The world economy and international economic relations: the concept, essence, forms and particularities of their development

Yekaterinburg 2012

WORLD ECONOMY AND INTERNATIONAL ECONOMIC RELATIONS

Educational text publication

Prepared by International Economy Department,

Graduate School of Economics and Management

Recommended by Methodological Council FSAEI HPE UrFU

for specialties and areas of training

Code	Specialty	Profile / Program	According to Educational Plan
EP-code 080100.62-19-2011	08.01.00 Economics	World Economy and International Business Profile No 080100.62.21.02	Б.3.3.12

УДК

ББК

Reviewer:

Scientific Editors: D. Sc (Ec), prof. Е.D. Frolova, PhD, T.V. Kuprina.

WORLD ECONOMY AND INTERNATIONAL ECONOMIC RELATIONS: course book / Е.D. Frolova, T.V. Kuprina, L.A. Kriventsova, D.A. Goldberg; Ed. by Е.D. Frolova, T.V. Kuprina – Yekaterinburg, UrFU, 2012. 50 p.

ISBN

The course book includes all basic elements of the world economic system and their relations; presents the peculiarities of the modern stage of its development. The appendix includes statistical data.

It will be useful to students, post-graduate students, specialists in the field of the world economy and international business.

CONTENT

1. THE WORLD ECONOMY AND INTERNATIONAL ECONOMIC RELATIONS: THE CONCEPT, ESSENCE, FORMS AND PARTICULARITIES OF THEIR DEVELOPMENT 4

1.1. The concept of the world economy and international economic relations. 4

1.2. Basic theories and new approaches to researching of the world economy. 5

1.3. Global challenges and problems of the world economy. 8

1.4. World income as a cause of the global companies’ power 10

1.5. The concept of international labor migration. 11

2. INTERNATIONAL LABOR DIVISION IN THE CONTEMPORARY EPOCH.. 14

2.1. Division of labor in the world economy. 14

2.2. Latest changes in international labor division. 15

2.3. Basic models of the international economic relations. 16

3. MODERN TRENDS OF THE WORLD ECONOMY AND INTERNATIONAL ECONOMIC RELATIONS DEVELOPMENT. 19

3.1. Internationalization. 19

3.2. Globalization. 23

3.3. Measuring of transnationalization, internationalization, globalization. 24

4. INTEGRATION PROCESSES IN THE WORLD ECONOMY.. 29

4.1. Modern form of the international economic integration. 29

4.2. Main integration units and participants’ role in them.. 30

5. BASIC ACTORS OF THE SYSTEM.. 34

5.1. Transnational company is a basic subject in the world economy. 34

5.2 Russian transnational corporations. 37

5.3. New actors (players) of the world economy. 39

6. COUNTRIES AS ACTORS OF WORLD ECONOMY.. 41

6.1. Classification of the countries. 41

6.2. Country competitiveness rankings. 42

6.3. Scientific and technical potential of the world economy. 43

6.4. Russia in the world economy system.. 47

REFERENCES. 51

1.1. The concept of the world economy and international economic relations

World Economy (WE) is a collection of national economies and other entities that are in a constant dynamic, interconnected by the system of the division of labor, international economic and political relations (fig. 1).

Basic subjects of world economy  

Countries (national economies)  

TNC, TNB  

Integration groups  

International economical organizations  

Fig. 1. Basic subjects of the world economy

The term Global Economy refers to an integrated world economy with unrestricted and free movement of goods, services and labor transnationally: it projects the picture of an increasingly inter-connected world with free movement of capital across countries[1].

International economic relations (IER) are the multi-level complex of economic relations between the actors of the world economy.

Basic forms of the IER are the following:

- International trade in goods, services and technologies;

- International cooperation in the field of solving global problems;

- International labor migration;

- International monetary and financial relations;

- International economic integration;

- International movement of capital.

