The best economy ever

The world economy is currently experiencing a level of growth unsurpassed in human history. World growth has been running at close to 5 per cent for over three years – the highest level since the late 1960s. Three major factors help explain the current buoyancy of the world economy, says David Hale, chairman of Hale Advisers, a Chicago-based economic consultancy.

First, the globalisation process resulting from the end of the Cold War has encouraged a tremendous growth of world trade:

  • Between 1990 and 2006, global imports more than tripled, rising to over $11.6 trillion from $3.5 trillion.

  • The expansion of world trade has helped to increase competition and reduce inflation.

    Secondly, in many countries the globalisation process has encouraged a large increase in the profit share of gross domestic product (GDP):

  • As a result of the competitive pressures in the world economy, corporations in North America, Europe, and Japan have been striving to maximise productivity while restraining wages.

  • The large rise in profits has encouraged major stock-market rallies everywhere since 2002; high profits help to bolster investment and improve productivity growth.

    The third factor is the increased mobility of capital:

  • Practically all countries had capital controls 25 years ago; most of those controls are now gone, while there has been a revolution in communications technology which has vastly reduced the cost of transferring money across national borders.

  • Financial markets have therefore blossomed in dozens of countries; the stock market capitalisation of developing countries has expanded from only a few trillion dollars 10 years ago to $15.7 trillion today – or 26.5 per cent of the global total.

  • The gross value of global capital flows is now equal to 16 per cent of world GDP, compared to 3 per cent to 6 per cent during the mid-1990s.

    Source: David Hale, The Best Economy Ever, Wall Street Journal, July 31, 2007.

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    For more on Trade Issues:

    FMF Policy Bulletin/ 07 August 2007
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