As you can tell from the word itself, this nature of the economy affects the entire globe. This means you will see its effect on both global and regional markets. The effect is a component of economics which is essentially a social science that relates to how goods and services are produced, distributed and consumed.
When there are restrictions on international trade, the economic stability of any country is hampered. A global economy helps by avoiding such restrictions for the betterment of regional economies. Although the purpose of international trade resembles that of domestic trade, it still defers in these two main ways:
- Currencies are different, and so they have to go through an exchange before goods and services can be purchased.
- Different countries can impose trade restrictions and embargoes in the exchange of specific goods and services. This consequently affects the relationship between the countries involved.
Most countries may have a resource they produce in abundance, thus reducing their manufacturing costs. Such a resource allows a country to trade with other countries. Thanks to the economics of scale that leads to savings on production costs, manufacturers are encouraged to specialise in producing goods related to a given commodity found in abundance in the country.
When countries trade amongst themselves, the comparative advantage of each nation cannot be ignored. It involves a strong correlation in trade flows that leads to better economic performance and growth. It also leads to positive capital flows, which has a great
impacts on economic growth. Thanks to foreign direct investments, wealth countries register an increase in FDIs and trade, which increases commercial growth rates.
Globalisation affects how regional companies offer services. In the recent overflow of technological solutions, a lot of businesses have had to adjust their company models to suit localisation for different consumer regions. This shows how a global economy can affect how regional companies carry out their daily transactions.
The most common effect of a global economy is trade interdependence. While every marketplace has a domestic role to play, no country is 100% able to meet all its demands from the resources it produces. Such an interdependence brings countries closer to a balance. If a state is isolated, it is at risk of economic imbalance or decline.