NCPA - National Center for Policy Analysis

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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http://online.wsj.com/article/SB118584709244782989.html

 

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