In spite of critics (it does not take into account the underground (shadow) economy, etc.) Gross Domestic Product (GDP) remains one of the world economy basic terms. It is the monetary value of all the finished goods and services produced within country's borders in a specific time period, though GDP is usually calculated on an annual basis (formula 1). It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDR = C + G + I + NX, (1)

- «C» is equal to all private consumption, or consumer spending, in a national economy

- «G» is the sum of government spending

- «I» is the sum of all the country's businesses spending on capital

- «NX» is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports – Imports)

1.2. Basic theories and new approaches to researching of the world economy

In 1990s in connection with the activation of the process of integration of countries into the world economy, there is a noticeable increase in the interest in the theoretical and practical problems of the world economy. For the past two decades a variety of native and foreign schools, approaches, theories of the world economy have been formed and developed. We have systematized the main ones in appendix 1. All proposed approaches complement each other and give a complete picture of the world economy as a complex system simultaneously. Theories that form the basis of modern ideas about the development of the WE are generally kept in Fig. 2.

The basic theories of the world economic interaction are presented in Table 1.

Тheoretical origins of the world economic interactions

Theory of labor division

Theory of internatio-nalization

Theory of international labor division  

Theory of inter-enclave labor division  

Theory of postindustrial society  

Theory of international trade

Theory of manufactures location

«World-system» theory (Wallestain)

Theory of TNCs

Theory of information

Theory of rent

Theories of WE

Theory of international trade by Heksher-Olin

Alternative

Theory of life cycle

Theory of scale effect

Theory of competitive advantages (M. Porter)

Theory of «new» trade

Theory of comparative advantages

The case of absolut advan-tages  

The case of com-parative advan-tages    

Рисунок 2 - Основные теории исследуемой проблемы

Fig. 2. Basic theories of the world economy

Under transformation of the development of the world economy relations well-known notions get a new sense. For example, it is necessary to consider, to regard external ties not only as ones according to our country but also in relation to any other areas that are formed by the IRC-system (internal area); we can see the elimination of the border between the inner and outer spheres of activity. New types of labor division are appearing: the traditional division of labor is being added to the new - inter-enclave (inter-corporation) ones. «Entering the international market» is transferred to «strategic operation in the geoeconomic space». Criteria of «globality» mean not only «scale» but transfer to the field of «influence».

Formation of the new methodology of international economic development is generating now. The central vector of the world’s development is geoeconomics (appendix 2).

Table 1

Main theories of international interactions

Theory	Attitude
Theory of comparative advantages
The case of an absolute advantage	The ability to produce goods more effectively (than other countries) due to the natural peculiarities.
The case of the comparative advantage	The ability to produce goods with low costs.
Heckscher-Ohlin’s international trade theory	The country tries to export such goods that under the process of their generation demand the intensive use of factors located in the country in more volume than other trade partners.
The alternative theory of international trade
The theory of commodity life-cycle	The production of commodity that is transferred from one country to the other ones depends on the stage of the commodity life-cycle.
The theory of the scale effect	Countries have the equal resources but they receive the effect due to the scale of production.
The theory of the new protection (D. Bhavatti)	«Protection of rich countries»
The theory of the managerial (manageable) trade policy	Government protection
The theory of the arbitrage	The transfer of jobs overseas. It is not free trade but the classic arbitrage.

Its essence can be explained by means of geoeconomic attributes (table 2).

Table 2

Basic attributes and categories of Geoeconomics [10]

Attributes	Essence of the basic attributes
Economic Borders	Going of the reproduction processes beyond the national framework has resulted in appearance of economic borders which do not coincide with the national ones;
International labor division	inter-enclave (inter-corporation) division of labor has developed
New goods forms	Goods-group, Goods-program, Goods-object, Goods-enterprise
World income	World measurement profit from company’s international activities receiving from selling products and services that were produced in the Internationalized Reproduction Cycles (IRC) outside one country by using all kinds of national resources

We can see that the world system has gained new parameters.

1.3. Global challenges and problems of the World Economy

Despite of the positive signs such as tremendous international trade and foreign investments growth the world economy has been facing wide range of challenges and essential problems being subject of constant scientific consideration. For sake of clarity and for facilitation of studies such matters may be divided into following main groups based on their origin: political, economic, social and ecological problems. The complete classification of the problems is given in Fig. 3.

