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The balance of world output is tipping. Workforces and technologies are fast-growing in developing regions – they’re producing more economic activity and garnering more attention from international investors.
That increasing global economic output can help meet the demand of a growing population and an increasing global middle class.
In this post in our series on global megatrends, we’ll look at how the international balance of power is shifting (and why) and what that means for politics, economies, and technology.
Here are six things about how the world’s economies are shifting and what you need to know about them
1. Varying rates of growth
Countries around the globe are capable of different rates of economic growth. Developing regions like East Asia and the Pacific may experience unprecedented increases in economic growth. That means that in much shorter time frames that we’ve ever seen before, they may be capable to transition their economies to be high-yielding and technologically advanced.
Remember the story of the tortoise and the hare? From a global economic perspective, the developed regions like the EU are crawling around at a tortoise’s pace while the developing regions of the world are zipping ahead at an unprecedented pace. That doesn’t mean that developed regions are losing economic might. They’re still growing, only slower.
In addition, in times of global recession, the stagnation of economies affects one country differently than the next. Due to the different structures and different levels of reliance on one country’s economy on another, growth in one region may be modest while rapid expansion occurs in other regions.
Only time will tell what impact the global economic stagnation resulting from the COVID-19 pandemic may have on the balance of economic activity around the world.
2. Competitive advantages
Some countries are better at producing some types of goods than others. For instance, many emerging economies have a substantial supply of labour. They may excel at producing low-skilled and labour-intensive goods such as simple manufactured items.
That competitive advantage makes it difficult for developed nations to compete. On the other hand, many developed nations prefer to utilise their highly skilled workforces to produce high-skill goods.
Both effects can impact how resources and manufacturing is distributed around the world.
3. Trade politics
Trends in the past half-century suggest that trade borders are opening up. Countries are sharing and trading their resources now more than ever before. When markets open up around the world, the structure of trade and economic relationships can change drastically.
As borders open up, some countries can export goods and services that it can produce cheaply, thereby growing its economic activity.
Another effect that politics has on trade relationships is that trading, in general, is getting cheaper as a whole. Governments commonly try to protect their national economies by imposing trade barriers such as tariffs on foreign goods.
However, the world has witnessed a loosening of these principles. The World Bank estimates that the average level of tariffs on manufactured goods fell by 93 percent between 1948 and 2009.
4. Investment patterns
Foreign direct investment (FDI) can radically change the economic landscape of a country. FDI happens when one company actively owns productive assets in a different country and is directly involved with day-to-day operations in a foreign country.
Why is FDI important? Unlike simply investing financial resources around the world, FDI normally encourages the transfer of business practices, technology, and knowledge across the globe.
5. Demographic changes
As the global population grows and migrates around the world, economic opportunities shift along with them. Labour forces are crucial to attract investment and encourage economic activity in any region.
You can read more about the population growth megatrend here. Birth rates are staying steady or are on the decline in developed countries. That means that future labour forces are expected to decline as the existing population gets older.
Because of its effects on future labour supplies, the birth rates, age, and migration patterns of a given population has a huge impact on how a country may be able to grow.
6. International relations
New transportation technologies and efficiencies have created an increasingly accessible world. That means that resources have a greater chance of being shared and traded among countries.
One issue, however, is that resources are scarce. That scarcity can increase tensions, cause geopolitical instability, and potentially even escalate to military conflict when nations disagree over ownership of natural or economic resources.
If you’re looking for an example of how economic resources can cause political tension, look no further than the history of oil-based conflict. Research suggests that oil has been the leading cause of war around the world since 1973.
What does a multipolar world mean for us?
As trends emerge and economic power shifts around the world, you may not necessarily notice a difference in your everyday purchasing habits.
Grocery stores will still be stocked and you’ll still be able to purchase cars, computers, building supplies, and virtually any other product that you normally would. If anything, you may enjoy greater access to goods and services because of increased production habits around the world.
The difference is that the origin of those goods may change. You may see more stories on the news of new international tensions as countries vie for competing resources.
A multipolar world has a greater impact on how global structures like politics and trade relationships interact with one another.
To use a simple example, as more players enter a game, the harder it is to referee everyone. With so many players, it’s important that we understand the trends and create systems that protect what’s most vulnerable in the world – ecological life and the environment.
Looking for more about global megatrends? Why not continue our series by checking out our next post about the increasing global competition for resources.