By Professor ZuhaiTian
1
Resume of Professor Tian,Zuhai
• [Link] Tian
• [Link] Zhongnan University of Economics
• Main Research Fields ：
• International Trade，Government Regulation and
• Corporate Management ，Logistics Economy
• Social Part-time Job:
• 1)Director of Wuhan Tianyu Information Industry Co., Ltd.
• 2)Visiting professor at Chicago University(the USA)
• 3)Part-time professor at Wuhan light industry University
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Contemporary World Economy
[Link] World Economy and Its Development
[Link] of World Economic Development
[Link] Era
[Link] Economic Integration
[Link] of Trade –Forerunner of Economic Globalization
[Link] Globalization
[Link] to the Sustainable Development of the World Economy
[Link] Collaboration and Coordination
[Link] in the Globalized World Economy
[Link]`s Economic Reform and its Integration into the
World Economy
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Chapter One
Contemporary World Economy and
Its Development
4
• Why should we study the world economy?
• How important is the environment for the sustainable
economic development?
• How important are the natural resources for the econ
omic development?
• What does the historical review of the world tell us?
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Content
1.1
Fundamental Elements of the
Contemporary World Economy
1.2
Historical Review of the World
Economy
6
The second half of the century following the end of the World War II has
witnessed the unprecedented social and economic progress in the history of
the world economy. When we ushered in the 21st century, the world
economy had developed into a new stage characterized by higher leveled
economic globalization and regional integration, a much fuller integration
of the economies of the worldwide system of states and a much greater
interdependence of individual places and regions from every part of the
world-system. Then what has happened in the contemporary history of the
world economy? How have the economic bodies of countries and regions
participated in the process of world economic globalization? What impacts
the development of globalization has left on the world economic
development? To answer all these and other questions, it is highly
necessary to study the factors that accelerated and enhanced the trend of
globalization, to reveal the essences of the changes and to foresee the future
trend of development. The following parts of the text will contribute to the
topics. Chapter One first defines the world economy, then briefs the subjects
of the course and its system or structure, and finially draws a sketch of the
historic development of the world economy, or the economic globalization
process.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.1 The definition of the World Economy
1.1.2 The Subject Theme of the World Economy
1.1.3 The Three Elements of the World Economy
1.1.4 The World Economic System
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.1 The definition of the World Economy
An economic development system going beyond the nation-state boundry, in
which all national economies are integrated into an interdependent body
through international division of labor, world market, internationalized
exchange tools and free movement of production factors in the
globalization era.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.2 The Subject Theme of the World Economy
（1）The development of the World Economic Globalization
1)Against the background of the economic globalization, there have been great
changes in the field of the world economy
2)The process of the economic globalization, its features and impacts, and
regional economic integration, its attributes and implication will be the fo
. The spirit of economic globalization is the central theme linking all parts of
the course. cus of the contemporary world economy.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.2 The Subject Theme of the World Economy
（2）Economic Linkages of National Economies
The formation of the world economy is not a simple process of adding up all
national economies together, but rather a long historical and systematic process of
development. the studies on the connecting factors contributing to the formation of
the world economy are condusive to the understanding of the world economy and
the development of the economic globalization. Those factors include international
division of labor, the world market, internationalized exchange tools and
international movement of production factors.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.2 The Subject Theme of the World Economy
（3）National Economies
The national economies are the fundamental segments of the world economy. Every
Economy, especially a large economy, has something distinctive in its economic
development and system, which contributes more or less to the ongoing of the world
economy.
The course of world economy will concentrate on those commonalities of a group of
countries and regions ,their relation with the world economy and the relation
between different groups, such as the developed countries, developing
corntries ,newly industrialized countries and countries in the economic transition.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.2 The Subject Theme of the World Economy
（4）Problems and Challenges
In the process of the world economic developmenet, there have been all sorts of
formidable problems undermining the healthy development of the world economy.
