13.+Causes+of+inequality+in+the+global+economy

13. Causes of inequality in the global economy


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Developing countries (developing economies) conditions:
 * widespread political corruption
 * weak institutions
 * low level of skills development
 * high population growth

Global Factors: Global factors that reinforce global inequalities include:
 * 1) Wealthy countries protection of agriculture. "Total agricultural support to producers in OECD economies was $ US 265 billion in 2008, provoking over 20% of incomes of rich farmers in economies including Korea, Japan and the EU.
 * 2) Expanding regional trading blocs- The exclusion from global trading blocs leading to further entrentchment.
 * 3) Doha Round (Development round)-trade reforms to benifits developing nations. However, it has achieved minimal adancment.
 * 4) WTO's procedures tilt the benifits of the global trade system towards richer countries and entrench poorer countries.

By Angelo, Mary and Prathik Global Financial Architecture Even though the deregulated Global Financial System is intended to create progress opportunities by allowing the free flow of funds, it has also entrenched global inequality: · Long-term international flows of investment heavily favour developed countries, with high-income economies receiving around 2/3 of FDI inflows in 2007. · Short-term inflows heavily favour ‘emerging markets’ of the developing world, and can cause domestic “economic volatility” that can set economic development back decades as depicted within the east Asian crisis. · The IMF faces a scrutiny for its ‘structural adjustment’ policies, which serve the interest of rich nations, and may not be appropriate to the conditions of developing economies. · As a result of greater access to foreign financial markets, many developing countries have massive foreign debt burdens ($US 1.8 trillion – 2007). Interest repayments on these loans reduce the income available for Governments to promote growth and development with.

Global Aid and Assistance Limited efforts made by developed countries to address the problem of global inequality also continue to entrench differences in living standards: By Sarah and Franco
 * The total annual development aid provided by rich nations is relatively small—0.26% of GWP.
 * It is argued that a considerable proportion of official development assistance is ‘phantom aid’—aid funds which do not go to improving the lives of the poor and it is estimated that only 30% of aid is ‘real aid’.
 * The allocation of assistance by developed economies often echoes political and military considerations rather than going to the poorest nations.

institutional factors

political instability, corruption and lack of law => decrease confidence of investors => investors unwilling to take risks => decrease financial flows and integration

Corruption Perception Index by Transparency International - is a score between 0 (high level of corruption) to 10 (low level of corruption)

Asian Countires have outward focused export led policies, financial market liberalisation and acceptance of TNC's => intense annual gorwth in Asia (7.5% over past 2 decades) gave way to its title as the production plant of the global economy

Asian financial crisis (late 1990s) - showed impact of financial integration

Latin American gov. => have inward focused import substitution until 1990s although between 1960s - 1970's this encouraged rapid industrialisation. This industrialisation was funded by foreign investors => increase in foreign debt & inefficent domestic maufacturing firms who cannot compete in international markets

Past 25 years to 2010- Latin America average annual growth in exports 7.5% where as Asia had 11.3%

Latin America's annual growth rate 4.7% (in past two decades). Annual growth increased as they have opened financial markets and kept high barriers to trade in goods and services.

GOVERNMENT RESPONSES GLOBALISATION policies in trade, financial flows and participation in regional and global economic organisation influemce's economies abillity to take advantage og intergration (restructuring, efficency, access to capital, technology and oversease goods and services)

by Andrea B and Rebecca H :)