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Economic & Financial flows in a Globalised world (Important concepts,…

- - - - tracks transactions between people, firms, government bodies - by country and globally - during a specific time period
    - - current account
        
        registers
        
        imports/ exports
        
        income & transfers of money internationally by people
      - capital account
        
        international capital transfers
      - financial account
        
        records
        
        financial inflows
        
        non-residential claims or liabilities
        
        financial assets
        
        direct investments
        
        portfolio investments
        
        reserve assets
        
        currencies, commodities, financial capital held by monetary authorities e.g. central banks
    - - surplus/ deficits recorded at account level
        
        helps to understand comparative position of a country
        
        e.g. a country which has current a/c deficit = high borrowing to purchase goods/ services to produce outside the country
      - global imbalances between countries can be a result of relationships
        
        definition of a global imbalance - large & persistent deficits/ surpluses in the current, capital, financial accounts (Ref: Euro Commission 2016)
        
        consequences may be - systemic problems incl. risk of disruptive adjustments, pose a threat to stability of the global economy (Ref: Euro commission, 2016)
        
        goal of the policy = maintain current & capital a/c at sustainable levels
        
        adjustments (Stretton, 1999)
        
        market forces
        
        government actions e.g. influencing exchange rates
    - - deficits vs surplus
        
        countries with a current a/c surplus export more than they import
        
        their money income & transfers from abroad exceed what they pay out
        
        more surplus countries oblige deficit countries to borrow
        
        surplus countries not spending on goods/ services freezes or reduces aggregate demand with negative effects on the economy
      - imbalances should be limited in time as they can significantly damage the some countries' economies
        
        specifically the deficit countries
      - imbalances can impact the circulation of money with negative effects on the economic growth
  - - - investments by companies to establish plants & offices in other countries
        
        purpose
        
        produce products/ services globally
    - - multinationals
        
        definition
        
        operates in two different countries
        
        important to global economy
        
        role - controversial e.g. 500 largest multinationals responsible for 25% of world production & 50% of world trade (ref: Guillen & Ontiveros 2012)
        
        objective of FDIs
        
        secure operational control (this is not share investments)
    - - if GDP = high, even a high value of FDI inflow = relatively low proportion of FDI to GDP