In today's world, the environmental problems, poverty, fatal pandemic diseases,
deserfication etc. have been the major threat to the people of all nations.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.3 The Three Elements of the World Economy
（1）People
1)People are the controlling force of the world economy. The reason why people can
take the controlling position in the world economy is largely attributed to its dual
features: one is the people as a basic production factor and other is the people as
the consumer.
2)Human being's increasing desire for better life drives it to work harder and has
become the most dynamic force behind the economic development. Thus the
development of the world economy is hand in hand with the growing number of the
human population.
The sustainability of the economic development depends on the balance between the
growing size of the population ,ecological environment and the natural resources.
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1.1 Fundamental Elements of the Contemporary World
Economy
Table 1.1 World Population Estimates by Continents (2005) A country whose population increases at 1.8%
per year will have doubled in about 40 years.
Continent
Numbwer of Inhabitants
% of Total Population
Currently it is simply a matter of 4-decade time
(million) for the worldpopulation to increase by two folds
(see table 1.1).Together with the increase of
Africa 885 13.8 human population, the world economy has kept
growing rapidly in terms of speed and total
Asia 3,875 60.6 volum.
Oceania 30 0.5
Europe 728 11.4
North Americ
326 5.1
a
Latin Americ
a & Caribbea 549 8.6
n
Total 6,393 100
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.3 The Three Elements of the World Economy
（2）Natural Resources
1)Natural resources are the basic material supplies for production, which can be
divided into renewable and non-renewable resources, including land, water, oil,
minerals, and species.
2)The uneven distribution of natural resources because of geographical differences
explains one reason for international division of labor, and thus the production and
trading patterns.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.3 The Three Elements of the World Economy
（2）Natural Resources
3)The endowment and controlling ability of natural resources have a lot to do with the
level of the economic development of a country.
4)The possession of natural resources is indispensable for economic development, but
it has become less important because with the development of the world
economy,other resources, such as capital, management expertise, technology, and
information have become fundamental production factors for most of countries.
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1.1 Fundamental Elements of the Contemporary World
Economy
Many countries have a much narrow resource base and
must rely on the exploitation of one major resource as a
means to economic development. Zambia, the world's
fifth-largest producer of copper, earns over 90% of its
export revenues from its state-owned copper mines
(see table 1.2).
Table 1.2 Commodity Dependency of Selected African Countries
Primary commodities Principal non-fuel mineral
as % of total export s as % of total export earn
earnings ings
Mauritania 99.9 Iron ore(45)
Namibia 95 Diamonds(40)
Niger 97.9 Uranium(85)
Sierra Leone 63.2 Diamonds(32)
Togo 83.3 Phosphates(47)
Demecratic Repu
blic of the Congo 68.7 Copper(58)
Zambia 99.7 Copper(98)
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1.1 Fundamental Elements of the Contemporary World
Economy
Table 1.3 World Energy Resources: Laargest Reserves oF Coal, Crude Petrolem, and Natural Gas(1998
)
Coal Reserves (Millions Crude Petroleum Reserves (millions Natural Gas Reserves(trillions of cubic
of metric tons) of barrels) meters)
Russia 241,000 Saudi Arabia 261,500Russia 48,334
United States 240,558 Russia 155,146 Iran 21,000
China 114,500 Iraq 112,000 Qatar 7,079
Australia 90,940 Kuwait 96,500 Ukraine 5,686
India 69,947 United Arab Emirates 93,800 Saudi Arabia 5,355
Germany 67,300 Iran 93,000 United States 4,670
South Africa 55,333 Venezuela 64,878 Venezuela 4,010
Poland 42,100 Mexico 48,796 Algeria 3,690
Indonesia 32,063 Libya 29,500 Iraq 3,341
Kazakhsta 25,000 China 24,000 Nigeria 2,965
Some countries,like the United States are fortune in having a broad resource base of energy, minerals, and
cultivable land, which allows for many options in economic development, for example, because of its rich
land resources, grain is a major product and importing and exporting goods of the country. Russia is rich in
coal, crude petrolem and natural gas reserves but poor in tropical agricultural products. Therefore its trade
pattern is exportation of petroleum and importation of tropical products(see table 1.3).
