Looking towards the
future, it is not surprising that the world will become much more
interconnected and interdependent, formally refereed to as the term
globalization. Through analyzation of the economics power shift/ spread and its
effects on financial markets, we plan to educate the class on a glimpse of what
the future could possibly look like.
According to John
Walley of the University of Western Ontario, the three measures that can be
used to define economic power are retaliatory power, bargaining power, and soft
consideration power. Retaliatory is the act of using the relative size of a
countries economy to determine how much it can unilaterally affect other
countries. Bargaining power is the willingness of countries or groups of
countries to cooperate in international negotiations or joint agreed
arrangements. Soft Power is the use of persuasive and philosophical engagement
to convince another country to do as one pleases in the greater good of both
countries.
The global switch we
plan to analyze is the power spread that is bound to happen from OECD member
nations to non-OECD member nations. The OECD is The Organization of Economic
Cooperation and Development. They promote economic growth prosperity and
development throughout world and consist of 34 democracies, including the US,
Australia, South Korea, and various European nations. Non- OECD nations consist
of many emerging economies like China, Brazil, India and South Africa.
Currently OECD nations consist of approximately 58% of the world GDP, between
now and 2060 majority of the world GDP will be held by non- OECD nations at
57%. The former President of the World Bank, James Wolfensohn, has projected
that by 2060 China and India will be 46% of the world GDP, the G20 will
possibly remain the new G8, the world wide middle class shall grow by 2 billion
of which 1.5 billion shall be in Asia, and per capita incomes should rise world
wide to $20000-3000 in Africa, $30000-40000 in China, and $900000-100000 in US/
richer nations. Also the Global Income Distribution will change from 80%/20% in
favor of the developed world to 65%/35% in favor of the developing world.
This relationship
between the developed and emerging economies of the world will have a huge toll
on international financial markets. There are many positive and negative
attributes associated with international financial markets.
According to
Schmukler who is a senior economist in the research group in the world bank,
with the huge dynamic economic shift that is taking place over the next half
century, all power will most likely not shift from country to another but
create much more interdependence in the world . In order for us tall to grow
and prosper, this will lead to integrated financial systems that involve
developed and emerging markets. International financial integration is likely
not to back scale because of the increased dependents on trade between
countries. The interconnection of global financial markets in developing and
developed countries has its benefits and risks. Developing world benefits can
be seen by the development of their financial markets due to the demand for
stable and better regulations by foreign investors and by upgrading the
financial infrastructure which will lead to decreasing information asymmetry.
On the developed countries side, there will be more diversity for investment
and more opportunities to increase returns out of investments in profitable
emerging markets. On the other hand, the interconnection of global financial
markets has its risks. Developing countries will be more vulnerable and highly
affected by financial crisis in other parts of the world. Also, if the local
financial infrastructure in not strong before engaging in international
markets, it will cripple out due to the lack of regulation. On the other side,
developed countries risks will show up by the vulnerability to suffer from the
consequences of negative activities in other financial markets and political
effects on domestic business in foreign countries.
Sources:
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