Apr 15, 2020 in Research
Global Economy

Globalization has been affecting the entire world in various respects since the 1990s and the end of the Cold War, which also put an end to the previous global order. One of the aspects that has been subject to the most profound and transformative impact is global economy. During the past several decades, the world has witnessed an unprecedented growth of national economies of particular countries, especially China, a rather wide-spread stagnation of highly developed countries like the USA, and the overall growth of the global economy. Besides, globalization has led to an ever increasing integration and interconnectedness of national economies of separate nation-states, which nowadays allows us to speak about global economy as a whole. Nonetheless, global economy is subject to influences of various factors and depends on the growth of national economies of the richest and most rapidly developing states. Hence, China and some other countries are bound to have a significant impact on global economy in the contemporary globalized world.

Prior to discussing globalization and its impact on global economy, it is necessary to provide their definitions and establish the relation between the two. Thus, according to Friedman, globalization can be defined as “the inexorable integration of markets, transportation systems, and communication systems to a degree never witnessed before…”. Moreover, it can be understood as a new world order that has come to substitute the previous Cold War system marked by division of stakeholders and presence of only two superpowers in the world, i.e. the USA and the USSR. From the description of the previous system of the world order it becomes obvious that the global economy as a concept was not considered as something united and whole. On the contrary, economies of separate nation states were to a large extent self-dependent and could resist the external economic influence of other countries. Since there were only two superpowers that also were the richest countries of the world, their economies governed and rivaled within the system of the global economy. However, the situation has drastically changed since the beginning of the new world order.

 
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The current system of the world is called globalization and its key characteristics include integration, inclusion, and interconnectedness among nation-states as well as other important actors. Friedman emphasizes that the globalization system functions primarily through three balances of power. One of these balances pertaining to the global economy is that between global markets and nation-states. Inclusion of global markets as key actors of the international geopolitical, social, and economic arena signifies a quality change in the role of global economy. In fact, Friedman claims that global markets, one of the constituents of which is the so-called “Electronic Herd” consisting of global financial centers called “Supermarkets” and investors, “can have a huge impact on nation-states today, even to the point of triggering the downfall of governments”. During the past two decades, the world has witnessed an immense power wielded by global markets, for instance, during the last economic crisis and subsequent recession, which started in the USA with the housing bubble and engulfed the entire world. Nonetheless, the USA is no longer the only superpower in the world, which was the case immediately after the fall of the Soviet Union, and as Huntington, the landmark researcher of globalization and its potential impacts, points out, the power of the USA has been recently challenged by new global actors with China being among the most powerful.

China has become very powerful in the contemporary globalized world thanks to its rapid economic development and growing role in the global economy. In fact, a chief economist of the World Bank Justin Yifu Lin believes and provides convincing evidence that “there has already been a dramatic shift in the geographic centre of the global economy”. He also calls China “a leading dragon” in the domain of the world economy and asserts that this country has been one of the primary driving forces of growth in the world. Lin provides statistics to prove his viewpoint. For instance, as of 2011, China was the second largest economy in the world after the USA and “the largest exporter of goods with 9.6% share of the global market”. In this respect, it far exceeded the USA, Germany, and Japan. Moreover, Chinese foreign reserves exceeded $3 million and were the largest in the whole world. China has been growing at an astounding pace of 10% per annum for more than three decades, which allowed calling the country a true economic miracle. For instance, China managed to double income of the country during 8 years in the late 1980s – early 1990s, while it took the USA 47 years in the mid-19th century to do the same. This pace has never been achieved in the world even in highly developed countries and there is a forecast that China can sustain its further development at the rate of above 7% per annum for at least two decades. Thanks to such rapid growth, China superseded the USA as the largest economy in purchasing power parity terms in 2014 and is forecast to overtake the USA in terms of market exchange rate in 2028. This way, the current role of China in the global economy is undisputed.

However, the future of the global economy in general and the role of China are forecast in different ways by different researchers. For instance, Lin believes that “The gradual emergence of the Chinese Renminbi as a global reserve currency … is almost inevitable given the growing relative strength of China”. Such emergence would be an official recognition of China as a global economic superpower. In turn, Frankel is more skeptical about further economic growth of China even though he recognizes its recent significant achievements. Thus, he believes that China’s GDP and trade will continue slowing down, which has been happening since 2008, until they reach rates that will be sustainable in the long-term perspective. Respectively, “Global trade will continue to grow” in this “new normal” along with other indicators of the global economy”. Hawksworth and Chan suppose that the global economy will have changed completely in terms of key players by 2050. It will be growing at an average rate of 3% per annum till 2050 and it will have doubled and then tripled in size by 2037 and 2050 respectively. By 2050, the key players of global economy will no longer include European countries, the USA, and Japan, but will include China, India, Indonesia, Brazil, and Mexico even though the USA will manage to retain the 3rd place in terms of GDP. Growth of China and India is forecast to be remarkable as, for example, China’s GDP will have grown from $17,632 bn as of 2014 to $61,079 bn as of 2050, while India’s GDP will have grown from $7,277 bn to $42,205 bn over the same period. This economic forecast of the global economy development does not comply with a wide-spread view that economic globalization makes “the rich richer while making the non-rich poorer”. On the contrary, economic globalization will change the face of global economy by introducing new key players.

Withal, the global economy has been rapidly changing and evolving under the influence of globalization. However, its development and growth significantly depend on growth of the largest economies of the world. Since China has been growing economically at an unprecedented pace, it is capable of becoming a global economic leader. Nonetheless, it is yet to be seen whether such forecasts will come true as there are many external factors that can have a profound impact on the global economy.

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