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.3 The Three Elements of the World Economy
（3）Ecological Environment
1)people's relationship with environment
human economic activities depend on environmental supporting system, which
provides all necessary input for production, resources for men's survival and direct
utilities for everyone on earth. The continuity of all economic activities relies highly
on the natural environment and the natural resources.
2)factors affecting the environment
[Link] activities have great impact on the eco-environment.
[Link] world's forests play an important role in the global system.
[Link] emissions affect various elements of the natural and the built environment.
[Link] most central pollutant involved in global climate change is CO2.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.4 The World Economic System
What is the world economic system?
（1）Two definitions
1)According to Chi Yuan-ji, professor from Jilin University, the world economy system
is an economic relationship and balancing status of countries based on their
economic power and mutual restraining abilities. Within the world economic
system, a country or a country group acts as the core of the world economy or
"head of the train".
2)The representative view of the western countries on the world system is the historican
Immanual Wallerstein. He holds that the world-system is an interdependent system
of countries linked by economic and political competition.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.4 The World Economic System
（2）Four kinds of countries divided by Immanual Wallerstein
1)core regions : those dominate trade, control the most advanced
technologies, and have high levels of productivity within diversified
economies. As a result, they enjoy relatively high per capital incomes.
First ,core regions Is the trading hub of Holland and England. later, western
Europe and in north America, later still, by Japan.
2)Peripheral regions: Regions that have remained economically and
politically unsuccessful throughout this process of incorporation into the
[Link] regions are characterized by dependent and
disadvantageous trading relationships, by primitive or obsolescent
technologies ,and by underdeveloped or narrowly specialized economies
with low levels or productivity.
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1.1 Fundamental Elements of the Contemporary World
Economy
1.1.4 The World Economic System
（2）Four kinds of countries divided by Immanual Wallerstein
3)semi-peripheral regions:In between core regions and peripheral regions are
semi-peripheral regions. Semi-peripheral regions are able to expolit
peripheral regions but are themselves exploited and dominated by core
regions.
4)External arenas: External arenas are regions of the world not yet absorbed
into the modern world-system.
Before 19th century, most of the regions are external , but in late 20th century,
no countries and regions belong to external.
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1.2 Historical Review of the World System
1.2.1 The Exploration Era to 1500
1.2.2 The International Circulation of Goods
1.2.3 The International Outflow of Capital
1.2.4 The International Movement of Production Factors
Click to add Title intenatonal trade
1.2.5 The Globaliztion Era Since 1980
1.2.6 Driving forces of Post-1980 Globalization
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1.2 Historical Review of the World System
1.2.1 The Exploration Era to 1500
Village formation regional markets national markets
allow early divisionss expertise was • regional markets
accumulated in the take shape
of labor to provide production of goods, • road and
goods and services for infrastructures were transportation
built to link system were
community communitiesand developed to link
local markets. major commercial
centers
Click to add Title international trade
• As commerce
extended
throughtout
countries,
merchants began to
look to foreign
markets for trading
opportunities.
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1.2 Historical Review of the World System
1.2.1 The International Circulation of Goods
The " great geographical dicovery" on the new land and establishment of regular
trading routes prospered intercontinental trade. the trading center of the world was
shifted from the Mediterranean to the Pacific, and more countries and regions were
brought into the network of the world market by trading. International trade
therefore had served as the first linkage aomong nations. Forgein influences were
manified through diffusion catalyst: ideas, philosophies, and technical innovations
that increased the speed, efficiency, and effectiveness of the movements of ideas and
goods between and within nations.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.2 The International Circulation of Goods
（1）The development of Mega Languages
For ideas and technologies to travel, there had to be common means of
communication between markets. In early times, these included Latin and
Mandarin Chinese. In latter years, the use of English and languages facilated the
transfer of ideas and technologies among countries.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.2 The International Circulation of Goods
(2) Writing and Printing Technologies
The writing and printing technologies extended the spread of knowledge beyond
personal experiences and oral transmissions. "Potted" knowledge in the form of
books brought about a broading of individual knowledge bases. Formal education
systems emphasizing literacy and technical skills led to a wider dissemination of
skills via schools, guilds, and universities. Knowledge became increasingly mobile
and transferable.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.2 The International Circulation of Goods
(3) Transportation Innovations
The system engine revolutionized industry and travel with its appilication to
factories(1781), ships(1783), rail(1803-1829), and buses(1824). The steam engine
brought international markets closer together and provided access to remote
corners of large national markets. As the colonizing powers took these innovations
to foreign markets, the transportation of goods over wider areas created regional
and national markets for merchandise.