Peace, demilitarization and conversion

Political origin

Economic origin

Social origin

Ecological origin

Global problems

Local wars and conflicts

International terrorism

Exile states

Transnational capital

Economic wars and conflicts

Growth of suppression from emerging economies

“Global North vs. Global South” opposition

International indebtedness

Imparity of incomes

Unemployment and poverty

Struggle against diseases and circulation of drugs

Growth of megalopolises

Limited resources

Lack of food and starvation

Demography

Wastes and pollution

Global warming

Ozone layer

Sustainable development

Fig. 3. Global problems of the World Economy [18, p. 353]

Due to numerous interconnections between particular groups of problems the complex analysis of the situation will be held in order to find out the primary and secondary representation of the problems and combination of such in each separate case. Certain trends of the World Economy e.g. intensification of transnational companies’ business activities especially within emerging markets, growth of the international indebtedness due to the boosting of the borrowings by less-developed states and emerging economies typically lead to the growth of public concern and adverse circumstances in terms of internal and foreign affairs of particular country, that in its turn may result in further extension of these matters up to the regional or even global scale. Such political problems as wide presence of local wars and conflicts across the globe, threat of the international terrorism, negative tensions of the global community with the so called «exile states» in majority of cases are backed and sometimes even caused by poor economic conditions, depravity of financial systems, corruption and high level of economic inequality. The analysis of the current state of political and economic affairs in some states of Africa and Latin America can reflect the shadow but nevertheless crucial role of transnational capital (nowadays being one of the cornerstones of market economy) in political and economic hardships of those countries. Mainly due to this, actors of global terror see almost no obstacles for rapid recruiting of followers among citizens of numerous less-developed states using message of struggle against transnational capital as a popular and rather attractive part of their ideology.

Social problems such as incomes imparity, unemployment and poverty, international circulation of diseases and drugs, overpopulation of cities require joint efforts of international community otherwise worldwide solutions proposed may be ineffective. Current measures which are performed under the frame of the United Nations and other respectful international organizations tend to be rather weak due to the lack of sufficient funds and are only able to provide some basic relief rather than solve principal problems. However, public initiatives such as campaigns for fair trade and consumer consciousness which have already gained popularity among citizens of the European Union member states, the USA and Canada may be deemed as a ground for rising of the new vision with regards to social problems. As usual the worst cases of social problems such as poverty and unemployment can be easily found in less-developed states and emerging economies nevertheless some medium-developed or even well-developed countries may also face such problems especially as it relates to high level of unemployment in cases of so called «boom-bust» economies. Urgency of ecological problems today can’t be overestimated as further existence of the mankind in the era of global consumption is considered rather doubtful due to the limited resources of the globe and ever-growing activities of corporations trying to extend volumes of goods and services consumed and speed-up the process of consumption itself.

The opposite side of the coin is that involvement of greater volumes of resources in the production process generally leads to various types of pollution and appearance of additional wastes (provided that the relevant manufacturers are using archaic or traditional technologies, that is frequently the case for the companies representing emerging economies, which are trying to use cheap labor and/or natural resources as a key competitive advantage instead of environmentally-friendly technologies, that are typical mainly for well-developed companies).

1.4. World income as a cause of the global companies’ power

The biggest part of the world income is generated in the Internationalized Reproduction Cycle (IRC-system) which is considered as a Transnational Company (TNC). The task to access to the world profit is important by itself but in terms of globalization it becomes even more relevant and is considered as a target of world competition. Nowadays business can receive additional growth and development opportunities thanks to border broadening. And in this case competition in order to get world profit is becoming stronger. The world income is an inter-countries profit that’s why countries-participants of profit generation intend to get from distribution to their home (domestic) economics the biggest part of the word profit. It is also one of the main sources of revenue for a country’s budget. Scope and dynamic of the world profit is a very important source of prosperity of any country. The world income is a root cause of country’s leadership and power. Nowadays foreign policy of a country nowadays is determined by the economic struggle for the world profit, for the biggest percentage of the «world profit pie».

