06/27/2008: "The Changing Face of the Global Economy"
During the past several years, emerging countries have experienced substantial integration into the world economy. This growing relationship has been manifested in the surge in exports from various developing countries, especially in manufactured goods and commodities. With greater prosperity has come improvement in quality-of-life, domestic policies, and infrastructure in many of these nations.
In addition, developing countries have seen significant foreign direct investment, particularly in services, manufacturing, and commodities. Such activities have served as catalysts for several developing countries to reduce trade restrictions and liberalize capital account transactions.
The benefits of this integration are not confined to the less-developed economies. Ongoing growth in developing countries is also leading to increased demand for raw materials and many other goods and services produced in more industrialized countries. The enhanced role of developing nations is expected to continue and even expand in the future.
According to the International Monetary Fund (IMF) the economies of less-industrialized countries (as a group) are expanding much faster than those of developed nations. (Typically, Canada, the United States, Japan, South Korea, Australia, New Zealand, and the majority of countries in Northern and Western Europe are considered developed or industrialized while most others around the world are identified as developing nations.)
In 2007, developing nations experienced growth of 7.8% compared to 2.6% in industrialized nations. This year, the IMF expects developing nations to expand by 6.9% compared to 1.8% for the more developed economies. Percentage growth rates can, of course, be somewhat misleading since there is such a great disparity in the actual size of the economies between developed and developing nations. Currently, each group contributes approximately 50% of the global gross domestic product and world trade.
Although international trade is now experiencing a slight decline overall, since 2001, trade has risen at a rate about twice as fast as that of the general world output. In 2007, global merchandise trade grew by some 7% with China being the dominant partner. Overall, Asian countries were responsible for about 40% of the trade expansion. An additional 45% of the growth was contributed by developed nations.
In developed nations, services have been the principal export growth generators. Similarly, services have played important roles in strengthening the economies of developing countries, with travel and transportation leading the charge closely followed by business and financial and insurance services. Currently, services account for about 70% of employment in developed nations but only 35% in developing countries.
Although the pace of global economic growth is predicted to moderate slightly this year, World Bank analysts suggest that the slowdown of the US economy may be cushioned to some degree by the economic expansion in developing nations. The changing face and increasing integration of the global business complex is improving the prospects for both highly industrialized economies and those still emerging.