. Provides medium and long-term credits for investment projects.

IDA

Est. 1960

International Development Association

World Bank affiliate. Provides medium and long-term credits to developing nations. Prepares financial-economic foundations for projects.

IFC

Est. 1956

International Finance Corporation

World Bank affiliate. Supports structural transformation in developing countries. Provides investment credits to private sector projects.

GATT & World Trade Organization (WTO)

GATT

General Agreement on Tariffs and Trade

Active: January 1, 1948 → January 1, 1995

Multilateral framework for international trade rules

WTO

World Trade Organization

Established: January 1, 1995

Regulates 45%+ of world trade turnover

→

WTO KEY PRINCIPLES & FUNCTIONS:

✓

Non-discrimination in trade — equal treatment for all member states

✓

Identification of tariff and non-tariff trade restrictions on equal grounds

✓

Fights against protectionism at national and regional levels

✓

Helps reconcile national interests and open multilateral negotiations

✓

Main activity: conducting multilateral trade negotiations among participating parties

OECD & International Financial Bodies

OECD

Organization for Economic Cooperation and Development. Unites all industrially developed nations. Studies impact of domestic policies on other countries' economies. Provides macroeconomic regulatory recommendations. Conducts multi-factor research on world economy and recommends evidence-based economic forecasts on currency, budget, trade.

G8

'Group of Eight' — annual summit of leading world economies: USA, Japan, Germany, France, Italy, UK, Canada, Russia. Plays a major role in coordinating the international monetary-financial sphere.

EBRD

European Bank for Reconstruction and Development. Established 1991 to provide financial assistance for structural restructuring in Eastern Europe. Helps transition economies modernize and integrate into world markets.

G20

Group of 20 major economies. Two key summits: Washington (November 2008) and London (April 2009) to address the global financial crisis. Together produce 85% of world GDP. A key forum for global economic coordination.

European Union: Integration Model

The EU created a single market with common European citizenship, economic, monetary and political union. A unified monetary policy began in 1999; the Euro was introduced as a common currency from 2004.

European Commission (EC)

Executive organ

Members appointed by national governments but act fully independently. Manages EU policies and proposes legislation.

Council of Ministers

Decision-making body

Includes councils for Interior Affairs, Finance, Supply, and Agriculture. Makes binding decisions for EU member states.

European Parliament

Legislative oversight

Controls EC activities, approves and amends community budget and laws. Acts as democratic representative body.

European Central Bank (ECB)

Monetary authority

Established with the Euro introduction. Together with national central banks forms the European Banking System.

🇺🇿 Uzbekistan in the World Economy

The Actions Strategy of the Republic of Uzbekistan (Presidential Decree PF-4947, February 7, 2017) defines strategic priorities for security and foreign policy.

5.1 Security, Tolerance & Interethnic Harmony

• Protect constitutional order, sovereignty & territorial integrity

• Ensure information security systems

• Strengthen civil, ethnic & interfaith peace

• Strengthen defense capabilities & Armed Forces

• Prevent ecological threats to environment & public health

5.2 Thoughtful, Mutual & Practical Foreign Policy

• Strengthen state independence and sovereignty

• Enhance international prestige of Uzbekistan

• Improve normative-legal basis for foreign activities

• Resolve state border delimitation & demarcation issues

• Create environment of security, stability & good-neighborliness

Key Concepts Summary

World Economy:

System of economies of various countries united through international division of labor, trade-production, financial, and S&T relations.

Internationalization:

Process of strengthening economic ties of countries at the global level, encompassing ever-wider sectors of economic relations.

International Division of Labor (IDL):

Specialization of individual countries in producing certain types of goods and services.

Globalization:

Formation and development of a single network of economic relations covering the entire space of the world economy.

International Capital Movement:

Placement and movement of capital in foreign countries in various forms: private/state, monetary/commodity, short/long-term.

International Labor Migration:

Movement of labor resources from one country to another seeking better employment conditions.

Emigration / Immigration:

Emigration = permanent departure from a country. Immigration = permanent entry into a country.

Review Questions

1

What is the most important distinguishing feature of today's world economic development?

2

How does world economy affect national economies?

3

What is the essence of the internationalization process of economic life?

4

What is globalization and what are its main directions? Describe the contradictory aspects.

5

On what principles is the International Division of Labor based?

6

What role do natural conditions play in the International Division of Labor?

7

Why do International Economic Relations take various forms? List the main forms.

8

Explain the concept of international labor migration.

9

What makes regulation of international economic relations necessary?

10

What international organizations regulate international economic relations today?

CONCLUSION

World Economy in the 21st Century

🌐 Deeply Interconnected

No national economy can effectively function in self-isolation in today's world

⚡ Rapid Technology Diffusion

Innovations spread globally at speed, reducing technological gaps between nations

🤝 Cooperation is Essential

Both the benefits and contradictions of globalization require active multilateral participation

⚖️ Unresolved Inequalities

Rich-poor gaps, ecological crises, and demographic pressures remain critical global challenges

Chapter 25 — Economics: World Economy and Its Evolution | 30 Slides