Distribution of the world profit and searching for channels of its floating to the national economics are one of the core functional issues of the world economic system as a whole. The access to the world profit is a fundamental cause of such a big differentiation between countries and groups of population (between rich and poor, countries of «gold billion»). To understand the essence and forms of the world profit let’s look at its evolution. As you can notice world profit is generating on transnational level, see table 3.

Table 3

Profit’s form development [41]

Economic player	Economic environment	Profit’s forms
Enterprise	Enterprise’s border	Profit (company’s profit)
National economy	National territory	National profit
TNC, TNB etc.	World economy environment	World profit

There are two types of the world income. First of all we can determine it as a positional profit, it means the profit from current activities of a company. According to the Z. Varnaly such kind of combination gives a synergetic effect during economic collaboration, and by connecting different types of elements into one system we can get a new production capacity.

Table 4

Structure of the global profit [41]

Sector	USA	Japan	Europe 4^*	other
Communication
Finance
Business
Education
Medical
Total

*Europe 4: Germany, France, Great Britain, Italy.

1.5. The concept international labor migration

The world economy is increasingly dependent upon migrants. Without the contribution of migrants the society would be inconsistent (From the UN’s letter devoted to the International Migrants Day (since 18 December 2000).

Migration of population (Latin migration – relocation) is the movement of people across the borders of certain areas with a change of residence either permanently or on more or less long time.

Migration provides the connection of geographically distributed (by continents, countries, regions within countries) natural resources and the means of production to the labor force; contributes to satisfying needs of the population in getting a job, housing, livelihood, social and occupational mobility, changes in the social status and other characteristics of the life status of the population, etc.

According to the report of the International Organization for Migration the number of international migrants in 2010 amounted to 214 million people or 3,1 % of the world population. If the growth of this indicator continues at the same level then in 2050 it reaches 405 million.

Immigration of the population (Lat. immigro – «instill») is the entry of the population of one country to another for temporary or permanent residence, considered in relation to the country where migrants enter.

It is determined by a number of reasons: economic (the import of labor or entering countries with more favorable working conditions and higher living standards, etc); military (the seizure of foreign lands and their military colonization) and political (an escape from the political, national, racial, religious and other persecution, ethnic minorities sharing between states, etc).

Emigration (Lat. emigro – «evict») is migration from one country to another for economic, political and personal reasons. Indicated in relation to the country from where people emigrate.

Scientific approaches to migration study are: demographic, economic, legal, sociological, historical, psychological, bio-historical.

The economic approach is the most universal one. It considers migration as one of the most important regulators of working-age population which stimulates healthy competition in the labor market. Most types of migration are due to economic necessity and in some way connected with the labor market.

Classification of migration movement:

- Classification of Forms: socially organized, disorganized.

- Classification of Causes: economic, social, cultural, political (political conflicts), military (wars).

- Classification of Stages: decision-making, spatial displacement, adaptation.

Types of migration are: Internal, External/international, Episodic, Push-pull and others (the full list is in appendix 3).

Modern tendencies of world migration are: the growth of illegal migration with the pronounced labor character; the growth of induced migration due to the increase of armed conflicts and exacerbation of interethnic relations which create additional economic burden on host countries and require a cash outlay; increasing demographic significance of international migration; globalization of world migration flows (almost all countries are involved); qualitative changes in the migration flows (an increase in the proportion of people with higher education); the dual nature of the migration policy (tightening of migration policy); in the foreground there is economic emigration due to the worsening of economic situation, the uncertainty of prospects for economic reforms, the inefficiency of the social welfare system, falling living standards.

In 1990s there was an entirely new phenomenon for Russia as the business emigration, i.e. emigration of entrepreneurs which was not related to the economic hardships and privations but to the desire for political and economic stability, the fear of losing the achieved level of welfare and the lack of prospects for the business.

(Consequences of International Migration and Consequences for Russia are in appendix 4, Multiculturalism – 5 and Multicultural Peculiarities for Russia – 6).

Дата добавления: 2014-01-05