The industrial revolution in England between 1750 and 1830 brought about vast
changes in productive capabilities.
Click to add
With the spread of the industrial revolution fromTitle intenatonal
England to other trade
parts of the
European countries and America, other parts of the world like Asia, Africa and
Latin America were all brought into the chain of the international division of
[Link] a result, a unified world market was established, a landmark for the
formation of the world economy.
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1.2 Historical Review of the World System
1.2.2 The International Circulation of Goods
(4)Unified World Exchange Tool
For international trade to be carried out effectively, a unified world currency is
indispensibal. Britain, the leader of the industrial revolution, first adopted the
system of gold stand. In the half of the following century, all major industrial
countries had all established a fix connection with the gold, and therefore a
relatively stable monetary system with the sterling in the center. The system
faciliated the international trade growth, and made it possible to grow faster than
world production.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.2 The International Circulation of Goods
(5) Retail Establishment
Retails were important diffusion catalysts as the gave the general public access to
new products, services, and ideas and faciliated the acceptance of new lifestyles
and philosophies.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.3 The International Outflow of Capital
Background :By the end of 19 th century ,much of the world had been explo
red and colonized. Advances in communications complemented transport
ation innovation. The advent of the electronic telegraph and telephone h
ad formed a communication network facilitating information flows betwe
en and within national market Supply and Demand mechanisms.
（1）causes
The development of new technology in production, trasportation and
communication increased the efficiency of production and accelerated the presence
of mega-enterprises. With the accumulation of capital in these
Click to add Title companies,
intenatonal capital
trade
outflow from the home countries to host countries seeking for better investment
chances gained momentum. With the capital flow becoming a major trend in the
time, countries in the world had introduced another important linkage among
themselves and pushed the development of the world economy further.
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1.2 Historical Review of the World System
1.2.3 The International Outflow of Capital
（2）Development history
before the Second World War, cross-country capital flow was dominatly in the form
of loans and credits, while direct flow of production factors was of secondary
importance. The Forst World War, the Great Depression of the 1920s and 1930s,
and the Second World War all contributed to a curtailment of international
activities until after 1945.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.4 The International Movement of Production Factors
It was not until the 1950s that corporations began to reassert themselves in
international markets. With the rapid growth of multinational corporations (MNCs)
operating actively in worldwide production, trade and investment activities, the
direct flow of production factors became the dominate phenomenon in the modern
world economy. Multinational corporations have developed great economic
growth. By allocating production resources worldwide, MNCs hace successfully
strengthened the economic ties of all countries from nation-state level further into
enterprise level. The mutual relies and interdependence based on international
division of labor and on the platform of the world market have brought enterprises
of all countries into one body, heading toward the era of economic globalization.
intenatonal trade
Click to add Title
34
1.2 Historical Review of the World System
1.2.5 The Globaliztion Era Since 1980
1980s saw a great step forward in the world economic globalization due to two
major changes: the disintegration of Soviet Union and Eastern block, and the
industrialization of developing markets leading to significant increases in global
commerce. The world economy was basically centered in the industrialized
countries before 1980s because of the fact that the Soviet-led planned economy in
socialist couontries was alienated from market economy, thus isolated from the
world market. The economic reform in the formal planned economy countries
reshaped the economic system in those countries and made it possible for a
completely unified world market for the first time.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.6 Driving forces of Post-1980 Globalization
International Trade Trade blocs
Driving
forces intenatonal trade
Click to add Title
Foreign Direct Investment Technology and Global
(FDI) Media
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1.2 Historical Review of the World System
1.2.6 Driving forces of Post-1980 Globalization
（1）international trade
The world has moved irrevocably toward free trade since 1945 through the efforts
of the General Agreement on Tariffs and Trade (GATT, a United Nations agency)
until 1995, and, since that time, through GATT's replacement, the World Trade
Organization. The results have been dramatic. Since 1945, tariffs have fallen from
an average of over 40 percent for industrial goods to less than 4 percent. World
trade expanded from $2 trillion in 1980 to about $18.15 trillion in 2004. The
expansion of world trade has been aided by the UN's Internatioal Monetary Fund
(IMF), which monitors and coordinates foreign-exchange rate values among
nations and provides aid to countries with
Click to addinternational
Title payment problems.
