THE BEST ECONOMY EVER
July 31, 2007
The world economy is currently experiencing a level of growth unsurpassed in human history. World growth has been running at close to 5 percent for over three years -- the highest level since the late 1960s. Three major factors help explain the current buoyancy of the world economy, says David Hale, chairman of Hale Advisers, a Chicago-based economic consultancy.
First, the globalization process resulting from the end of the Cold War has encouraged a tremendous growth of world trade:
- Between 1990 and 2006, global imports more than tripled, rising to over $11.6 trillion from $3.5 trillion.
- The expansion of world trade has helped to increase competition and reduce inflation.
Secondly, in many countries the globalization process has encouraged a large increase in the profit share of gross domestic product (GDP):
- As a result of the competitive pressures in the world economy, corporations in North America, Europe, and Japan have been striving to maximize productivity while restraining wages.
- The large rise in profits has encouraged major stock-market rallies everywhere since 2002; high profits help to bolster investment and improve productivity growth.
The third factor is the increased mobility of capital:
- Practically all countries had capital controls 25 years ago; most of those controls are now gone, while there has been a revolution in communications technology which has vastly reduced the cost of transferring money across national borders.
- Financial markets have therefore blossomed in dozens of countries; the stock market capitalization of developing countries has expanded from only a few trillion dollars 10 years ago to $15.7 trillion today -- or 26.5 percent of the global total.
- The gross value of global capital flows is now equal to 16 percent of world GDP, compared to 3 percent - 6 percent during the mid-1990s.
Source: David Hale, "The Best Economy Ever," Wall Street Journal, July 31, 2007.
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