intenatonal trade
Increasingly efficient air and ocean transportation systems have also aided
international trade expansion.
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1.2 Historical Review of the World System
1.2.6 Driving forces of Post-1980 Globalization
（2）Technology and Global Media
The advent of satelllite, computer, and Internet technologies has transformed
worldwide communications and faciliated information flows between nations,
companies, and individuals. At the nation-state level, it has become increasingly
difficult for countries to isolate their citizens from outside influences, and
consumers worldwide have begun to enjoy the benefits of the international market-
place. Companies now have superior abilities to coordinate activities, products,
and strategies across markets, and individuals have increased access to new ideas,
philosophies, product, and lifestyles.
Click to add Title intenatonal trade
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1.2 Historical Review of the World System
1.2.6 Driving forces of Post-1980 Globalization
（3）Foreign Direct Investment (FDI)
These occur when international companies make investments in factories, plants,
and machinery in non-domestic markets. As firms have increased their
international commitments, FDI has grown from $615 billion in 1980 to over $7.1
trillion in 2002. Nation states, recognizing the economic stimulus FDI provides,
have increasingly worked to make their economies more attractive to international
corporate investors. Throughout history, there have been three major reasons for
international business expansion. In early times (sixteenth through twentieth
centuries), explorers looked for new resources (often gold, silver, mineral,
deposits). Then, as countries began to develop, business people began to regard
distant nations as markets (the colonial era). Finally, as free trade movements took
Click to add Title intenatonal trade
hold after 1945, efficiency-seeking companies looked to overseas markets as
manufacturing sites to lower global costs of doing business. Today all three major
motives (resource-seekers, market-seekers, efficiency-seekers) are reasons why
firms invest abroad.
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1.2 Historical Review of the World System
1.2.6 Driving forces of Post-1980 Globalization
（4）Trade Blocs
For some countries, the worldwide liberalization of trade and commerce
did not occur fast enough, and countries got together to form trade blocs to
faciliate commercial interactions among members. The European
Economic Community (now the European Union) was formed in 1957.
Since then, trade blocs have been formed in North America, South Africa,
Asia, and Africa.
Click to add Title intenatonal trade
40
Chapter Summary
• The contemporary world economy can be defined as an economic
development system going beyond the nation-state boundry, in which all
national economies are integrated into an interdependent body through
international division of labor, world market, internationalized exchange
tools and movement of production factors in the globalization era.
• The contemporary world economy studies the following subjects: the
development of the world economic globalization, the national and
regional economies in the context of globalization, the linkages of the
national economies and the problems and challenges facing all nations in
the globalization era.
• The three basic elements of the world economy are people, natural
resources and ecological environment.
41
Chapter Summary
• The world economic system, according to Chi Yuan-ji, professor from Jilin
University, is an economic relationship and balancing status of countries
based on their economic power and mutual restraining [Link]
representative view of the western countries on the world system is the
historian Immanuel Wallerstein, who proposes four different categories,
core, semi-periphery, periphery, and external, into which all regions of the
world can be places.
• The evolution of world economy and globalization has developed from
national and family economy through five eras: the Exploration Era to
1500, the international circulation of goods, the international outflow of
capital, international outflow of production factors and international
globalization. Throughout history, innovation and technology have been
decisive influences in extending commerce across national boundaries and
diffusing new ideas through world markets.
42